What Is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) is insurance that protects the lender (not you) if you default on your home loan and the property is sold for less than the outstanding loan amount. Despite the lender being the beneficiary, the borrower pays the premium.
When Does LMI Apply?
LMI is charged when your deposit is less than 20% of the property's value — i.e. when your LVR (Loan-to-Value Ratio) is above 80%.
How Much Does LMI Cost?
LMI can range from a few thousand to over $30,000 depending on your loan size and LVR:
| Loan Size | LVR 90% | LVR 95% |
|---|---|---|
| $400,000 | ~$7,500 | ~$14,000 |
| $600,000 | ~$11,500 | ~$21,000 |
| $800,000 | ~$15,000 | ~$28,000 |
Approximate figures — actual LMI varies by lender and insurer. LMI is usually capitalised onto the loan, meaning you pay interest on it too.
How to Avoid LMI
1. Save a 20% Deposit
The straightforward (but time-consuming) option.
2. Use the First Home Guarantee
Eligible first home buyers can purchase with a 5% deposit without LMI, as the government guarantees the remaining 15%.
3. Use a Guarantor
A parent or close family member can use the equity in their property to guarantee part of your loan, eliminating the need for LMI.
4. Professional Waiver
Certain professions — doctors, lawyers, accountants, engineers — may qualify for LMI waivers from specific lenders at up to 90% LVR.
5. Lender-Specific Products
Some lenders offer low-deposit loans without LMI for specific borrower profiles. A broker can identify these options.
Is LMI Always Bad?
Not necessarily. If property prices are rising, paying LMI to enter the market earlier can result in more capital growth than waiting to save a larger deposit. It's a trade-off that depends on your market and timeline.