- 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.
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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* |
|---|---|---|---|
| $400,000 | $20,000 $40,000 $60,000 | 5% 10% 15% | $12,711 $6,742 $3,294 |
| $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 |
*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 upfront.
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 a $600,000 property.
- You borrow $560,000.
- Your LMI premium is around $22,000.
- You capitalise the premium and borrow $575,000.
- Your loan with your LMI premium included adds an extra $61 a month to your home loan repayments.
How to avoid LMI
LMI is a big expense and something that borrowers prefer to avoid. However, it's important to remember that without lenders mortgage insurance, many first home buyers would be locked out of the real estate market for years as they struggle to save 20% deposits.
There are ways to avoid paying LMI, or at least to minimise how much it costs you:
- Use the First Home Loan Deposit Scheme. If you are a first home buyer, the First Home Loan Deposit Scheme may allow you to buy a property with a 5% deposit without paying lenders mortgage insurance. Eligibility depends on where you are buying, your income and the value of the property you are buying.
- Leverage your employment. Some banks and lenders may offer an LMI waiver if you earn a high salary and you have a solid employment history working as a professional in specific industries. Some professionals who may qualify for LMI waivers include doctors and other medical professionals, accountants, actuaries, solicitors and entertainment industry professionals.
- 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. If you can buy in a more affordable area where your deposit stretches further, or find cheaper co-living arrangements for 12 months to save money, you may be able to build a bigger deposit and avoid paying 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. They can nominate how much to pledge and this is then added to your deposit amount.
- Buy in partnership with someone. If you want to get on the property ladder sooner and you don't have a 20% deposit on your own, you could partner with a sibling or friend and buy as a joint venture. This way you both contribute to the deposit and you lower your risks and financial obligations.
QBE and Genworth are the 2 biggest LMI insurers in Australia. Some lenders provide their own LMI. It's not really possible to compare lenders mortgage insurance providers because lenders generally have an exclusive agreement with 1 insurer.
Can I get a refund on my premiums?
Probably not. 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.
To request a refund, contact your lender and tell them that you'd like to apply for an LMI refund. They will then notify you of the process and the next steps required. You may need to put forward a written request.
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: Genworth and QBE.
Genworth
Genworth is an LMI insurer that is majority owned by Genworth Financial, a US-based insurer. They provide LMI services to more than 100 lenders in Australia.
QBE
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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Ask an Expert
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?
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
I have had finance approved,my lender(suncorp) will not allow me to pay for the lmi up front is this correct
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
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
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.
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?
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
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.
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.