Lenders Mortgage Insurance (LMI): How to Avoid It Completely
Lenders Mortgage Insurance (LMI) is an expensive added cost for borrowers with deposits under 20%. It protects the lender, not you. This calculator estimates your LMI premium based on loan size and LVR. Learn how to avoid it entirely and save tens of thousands.
FAQ
Q1: What is Lenders Mortgage Insurance (LMI)?
LMI is an insurance policy that protects the lender if you default on your home loan. It's required when your loan-to-value ratio (LVR) exceeds 80% (i.e., deposit < 20%). The premium is usually a one-time upfront cost ranging from $2,000 to $50,000+ depending on loan size and LVR. Many borrowers are shocked to learn they need to pay this.
Q2: How can I avoid paying LMI entirely?
The simplest way: save a 20% deposit or more to get your LVR to 80% or lower. Other strategies: Use a family guarantor (their property secures part of your loan, allowing you to borrow with lower LVR, but they take on risk). Some lenders offer LMI waivers for certain professions (doctors, lawyers, engineers) with high incomes. First home buyers may access first home loan deposit schemes (government guarantees) that avoid LMI for eligible applicants. Also, consider buying a cheaper property to reach 20% deposit.
Q3: Can I add LMI to my home loan?
Yes, most lenders allow you to capitalize the LMI premium, meaning it's added to your loan balance. You then pay interest on that larger amount over the life of the loan. This helps with upfront cash flow but costs more long-term. Compare: paying $10,000 upfront vs adding $10,000 to the loan and paying interest for 30 years at 6% = ~$22,000 total. So if you can afford to pay upfront, it's cheaper.
Q4: Does LMI apply to investment properties?
Yes, but LMI rates for investment loans are typically higher than for owner-occupier loans (by 0.5-1% of loan amount). Some lenders require lower LVR thresholds for investment properties (e.g., 90% max vs 95% for owner-occupier). Expect to pay more LMI if buying an investment property with less than 20% deposit.
Tip: LMI premiums are often tiered. A small increase in deposit (e.g., from 92% LVR to 90% LVR) can dramatically reduce the premium. Use this calculator to find the sweet spot.