What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) protects the lender in the event that you default on your home loan.
It’s applicable only if your home loan poses a high risk to the bank, which is typically when you’re borrowing more than 80% of the purchase price.
You may be able to avoid this cost.
Our popular articles on Lenders Mortgage Insurance
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How much will you pay in LMI?
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Example LMI rate tables & tips to reduce your premium.
Delegated underwriting authority
A DUA helps you to get approved.
Waived LMI
Am I eligible for LMI discounts?
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How Does LMI Work?
As a general rule, you will need to pay LMI if you are borrowing more than 80% of the property value. For self-employed individuals applying for a low-doc loan due to an inability to prove income, LMI is necessary if you’re borrowing more than 60% of the property’s value. Your lender or bank arranges the mortgage insurance during your loan approval process, so you won’t have to deal with additional paperwork.
Please call us on 1300 889 743 or enquire online for free and we can tell you if LMI can be waived for your mortgage!
The LMI premium will be 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. The exception is if you 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, often representing a large expense. 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.| Loan Amount | LVR | LMI |
|---|---|---|
| $500,000 | 85% | $5,000-$5,600 |
| $500,000 | 90% | $11,000-$13,000 |
| $500,000 | 95% | $13,000-$15,000 |
| $1,000,000 | 85% | $11,000-$14,000 |
| $1,000,000 | 90% | $30,000-$35,000 |
| $1,000,000 | 95% | $33,000-$40,000 |
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 DepositSaving 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 GuarantorA 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 SchemesSome 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 WaiversCertain 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. Please call us on 1300 889 743 or enquire online to discuss your situation with one of our brokers, today!
Frequently Asked Questions
LMI does not protect you as the borrower, it protects only the lender. If you are unable to repay the loan and the lender does not recover all of its money, then it can make a claim with the insurer.
This insurance does not cover you for damage to the property that is being used as security for the mortgage. Damage to your property is normally covered by your building insurance policy or, if you have a strata title property, then it will be covered by your strata’s building insurance policy.
LMI should not be confused with loan protection insurance or mortgage protection insurance, which covers you, the borrower, in the event that you are unable to repay your loan.
You should always consider your life, total and permanent disability (TPD) and income protection insurance needs when you buy a property, to make sure that you are able to pay your loan and support your family in the event that you die, become sick, lose your job or have an accident.
Unfortunately, many Australians do not take out these policies when they buy a home, and as a result they cannot cope with major life events.
The primary mortgage insurers in Australia are:
- Genworth Financial: One of the largest providers of Lenders Mortgage Insurance in Australia, offering a range of products and services to help lenders manage mortgage default risk.
- QBE Lenders’ Mortgage Insurance: A major player in the LMI market, QBE provides extensive mortgage insurance solutions and supports a variety of lending institutions across the country.
- Helia (formerly known as Genworth Mortgage Insurance Australia): Specialises in mortgage insurance for residential properties, providing comprehensive coverage and services to both lenders and borrowers.
- Westpac Lenders Mortgage Insurance: Westpac’s in-house mortgage insurance arm provides LMI services primarily to Westpac customers and affiliates.
- Commonwealth Bank Lenders Mortgage Insurance: Commonwealth Bank’s dedicated mortgage insurance division serves its customer base with tailored LMI solutions.
- ANZ Lenders Mortgage Insurance: ANZ’s proprietary LMI provider, catering to its customers’ needs with a focus on minimising default risks and supporting homeownership.
These companies are the main providers of mortgage insurance in Australia, each playing a crucial role in supporting the mortgage lending industry by mitigating the risks associated with high loan-to-value ratios.
Lenders Mortgage insurers calculate the premium using a LMI rate chart or premium table.
The LMI fee is calculated based on the loan amount, the property value (to determine LVR), and the corresponding LMI premium rate table.
For example, if you are borrowing $255,000 secured on a $300,000 property, you would be borrowing 85% of the property value. This is known as 85% LVR.
Because your loan size is small and the LVR is low, the LMI premium will also be small ($1800 to $2300).
Alternatively, if you are borrowing $950,000 secured on a $1,000,000 property then you would be borrowing 95% of the property value (95% LVR). In this case, the loan amount is large and the LVR is high so the LMI premium would also be high ($38,000 to $45,000).
Remember though, LMI providers have different premium rates, which means there can be thousands of dollars in difference between the cheapest and most expensive LMI providers.
Call us on 1300 889 743 or enquire online and one of our mortgage brokers will help you find the cheapest LMI premium.
Many first-time, and even second- and third-time, borrowers do this without also considering the cost of LMI. The problem is that banks and lenders don’t actively publish the LMI premium rates of their mortgage insurer so it’s difficult for the ordinary Australian to compare.
Home Loan Experts’ Lenders Mortgage Insurance calculator can be used to estimate the LMI premium that you would be liable to pay with a range of lenders and insurers.
The banks and LMI providers know that few people shop around for a better mortgage insurance premium.
Medical Professionals: Doctors, dentists, optometrists, veterinarians, chiropractors, pharmacists, etc.
Accountants and Finance Professionals: Accountants, CFOs, finance managers, auditors, actuaries, etc.
Legal Professionals: Lawyers, barristers, judges, solicitors, etc.
Engineering and IT Professionals: Engineers, IT specialists, etc.
Nurses and Midwives: Registered nurses, enrolled nurses, midwives, etc.
To learn about other types of professionals who are eligible, visit our waived LMI page.
When you refinance your home loan, you may need to pay Lenders Mortgage Insurance (LMI) if your new loan’s loan-to-value ratio (LVR) exceeds 80% of the property’s value. This situation often arises if your property’s value has decreased or if you are refinancing with a high LVR. However, if you already paid LMI with your original loan and your new loan’s LVR is still above 80%, you might still need to pay LMI again, as it is specific to each loan and lender.
