Lenders Mortgage Insurance (LMI) protects the lender if you default on your home loan. It’s typically required when borrowing more than 80% of the property’s purchase price, indicating a higher risk to the bank.

How Does LMI Work?

Generally, you need to pay LMI if borrowing over 80% of the property value. For self-employed individuals applying for a low-doc loan, LMI is necessary if borrowing more than 60% of the property’s value. The lender arranges the mortgage insurance during your loan approval process, so you won’t have to handle additional paperwork.

The LMI premium is deducted from your loan funds when they are advanced. For example, if you borrow $500,000 and the LMI premium is $5,000, you will receive $495,000 when the loan is disbursed. Alternatively, you can choose to “capitalise” the LMI premium, adding its cost to your mortgage. This doesn’t eliminate the LMI but allows you to avoid paying it upfront. The LMI premium is a one-time fee and doesn’t need to be paid annually like other types of insurance.

How LMI Helps Borrowers Buy A Home

LMI enables borrowers to purchase a home with a smaller deposit, reducing the upfront cost and allowing quicker access to property ownership. It’s particularly beneficial for first-time homebuyers and those with less in savings. However, it is crucial to understand the cost implications and explore whether there are ways you can avoid this expense.

How Much Is LMI?

The cost of Lenders Mortgage Insurance can vary widely based on the loan amount and the percentage of the property value being borrowed. It’s crucial to incorporate this cost into your overall budget when planning to purchase a home, as it can substantially affect your financial planning.

15% LMI Discount For First-home Buyers

One of our lenders is now offering attractive discounts on Lenders Mortgage Insurance (LMI) under specific conditions, providing more flexibility and savings for homebuyers.

• Upfront Payment Discount: If you pay the LMI premium upfront when you buy an owner-occupier or investment property, you are eligible for a generous 15% discount on LMI.
• First-home Buyer Discount: First-time home buyers get a calculated discount which is dependent on the loan’s attributes.
• Combined Discounts: First-home buyers opting to pay LMI upfront can enjoy an additional discount of up to 15%, applied after calculating the First Home Buyer discount.

These discounts apply to new purchases, top-ups, and refinances. If you choose the upfront payment option for an LMI discount, ensure the funds are with your conveyancer on settlement day. The upfront amount can be paid by the loan applicant, a family member, or any other person.

What does this mean for you?

For our clients, we typically add the LMI premium to the loan amount instead of requiring an upfront payment. This means if a client needs a loan of $500,000 and the LMI is $20,000, we would apply for a loan of $520,000. While this approach spares clients from paying the LMI upfront, it does increase the loan amount.

So, the discounted LMI becomes particularly beneficial for clients who might not have the borrowing power to handle a loan amount of $520,000 but have spare funds amounting to the LMI premium. In such cases, they can use these funds to settle the LMI separately upfront. However, it’s worth noting that this scenario might apply to only a small subset of clients.

How can I avoid paying LMI?

Here are several effective strategies to avoid paying Lenders Mortgage Insurance:

• Save A Larger Deposit: Saving at least 20% of the property’s purchase price for your deposit can help you avoid the need for LMI. This not only reduces your loan amount but also demonstrates to lenders that you are a low-risk borrower.
• Have A Guarantor: A guarantor, often a close family member, can use their property as additional security for your loan. This reduces the lender’s risk, allowing you to bypass the LMI requirement even if you have a smaller deposit.
• Use Government Grants And Schemes: Some government grants and schemes are designed to help first-time homebuyers or those in specific circumstances boost their deposit. Taking advantage of these can help you reach the 20% deposit threshold more quickly, avoiding LMI.
• Professional LMI Waivers: Certain professions, such as doctors and accountants, may be eligible for LMI waivers with specific lenders, due to their perceived low risk. Check if your profession qualifies for any LMI discounts or waivers.

Apply for A Home Loan

Our expert mortgage brokers have in-depth knowledge about Lenders Mortgage Insurers and the guidelines they use to assess loan applications.

📞 Call 1800 NO RIBA (667 422) or Apply Online Now!