Understanding
Lender's Mortgage Insurance
Lender's Mortgage Insurance (LMI) is a one-off insurance premium that protects the lender if you default on your home loan. It's typically required when your deposit is less than 20% of the property's value.
At Supreme Mortgage & Finance, we help borrowers navigate LMI, understand its costs, and explore strategies to avoid or reduce it wherever possible.
Why LMI Matters
Understanding LMI can help you save money and make smarter borrowing decisions:
LMI can add tens of thousands to your loan cost
Not all borrowers need to pay LMI
Several strategies can help you avoid LMI
LMI is non-refundable, so it's worth avoiding
Expert advice can help you minimise LMI
Ways to Manage Your LMI
Explore practical strategies to reduce or avoid LMI costs.
What is LMI and When Does It Apply?
LMI is a one-off premium that protects the lender if you default and the property sale doesn't cover the outstanding loan. It's usually required when your deposit is less than 20% of the property's purchase price (or valuation).
For example, if you buy a $600,000 home with a 10% deposit ($60,000), your loan-to-value ratio (LVR) is 90%, which typically triggers LMI.
How Much Does LMI Cost?
LMI premiums vary based on the loan amount, LVR, and the lender's insurer. Generally, the higher your LVR, the higher the premium.
| Property Price | Deposit | LVR | Estimated LMI Cost |
|---|---|---|---|
| $600,000 | $60,000 (10%) | 90% | ~$12,000 – $15,000 |
| $600,000 | $90,000 (15%) | 85% | ~$6,000 – $8,000 |
LMI is usually added to your loan amount, meaning you pay interest on it over the life of the loan.
Save a Larger Deposit
The most straightforward way to avoid LMI is to save a deposit of at least 20% of the property's value. This reduces your LVR to 80% or less, eliminating the need for LMI.
No LMI required. The extra savings also reduce your overall loan amount and monthly repayments.
Use a Guarantor
A family member (usually a parent) can act as a guarantor by offering their property as additional security. This can help you reach a 20% deposit equivalent without actually having the cash.
Guarantor loans often allow you to borrow up to 100% of the property value without LMI, but it's important to understand the risks involved for the guarantor.
Consider LMI Waiver Programs
Some lenders offer LMI waivers for certain professions, such as doctors, lawyers, or accountants. If you work in a recognised profession, you may be eligible for a waiver even with a higher LVR.
Additionally, some lenders have special offers or discounted LMI for first-home buyers with strong credit profiles.
Pay LMI Upfront Instead of Adding to Loan
If you have extra savings, consider paying the LMI premium upfront rather than capitalising it into your loan. This reduces the total interest you'll pay over time and lowers your monthly repayments.
Check with your lender whether upfront payment is an option and if any discounts apply.
Compare LMI Costs Across Lenders
LMI premiums can vary significantly between lenders and insurers. Some lenders pass on discounts or have lower premium rates for certain LVR brackets.
Working with a mortgage broker can help you compare LMI costs and find the most competitive deal for your situation.
Understand LMI Refund Policies
If you refinance or pay out your loan early, you may be eligible for a partial refund of the LMI premium. Each insurer has different rules, but refunds are typically available within the first few years of the loan.
Ask your lender about the refund policy before refinancing to see if you can recoup some of the cost.
