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What is Lenders Mortgage Insurance (LMI) and when would I need it?

Lenders' Mortgage Insurance (LMI) is something you’ll need to pay if you borrow more than 80% of a property’s value (i.e. if you have less than a 20% deposit). The LMI premium is added to your loan amount which means you don’t pay for the insurance up-front. However, it does mean your loan repayments will be higher than if you borrowed a maximum of 80% of a property’s value.

It protects the lender from financial loss if you can’t afford to meet your repayments and default on the loan.

Factors that affect how much LMI will cost you include:

  • The size of the loan - the bigger your loan, the higher the cost of LMI.
  • Your deposit amount - the smaller the deposit, the higher the cost of LMI.
  • The purpose of the loan - investors can pay as much as 20% more for LMI than home buyers.
  • Your employment status - how much you earn and whether you work full time or casual can influence the cost of LMI.
  • The insurer used by your lender - premiums differ between insurers.

LMI can cost you thousands of dollars, so if you want to avoid paying it, the best way is to save at least a 20% deposit before applying for a loan (or 30% for a high-density property).

Is LMI just for first home buyers?

No. If you are considering purchasing another property, the ability to take out LMI may support you in achieving your investment goals sooner. Leveraging LMI can enable you to lower your upfront costs on the deposit so that you can purchase at a time that suits you.

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