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What is Lenders Mortgage Insurance (LMI)?

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Lenders' Mortgage Insurance is insurance you’ll need to pay if you borrow more than 80% of a property’s value (i.e. if you have less than a 20% deposit).

It protects the lender from financial loss if you can’t afford to meet your repayments and default on the loan.

Factors that affect how much LMI will cost you include:

  • The size of the loan - the bigger your loan, the higher the cost of LMI.
  • Your deposit amount - the smaller the deposit, the higher the cost of LMI.
  • The purpose of the loan – investors can pay as much as 20% more for LMI than home buyers.
  • Your employment status – how much you earn and whether you work full time or casual can influence the cost of LMI.
  • The insurer used by your lender - premiums differ between insurers.

Ways to avoid paying LMI or reducing how much you pay can include

  • Growing your deposit to 20% or more
  • Having a family member go guarantor on your loan
  • Applying for the First Home Loan Deposit Scheme and
  • Comparing LMI quotes from a number of lenders.

LMI can cost you thousands of dollars, so if you want to avoid paying it, the best way is to save at least a 20% deposit before applying for a loan.

Home Loan Guide

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