Australians now have the option to pay monthly premiums for Lenders Mortgage Insurance (LMI) instead of as a lump sum. Let’s take a look at whether this is the right choice for you and explore other possible ways to save on LMI.
How do I access the monthly LMI option in Australia?
One member of Home Loan Experts’ panel of lenders accepts monthly LMI premiums until the property’s loan-to-value ratio (LVR) drops below 80%.
More lenders will probably start to offer this option, as many share a common LMI provider, Genworth.
Call us on 1300 889 743 or complete our online enquiry form to find out how much we can save you on LMI.
Upfront LMI Vs Monthly LMI
| Upfront LMI | Monthly LMI | |
|---|---|---|
| What is it? | Pay a single premium when your home loan is approved. | Pay monthly premiums for the duration of your insurance coverage. |
| How will this affect my deposit? | You’ll need to save up a higher deposit, which may delay your dream of homeownership. | You won’t need to save up a higher deposit, allowing you to buy a property sooner. |
| Will my home loan repayment be higher? | Home loan repayment may be higher with LMI capitalised. | There’s no impact on your home loan repayment, since LMI premium is not capitalised into the loan. |
| How long do I need to pay LMI? | You pay a lump sum when the loan is taken out. There is no refund of the lump sum if you move lenders in the future. | You pay premiums only until the LVR drops below 80%. If you move lenders in the future, and LMI is still applicable to your loan, you may need to pay an upfront or monthly LMI premium. |
Is there a limit to how much I can borrow?
Borrow up to:
- 80-90% of the property price limited at a $1.5 million loan amount
- 90-95% of the property price limited at a $1.15 million loan amount
- It gives you an incentive to pay the loan down quickly.
- For high-income earners, who can afford the larger repayments at the start, the total cost of the insurance may be cheaper.
- Doctors, other medical practitioners, and other select professionals can qualify for a no-LMI home loan, saving thousands of dollars.
- With the monthly LMI option, you won’t have to save for an upfront LMI premium.
- You can capitalise the cost of LMI, interest-free, on top of your home loan, so you don’t have to pay this cost upfront and simply pay off the premium with your regular home loan repayments.
- Doctors,
- Accountants,
- Lawyers,
- Mining specialists, must either be a mine surveyor, quantity surveyor or geologist/geophysicist.
- Professional athletes, and
- Entertainment professionals.
- Loan amount: Generally speaking, loan amounts above $1 million tend to attract more LMI.
- Genuine savings discounts: Having at least 5% of the purchase price in genuine savings allows you to get standard LMI rates, which are cheaper than a no genuine savings LMI premium.
- Lower your LVR: Keep your LVR to around 80% of the property value or lower and you can avoid LMI altogether.
- Use a guarantor: With a guarantor, you can borrow up to 105% of the purchase price and pay no LMI, which amounts to 100% of the property value plus the costs of completing the purchase.
The LMI provider, Genworth, will be responsible for approving the loan amount.
What are the benefits of paying LMI monthly?
Depending on your situation, you can benefit by paying LMI monthly instead of in a lump sum.
Paying the LMI premium monthly leaves a greater portion of your loan available to support the purchase of your home than if you added the cost of LMI to the amount you borrowed (known as LMI capitalisation).
You also avoid a large upfront cost and won’t require a large deposit to qualify for a loan.
| Scenario | |||
|---|---|---|---|
| Property price = $500,000 Loan amount = $445,000 (89% LVR) Loan term = 30 years Interest = 3.13% per year |
|||
| Upfront LMI | LMI Capitalisation | Monthly LMI | |
| Home loan repayments (monthly) | $1,907 | $1,941 | $1,907 |
| LMI repayment (monthly) | – | $34 (capitalised on loan amount) | $159 |
| LMI premium payable | $7,878 | $12,240 (capitalised on loan amount) | $3,816 |
| Total interest charged | $241,693 | $245,972 | $241,693 |
| Total cost | $694,571 | $698,850 | $690,509 |
*The LMI premium excludes stamp duty
As opposed to paying upfront LMI, you’ll be able to borrow sooner and avoid paying a lump sum by opting for LMI capitalisation and monthly LMI.
However, your home loan repayment will increase slightly if the LMI is capitalised, as you’ll also be paying back the cost of the LMI premium.
Compared to other options, paying monthly LMI can be cheaper in terms of overall cost.
Your home loan repayment will remain the same if you choose to pay LMI monthly. However, you’ll also be paying LMI monthly until your LVR drops below 80%, after which you’ll be paying only your loan repayments.
Keep in mind that not all lenders allow LMI capitalisation.
How can I save money on LMI in Australia?
Shop around for cheaper LMI using our calculator because each LMI provider charges a different premium rate.
Do I qualify for a waived LMI?
Select professionals can get their mortgage insurance waived completely.
Banks have specific criteria regarding your profession and income before offering waived LMI.
No LMI when borrowing up to 90% of the property value is typically only available to:
Please fill in our online enquiry form or call us on 1300 889 743 to discover whether you qualify for a 90% no-LMI home loan.
What if I’m not an eligible professional?
A couple of our lenders offer 85% waived LMI even if you’re not one of the professionals listed above.
You may even qualify for a mortgage insurance discount, depending on your loan amount, LVR and your level of income.
If you meet the following criteria, you’re generally considered a low-risk borrower:
Home Loan Experts can help you discover which strategy is right for you.
Can you cancel LMI?
If you owe less than 80% of the property value on your mortgage, you can cancel the LMI premium by having your property revalued.
Your monthly LMI payments cease once the LVR of the home loan drops below 80%.
To find out how much you could save on LMI, talk to one of our specialist mortgage brokers by calling us on 1300 889 743 or by completing our enquiry form.