If you’re planning to borrow more than 80% of your property’s value, you’ll likely need Lenders Mortgage Insurance (LMI).

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Saving for a 20% deposit can be challenging, but an LMI-insured loan can help you enter the property market sooner, even if you haven't saved the full amount.

 

Depending on your Loan-to-Value Ratio (LVR), LMI can range from a few thousand to tens of thousands of dollars. The cost varies based on factors like:

• Whether you're a first-home buyer

• If the property will be owner-occupied or an investment

• Employment status, as some lenders add a risk premium for self-employed borrowers.

 

While LMI can be costly, it can help you secure a property sooner, which is useful if home prices are rising faster than your savings.

 

Frequently Asked Questions about LMI

 

What is Lenders Mortgage Insurance?

LMI protects the lender in case they need to repossess and sell the property at a loss. The insurance premium is usually a one-time fee, often added to the loan and paid over time with your mortgage. LMI providers may check borrowers' repayment ability and may have stricter policies than the lender.

 

If a bank makes an LMI claim, the insurer pays the lender. Importantly, LMI doesn’t reduce the borrower’s loan liability.

 

How Can I Avoid Paying LMI?

Meeting the 20% deposit requirement is the most common way to avoid LMI. This means borrowing only 80% of the property’s value. For first-home buyers, government programs like the First Home Loan Deposit Scheme (FHLDS) provide a government guarantee to reduce or eliminate LMI with as little as a 5% deposit. Single parents may also qualify for the Family Home Guarantee, allowing them to purchase with a 2% deposit.

 

Another way to avoid LMI is by having a family member act as a guarantor.

 

Is LMI Paid Upfront?

LMI is typically added to the loan amount and paid off over time. Adding LMI to the loan (capitalising) increases the amount borrowed, which can raise interest costs and minimum monthly repayments.

 

Can LMI Be Refunded?

LMI is generally a non-refundable, one-time fee. However, there are rare cases where a partial refund may be available, depending on individual policy details. LMI is also non-transferable, meaning you’ll need new coverage if you switch lenders or buy a new home.

 

Which Professions Qualify for LMI Waivers?

LMI waivers may be available for certain high-demand, well-paid professions, such as doctors, dentists, lawyers, and accountants, who are typically considered lower risk. However, lenders usually require these borrowers to have good credit, and waivers may be limited to specific property types and locations.

 

Is LMI the Same as Mortgage Protection Insurance?

No, LMI protects the lender, while Mortgage Protection Insurance protects borrowers against default due to illness, disability, or unemployment. LMI allows borrowers to access the property market with a smaller deposit.

 

Is LMI Tax-Deductible?

For investment properties, LMI premiums and loan establishment fees may be tax-deductible as borrowing expenses. Consult an accountant for specific advice.

 

How is LMI Different from Stamp Duty?

LMI is an insurance cost, while Stamp Duty is a government fee. First-home buyers may qualify for a stamp duty concession, depending on the property’s value and location.

 

How is LMI Calculated?

LMI premiums are calculated based on factors like the loan amount, deposit size, loan type, and borrower’s employment. Some lenders offer lower premiums at specific deposit levels, and an additional small deposit amount could result in a better rate.

 

Is LMI Worthwhile?

In a rising market, paying LMI to secure a property sooner can be advantageous, especially if home prices and rents are increasing quickly or if a rare buying opportunity arises. In such cases, LMI may offer a valuable solution.