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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.

  • 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.

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.

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 valueDeposit ($)Deposit (%)Estimated LMI cost*
$600,000$30,000
$60,000
$90,000
5%
10%
15%
$22,788
$11,772
$5,941
$800,000$40,000
$80,000
$120,000
5%
10%
15%
$34,982
$17,042
$9,064
$1,000,000$50,000
$100,000
$150,000
5%
10%
15%
$43,728
$22,644
$11,959

*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.

Finder survey: Do Australians have a good understanding of what's needed for a home loan before applying?

Response
Yes86.58%
No13.42%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023

Is LMI compulsory?

LMI is a requirement that banks and lenders have when you save a deposit of less than 20%. The purpose of LMI is to reassure your lender that you are a "safe bet". They want you to take out an LMI policy so they feel reassured that, if you stop making repayments and they have to sell the property, they will recover the full value of their loan.

If you have a 10% deposit, and your property has to be sold by your lender in a forced sale, there's a chance the property could sell for around the same amount of your loan or even less. This could leave your lender "out of pocket" in a forced sale situation.

LMI helps to offset this risk to the lender. If they have to sell your property and you only have 5-10% equity, with an LMI policy in place, they know they will recover all of their loan, even if the property sale doesn't cover it. They will get the full value of the loan repaid by claiming on your LMI policy.

LMI is not compulsory, although it is a firm policy of most lenders. Some lenders will choose to "self-insure", and they may charge you a risk fee instead of LMI. You can avoid paying LMI using some of the strategies listed below.

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

Pros

  • 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.

Cons

  • 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.

LMI providers

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.

Helia logo

Helia

Helia (formerly Genworth) is an insurer that has offered services to Australian property owners since 1965. Helia was the first LMI insurer in Australia.

QBE

QBE-logo

QBE provides a range of insurance products across the globe. To consumers in Australia, they provide personal insurance covering your car, home, travels and more. They also handle workers compensation and a range of other related services.

More questions about lenders mortgage insurance

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20 Responses

    Default Gravatar
    PeterJune 7, 2017

    If I make a lump sum to my loan which will bring me under 80%, would I be able to have the LMI stopped? Will the bank keep the remaining amount owing in insurance or cancel the remaining, as it was put into the total amount of the loan?

      Default Gravatar
      JonathanJune 8, 2017

      Hi Peter!

      Thanks for the comment.

      It would depend on how the LMI was agreed to be paid in your loan. If it was paid upfront and had been more than two years from settlement, you may not be able to recoup the said amount or at least the whole of it. But if it is included on your loan repayments, it may be recomputed by the LMI insurers.

      You can contact your lender or mortgage insurer as this is reviewed on a case-to-case basis.

      Hope this helps.

      Cheers,
      Jonathan

    Default Gravatar
    ianJune 16, 2016

    I have had finance approved,my lender(suncorp) will not allow me to pay for the lmi up front is this correct

      Default Gravatar
      JodieJune 16, 2016

      Hi Ian,

      Thank you for contacting finder.com.au, a financial comparison website.

      Each lender has their own restrictions on how they handle LMI, if you would prefer to pay the LMI upfront you will need to discuss this with Suncorp directly or you can look at another lender that will allow for upfront payment of LMI.

      There has not been any regulation changes regarding LMI, you might be best to contact a mortgage broker who can offer you a range of lenders that can assist you with your specific needs.

      Regards
      Jodie

    Default Gravatar
    DavidMay 29, 2016

    I am buying a house with my 2 children who are both employed, I will be selling my house for approx $720.000 and buying the new house for $1m.I will be putting in $500.000 and the other half will be equally shared by my two children $250.000 each.
    We have been approved finance, but now they require us to pay LMI insurance, as I am paying half the loan up front, do we have to pay this cost ? or can I refuse to pay it ?
    Regards
    David

      AvatarFinder
      MarcMay 30, 2016Finder

      Hi David,
      thanks for the question.

      LMI is required as a condition of finance with most lenders, so if a lender requires a borrower to pay LMI then they will have to in order to obtain a loan from them.

      I hope this helps,
      Marc.

    Default Gravatar
    JeshuaAugust 3, 2015

    I recently enquired about a housing loan and was advised that as of last week LMI is no longer able to be capitalised onto the principal of the loan, meaning that I have to come up with the LMI and a deposit before I can get a loan.

    I am not sure if this is for this particular lending organisation or if it is actually now a legal requirement. Everything I find on the internet advises that LMI can still be capitalised.

    Can you please advise me on the current situation in Australia?

      Default Gravatar
      JodieAugust 4, 2015

      Hi Jeshua,

      Thank you for contacting finder.com.au, a financial comparison website.

      Each lender has their own restrictions on how they handle LMI, there are still lenders who would allow LMI to be capitalised into the loan amount depending on your circumstances.

      There has not been any regulation changes regarding LMI, you might be best to contact a mortgage broker who can offer you a range of lenders that can assist you with your specific needs.

      Regards
      Jodie

    Default Gravatar
    MohanMay 27, 2015

    I have taken an LMI for a $216,000 loan for a property Purchased at $271,000, but the bank only valued at $235,000.

    The cost of my LMI is $4,847.

    Can you advise if I were to refinance after a period of 6 months and I do not need a LMI, how do I calculate the LMI reimbursement amount.

      AvatarFinder
      MarcMay 29, 2015Finder

      Hi Mohan,
      thanks for the question.

      The amount you’re reimbursed for will be worked out by the insurer used by your lender. I would recommend contacting them to find out how much you could receive back.

      Cheers,
      Marc.

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