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The Finance Brokers Association of Australia (FBAA) has called for mortgage insurance to be “overhauled”.
According to FBAA president Peter White, consumers are paying tens of thousands of dollars more than they should on their mortgages because of a system that favours the insurers and banks.
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“Many homeowners don’t understand the insurance and, until recently, banks didn’t even have to disclose the details,” he said.
“Thanks to the FBAA’s efforts, LMI (lender's mortgage insurance) now needs to be disclosed, but this is just the start.”
The biggest problem was a lack of portability, meaning that each time a borrower changes lender, they pay a new LMI premium.
“There are only basically two overall mortgage insurers, so in many instances, consumers are paying the same insurer twice for the same loan amount on the same property. It’s wrong!”
Even more distressing to homeowners, a refund of mortgage insurance is available during the first 18 months, yet rarely has anyone claimed the refund because there has been no disclosure statement issued in the past.
“The insurers don’t offer to refund unless the client asks, but clients didn’t know to ask because the insurer has never been obligated to disclose that a refund was available. It’s ludicrous,” Mr White said, adding that these problems would be addressed iif LMI was transportable.
“Consumers should have the right to transfer it from loan to loan and from property to property,” he said.
