Lenders mortgage insurance (LMI) is an insurance policy taken out by the lender to protect themselves if you (the borrower) can no longer make repayments.
LMI is generally applicable when the deposit is less than 20% (i.e. you’re borrowing more than 80% from the bank). LMI is a once off fee that can be built into your loan amount.
Benefits
- You can buy a home with a smaller deposit sooner
- Start building equity in a home sooner
Need to know
- LMI is to protect the lender, it wont protect you if you can’t make the repayments.
- LMI is calculated differently by all lenders and depends on the loan value ratio (LVR) and type of loan.
Example
Anna and Joe are buying a house worth $500,000. They have $50,000 for a deposit which equates to 10%. This means they would need to borrow the remaining 90%.
As their LVR is more than 80%, they will need to pay the fee of the LMI premium which is roughly $14,700*.
Anna and Joe will be able to secure their house sooner using a 10% deposit ($50,000) in addition to paying the $14,700 LMI premium, a total of $64,700. Otherwise they would need to save another $50,000 to make the deposit 20% and avoid the LMI premium.
Other options to avoid LMI?
- LMI waiver is applicable for some professionals ie. Doctors and Accountants. Only a few lenders provide this option so ask us for more information.
- Family Guarantors
How do I get my loan to 80% LVR?
- Try our Extra Repayments Calculator to see how much of a difference a little extra can reduce the principal
- If the property market values increase, so does the value of your home – meaning your LVR is less.
Once the LVR is down to 80%, we can review your interest rate and even different lender options too for a sharper rate.
This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
*Indication based from the Westpac LMI calculator
