What LMI is
LMI is a one-off insurance premium that protects the lender, not you, if you can't repay the loan and the property sells for less than you owe. You pay it, but the lender is the one covered. It's different from mortgage protection or income protection insurance, which cover you.
When you pay it
Most lenders charge LMI when your loan is more than 80% of the property's value (your loan-to-value ratio, or LVR). It's usually added to the loan rather than paid upfront, which means you pay interest on it too.
What it costs
The premium is set by the mortgage insurer and depends mainly on:
- Your LVR. Going from 85% to 90% can increase the premium sharply
- The loan amount. Bigger loans attract a higher rate as well as a bigger premium
- Whether it's your home or an investment
- Whether you're a first home buyer, as some premiums are lower
On a typical Brisbane purchase it ranges from a few thousand dollars to tens of thousands. Because the tables are set by the insurers, I get an exact figure for your loan rather than relying on online calculators.
Is it refundable?
Generally no. If you refinance or sell, the LMI doesn't transfer to the new loan. If your new loan is over 80% with a different lender, you could pay LMI again, so that's worth knowing before you refinance.
Ways to avoid LMI
- Save a 20% deposit. The simplest, but it can take years in a rising market.
- The 5% Deposit Scheme. Eligible home buyers can buy with 5% and no LMI, within price caps. See my first home buyer page.
- A professional waiver. Doctors, lawyers, accountants, nurses, teachers and other occupations can borrow 90% or more without LMI. See home loans for professionals.
- A family guarantee. A parent's equity covers the gap. See my guarantor guide.
- Lenders with no-LMI products. Some lenders lend up to 85% without LMI for strong applicants, or pay the LMI themselves on certain products.
Is paying LMI ever worth it?
Sometimes. If prices are rising faster than you can save, buying sooner with LMI can cost less than waiting. It's a numbers question, and I'm happy to run them with you.
Questions people ask
What is LMI on a home loan?
Lenders mortgage insurance is a one-off premium charged when you borrow more than about 80% of the property's value. It protects the lender if the loan isn't repaid.
How much is LMI?
It depends on your LVR, loan amount and situation. It can range from a few thousand dollars to tens of thousands. I can get an exact quote for your loan.
Can LMI be added to the loan?
Yes, most lenders let you add it to the loan, which is how most people pay it.
Do I get LMI back if I sell?
Generally no. LMI isn't refundable and doesn't transfer to a new lender.
