After the bank said no, a new plan across two states.
What is lenders mortgage insurance (LMI)?
Lenders mortgage insurance (LMI) is a one-off premium most Australian lenders charge when you borrow more than 80% of a property's value. It protects the lender, not you, if you cannot repay the loan and selling the property does not cover what you owe.
Updated
Why do lenders charge LMI?
A smaller deposit leaves the lender less buffer if you stop repaying and the property sells for less than the loan. LMI passes part of that risk to an insurer.
You pay the premium, but the policy is the lender's. That is why it is called lenders mortgage insurance.
How much does LMI cost?
There is no single price. The premium depends on how much you borrow, your LVR, the lender and its insurer. Ask your lender or broker for a quote on your exact loan before you commit.
If the premium is added to your loan, you also pay interest on it for as long as that debt remains.
How can you avoid paying LMI?
Save a deposit of 20% or more, so you borrow 80% or less. A family member may be able to guarantee part of your loan. Government schemes and some state programs help eligible buyers purchase with a smaller deposit and no LMI.
Some lenders also waive or discount LMI for certain professions. Your broker can tell you whether you qualify.
Illustrative example5 steps
A $600,000 purchase with a 10% deposit
- Deposit: $60,000, which is 10% of the price.
- Loan: $600,000 minus $60,000 = $540,000.
- LVR: $540,000 divided by $600,000 = 90%.
- 90% is above the usual 80% threshold, so the lender is likely to charge LMI.
- With a $120,000 deposit, the loan falls to $480,000 and the LVR to 80%, where LMI usually no longer applies.
For investors
For investors, LMI can be a deliberate trade-off.
Some investors accept LMI to buy sooner or to keep cash in reserve, rather than waiting to save a 20% deposit. It is a real cost to weigh against your timing and buffers, not automatically a mistake. On an investment loan, the ATO treats LMI as a borrowing expense, generally claimed over five years or the loan term if shorter. Confirm your position with your accountant.
Common questions
Questions about LMI
Keep learning
Property is a complex world.
Lenders mortgage insurance is one piece of it. Lending rules decide how much you can borrow, and how soon you can buy again. Next, read about loan-to-value ratio, guarantor loan and borrowing capacity.
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