Understanding Lenders Mortgage Insurance (LMI)
What is LMI, when do you need it, and how can you avoid paying it?
What is LMI?
Lenders Mortgage Insurance is a one-off insurance premium that protects the lender (not you) if you default on your loan. It's required when you borrow more than 80% of the property value (i.e., have less than 20% deposit).
How Much Does LMI Cost?
LMI costs depend on your loan amount and LVR (Loan to Value Ratio). Here are typical examples:
| Property Value | Deposit | LVR | Approx LMI |
|---|---|---|---|
| $500,000 | $50,000 (10%) | 90% | $8,000 - $12,000 |
| $500,000 | $25,000 (5%) | 95% | $18,000 - $24,000 |
| $750,000 | $75,000 (10%) | 90% | $14,000 - $20,000 |
| $750,000 | $37,500 (5%) | 95% | $28,000 - $38,000 |
* Estimates only. Actual LMI varies by lender and insurer.
How to Avoid or Reduce LMI
Save a 20% deposit
The simplest way - no LMI if your LVR is 80% or below.
Use a family guarantee
Parents can use their property as additional security, eliminating LMI even with a 5% deposit.
First Home Guarantee
Government scheme allows 5% deposit with no LMI. Limited spots each financial year.
Professional packages
Some lenders waive LMI for doctors, lawyers, accountants, and other professionals.
LMI-free lenders
A few lenders offer no-LMI loans at higher interest rates. We can calculate if this is worthwhile.
Should You Pay LMI or Wait?
Pay LMI and Buy Now
Start building equity sooner
Stop paying rent earlier
Property prices may rise while saving
LMI can be added to your loan
Wait and Save 20%
Avoid LMI cost entirely
Lower monthly repayments
Better interest rates available
More equity from day one
Our view: In many cases, paying LMI to buy sooner makes financial sense, especially in rising markets. The key is to run the numbers for your specific situation.
Key Facts About LMI
LMI protects the lender, not you - you're still liable if you default
LMI is usually a one-off payment, not ongoing
You can add LMI to your loan (capitalise it) instead of paying upfront
LMI is not transferable if you refinance - you may need to pay again
Some lenders have their own mortgage insurance, which may be cheaper