What is Lenders Mortgage Insurance (LMI)?

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.