Lenders Mortgage Insurance (LMI): When It Applies and How to Reduce Costs

What Triggers Lenders Mortgage Insurance (LMI)?

Lenders Mortgage Insurance (LMI) is typically triggered when your loan-to-value ratio (LVR) exceeds 80%. This means that if your deposit is less than 20% of the property’s value, the lender may require you to take out LMI to protect the lender against the risk of you defaulting on the loan.

How Is LMI Calculated?

The cost of LMI is generally calculated as a percentage of the loan amount. The exact percentage depends on your LVR and the lender’s specific pricing. Higher LVRs usually attract higher premiums because they represent greater risk to the lender.

Strategies to Reduce LMI on High-LVR Loans

If you are borrowing more than 80% of the property’s value, there are several ways to lower your LMI costs:

• Increase your deposit: Saving a larger deposit reduces your LVR, which may lower the LMI premium or even avoid it altogether.
• Use a guarantor: A guarantor (such as a parent) can help you secure a loan with a lower LVR, potentially reducing or eliminating LMI.
• Look for professional discounts: Some lenders offer reduced LMI premiums or waivers for certain professions, such as doctors, lawyers, accountants, and other high-income professionals.
• Compare lenders: LMI rates vary between lenders, so shopping around and comparing offers may help you find a lower premium.
• Consider a lender that offers LMI waivers for specific occupations: Some lenders provide special deals for professionals, so it is worth asking your broker about these options.

Frequently Asked Questions

Do I always need LMI if my deposit is less than 20%?

Not necessarily. Some lenders may offer LMI waivers or reduced premiums under certain circumstances, such as for eligible professionals or with a guarantor.

Can LMI be added to my loan amount?

Yes, in many cases the LMI premium can be capitalised into your loan, meaning you pay it off over time, but this increases your overall borrowing and interest costs.

How can I find out my LMI cost?

Your mortgage broker can provide you with an estimate based on your loan amount, LVR, and lender. Using a home loan calculator can also help you assess different scenarios.