The short answer
LMI is insurance that protects the lender if a borrower can’t repay and the property sells for less than the loan. It commonly applies when you borrow more than 80% of the property’s value. You pay the premium, either upfront or added to your loan, and the cost rises as your loan to value ratio (LVR) rises.
When LMI applies
Lenders look at your LVR: the loan as a percentage of the lender-assessed value. Above 80% LVR, many lenders require LMI. A lower valuation than the price you pay can push your LVR up, so LMI can apply even when your deposit looked like 20%. Try the LVR calculator.
How LMI is paid
- Upfront at settlement, from your own funds.
- Added to the loan (often called capitalising), which many lenders allow. You then pay interest on it over the life of the loan.
The premium depends on the loan size, your LVR, the lender and its insurer, so the only reliable figure is a quote for your situation.
Ways some buyers avoid LMI
- A 20% deposit of the lender-assessed value, plus buying costs.
- The 5% Deposit Scheme, which lets eligible first home buyers buy with a 5% deposit without paying LMI, within property price caps.
- A family guarantee, offered by some lenders, where a family member offers equity in their property as extra security.
- A professional waiver: some lenders may waive LMI for eligible professions, subject to their criteria. See LMI waiver home loans.
- Help to Buy, where the government owns part of the home so you borrow less. See Help to Buy explained.
Pay LMI or keep saving?
Waiting to save a 20% deposit has its own cost if prices or rents move, and paying LMI adds to your loan costs. Which is better depends on your situation. We can compare the options using your numbers. General information only.
Mortgage broker at My Finance Consultants. Daniel compares home loan options from a panel of 40+ lenders for refinancers, investors and home buyers, by phone or video, evenings included. About Daniel
General information only. It doesn’t consider your objectives, financial situation or needs, and it isn’t tax, legal or financial product advice. Lending criteria, fees and charges apply.