- LMI is protection for your lender, not for you. LMI doesn't cover you if you miss repayments due to illness or job loss. Mortgage protection insurance covers you in these situations.
Lenders mortgage insurance (LMI)
Lenders charge LMI if you have a low deposit. You can avoid LMI by saving a bigger deposit or using a guarantor, and you can even borrow the LMI premium along with your loan.
Lenders mortgage insurance (LMI) can be expensive: If you bought a $600,000 house with a 5% deposit of $30,000 then your LMI premium could cost over $22,000 (based on Finder's LMI estimator).
You can avoid or reduce your LMI costs by saving a larger deposit or using a parental guarantor to cover part of your deposit. Eligible first home buyers can use the First Home Loan Deposit Scheme to avoid LMI completely. And you can also borrow the LMI premium by folding into your loan.
How much is lenders mortgage insurance?
The amount you pay for lenders mortgage insurance depends on the size of your loan and deposit. If you're getting a low deposit home loan, you'll need to estimate your potential LMI costs and factor them into your total home-buying expenses.
LMI premium estimates
Here are some LMI premium estimates made using Finder's LMI calculator. These estimates can give you a quick idea of just how expensive lenders mortgage insurance can be.
|Property value||Deposit ($)||Deposit (%)||Estimated LMI cost*|
*These costs are estimates only, taken from Finder's LMI premium estimate calculator. These numbers do not reflect genuine LMI quotes from an insurer.
Minimise your LMI costs with a larger deposit
As the examples above show, LMI can add thousands of dollars to the cost of buying a home. The cost of your property and the size of your deposit determine your LMI costs.
If buying the same property, a borrower with a 15% deposit pays less LMI than a borrower with a 5% deposit.
How do I pay my lenders mortgage insurance premium?
Borrowers usually pay LMI during settlement, when your lender provides the funds for your loan and you take possession of the property. This means you can pay your lenders mortgage insurance in a lump sum up front.
But there is another option: You can capitalise the premium, which means you add the premium to your loan. For this to happen, you'll need to borrow your LMI costs along with your loan amount, so that you're paying it off over time.
How does LMI capitalisation work?
- You buy an $800,000 property with a 10% deposit.
- You borrow $720,000.
- Your LMI premium is around $17,000.
- You capitalise the premium into your loan and borrow $737,000.
- Your loan interest rate is 5.50% and your loan term is 30 years.
- Your loan with your LMI premium included adds an extra $96 a month to your home loan repayments.
How to avoid LMI
There are ways to avoid paying LMI, or at least to minimise how much it costs you:
- Use the First Home Guarantee. If you are a first home buyer, the First Home Guarantee may allow you to buy a property with a 5% deposit without paying lenders mortgage insurance. Eligibility for this government scheme depends on where you are buying, your income and the value of the property you are buying.
- Leverage your employment. Some lenders offer LMI waivers to high earners in specific professions even if they don't have 20% deposits. This includes doctors and other medical professionals, accountants, actuaries and solicitors.
- Keep your loan-to-value ratio (LVR) below 80%. If you have a 20% deposit (which is an LVR of 80%), you don't have to pay LMI.
- Take out a family guarantee. A family guarantee or family pledge is when one of your family members guarantees part of your loan with their own property. This way you can borrow money with a low deposit and avoid LMI.
How to reduce the cost of LMI
If you can't avoid LMI completely you can still reduce your costs by:
- Increasing your deposit size. Even if it still comes with LMI, a 15% deposit means a smaller LMI premium than a 5% deposit.
- Buying a cheaper property. Reducing your budget means you can get a bigger deposit relative to the cost of the property.
- Use a first home owners grant to boost your deposit. If eligible, a first home owner grant can form part of your deposit.
LMI pros and cons
- LMI lets you enter the market faster without spending years saving a big deposit.
- When property prices are rising, entering the market earlier can make buying with LMI cheaper in the long run.
- You can borrow your LMI costs along with your loan, eliminating it as an upfront cost.
- LMI is an extra home buying cost that can add thousands or tens of thousands of dollars on top of the purchase price.
- Buying with a small deposit means borrowing more money. This means paying more in interest charges.
Can I get a refund on my premiums?
If you're exiting your home loan and have repaid it within 2 years of settlement, it might be possible to get a partial refund, depending on your lender. This option was more common prior to LMI changes in 2012, and it may no longer be possible.
However, it's always worth asking the question as your lender or mortgage insurer may have a unique policy that allows a partial refund.
Many lenders handle LMI with their own insurance products. These have different names depending on the lender. Many other lenders rely on 1 of 2 large lenders mortage insurers: Helia and QBE.
More questions about lenders mortgage insurance
Compare low deposit home loans
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Once you’ve entered your details, an Aussie broker will be in touch to start supporting you on your home loan journey.
- Our panel of 25+ lenders will allow you to compare 100’s of rates
- Get access to free suburb and property reports
- Have expert guidance through the entire application process.
An expert leader in mortgage brokering
More guides on Finder
Can I use a personal loan for a house deposit?
Find out if it’s possible to avoid one of the most expensive upfront costs of a home loan with a personal loan.
Find the right home loan now
Sign up for our FREE 8-week course to get on the property ladder.
Ask an Expert