LMI and LVR Explained: When Mortgage Insurance Applies and How to Reduce It

What Triggers Lenders Mortgage Insurance (LMI)?

LMI is typically required when your loan-to-value ratio (LVR) exceeds 80%. In other words, if your deposit is less than 20% of the property’s value, the lender may require you to pay LMI. This insurance protects the lender, not you, in case you default on the loan.

How Is LMI Calculated?

LMI costs vary based on several factors, including:

• The size of your loan
• Your LVR (the higher the LVR, the higher the LMI premium)
• The lender’s specific pricing

Some lenders may offer LMI waivers or discounts for certain professions, such as doctors, lawyers, or accountants. These profession-based discounts can significantly reduce your LMI outlay.

Strategies to Reduce LMI on High-LVR Loans

If you’re borrowing more than 80% LVR, here are some ways to lower your LMI cost:

• Increase your deposit – Even a small increase can reduce the LVR and potentially lower LMI.
• Look for profession-based LMI waivers – Some lenders waive LMI entirely for eligible professions like doctors, dentists, lawyers, and accountants.
• Compare lenders – LMI premiums vary between lenders, so it pays to shop around.
• Consider a guarantor loan – A guarantor can help you avoid LMI by boosting your effective deposit.

What If You Already Have LMI?

If your loan already includes LMI, you may still reduce its impact by:

• Making extra repayments to bring your LVR below 80% sooner.
• Refinancing once your LVR improves, potentially to a lender with lower ongoing costs.

Remember, LMI is a one-off cost, but reducing it upfront can save you thousands. Always compare options and consider speaking with a mortgage broker to explore the best strategy for your situation.