How much is LMI?

Wondering how much is Lenders Mortgage Insurance? Typically, you can expect to pay Lenders Mortgage Insurance (LMI) if your available home loan deposit is less than 20 per cent. Many buyers opt to roll their LMI into their home loan to spread the cost across the loan term.

In this LMI guide, we explore:

What is LMI?
How much is Lenders Mortgage Insurance?
How is LMI calculated?
How to avoid LMI, and more.

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LMI calculator

What is LMI?

What is Lenders Mortgage Insurance? When buying a home with a low deposit, understanding the LMI meaning is crucial, as Lender’s Mortgage Insurance can significantly impact the overall cost of the mortgage.

Lenders Mortgage Insurance (LMI) in Australia is a type of home loan insurance that protects the lender in case the borrower defaults on their home loan. It’s typically required when the borrower has a deposit of less than 20% of the property’s purchase price. LMI allows lenders to provide loans to borrowers who have smaller deposits, but it adds an additional cost to the borrower, either as a one-time payment or tacked onto the loan amount, increasing home loan repayments. The cost of LMI varies based on the size of the deposit and the loan amount.

When discussing mortgage options, it’s important to understand “what is LMI in home loan” terms, as Lender’s Mortgage Insurance is a significant factor for borrowers with smaller deposits.

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How much LMI will I pay

How much is Lenders Mortgage Insurance?

How much is LMI? LMI cost typically ranges from 1% to 5% of your home loan amount, depending on your loan-to-value ratio (LVR). If your deposit exceeds 20%, or you are eligible for a LMI waiver, you won’t have to pay any LMI.

Lenders Mortgage Insurance cost depends on a range of factors, such as the size of your loan, the value of the property and the loan-to-value ration (LVR).

As an example, on a property value of $700,000, you can expect to pay:

20% deposit = $0
15% deposit = $17,350
10% deposit = $26,740
5% deposit = $30,797

Keep in mind, the LMI percentage is not fixed and can vary significantly based on the specific circumstances of the loan. We recommend using an online LMI calculator provided by lenders or contact your lender directly to get an accurate estimate based on your specific situation.

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Let’s take a look at exactly how is LMI calculated:

How is LMI calculated?

Calculating Lenders Mortgage Insurance in Australia involves several factors, including the loan amount, the property value, and the loan-to-value ratio (LVR). Here’s a step-by-step guide on how to calculate LMI:

1. Determine the Loan Amount and Property Value:

For example, if you are buying a property worth $500,000 and you have a deposit of $50,000, the loan amount would be $450,000.

2. Calculate the Loan-to-Value Ratio (LVR):

LVR is calculated by dividing the loan amount by the property value and multiplying by 100.

LVR = (Loan Amount / Property Value) x 100
In this example, LVR = (450,000 / 500,000) x 100 = 90%

3. Refer to LMI Premium Rates:

LMI premium rates vary between lenders and insurance providers. They are typically provided as a percentage of the loan amount and can be found on the lender’s website, or by contacting them directly.

4. Calculate the LMI Premium:

Use the LMI rate corresponding to your LVR to calculate the premium. For instance, if the LMI rate for a 90% LVR is 1.5%, the LMI premium would be:

LMI Premium = Loan Amount x LMI Rate
LMI Premium = 450,000 x 1.5% = $6,750

Some lenders and mortgage brokers offer online LMI calculators, where you can input your loan details to get an estimate of the LMI cost.

Want to find a mortgage broker in Sydney, Melbourne, Brisbane, Adelaide or Perth?

mortgage insurance costs

How to avoid LMI

Avoiding Lender’s Mortgage Insurance (LMI) typically involves reducing the lender’s risk by either increasing your deposit or using alternative strategies. Here are some common methods to avoid paying LMI:

1. Save a Larger Deposit

Ensure you have at least a 20% deposit of the property value. This keeps your LVR at or below 80%, which generally means you won’t need to pay LMI.

2. Family Guarantee or Guarantor Loan

Have a family member, usually a parent, guarantee part of your loan. The guarantor uses their property as additional security for your loan, reducing the LVR and eliminating the need for LMI.

3. Home Guarantee Schemes

If you’re eligible for government grants and schemes like the First Home Guarantee scheme, you can purchase a property with a deposit as low as 5% without paying LMI. With the Family Home Guarantee, eligible single parents can get a no LMI home loan with as little as 2% deposit.

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Is LMI tax deductible

4. Negotiate with Your Lender

Some lenders may waive LMI or offer discounts if you have a strong financial profile or if you’re a preferred customer. It’s worth negotiating or comparing different lenders’ offers. Speaking to an experienced mortgage broker will also offer valuable insights into your specific situation.

5. Professional Benefits

Some lenders offer LMI waivers or discounts for certain professions, such as doctors, lawyers, and accountants, due to their perceived lower risk. For instance, Westpac currently offers a LMI waiver program that gives eligible registered nurses and midwives that have a 10% deposit the option to avoid LMI if they earn over $90,000 gross per annum.

Compare different lenders

To explore home loan options and strategies for reducing Lenders Mortgage Insurance (LMI), it’s best to consult with a mortgage broker or a financial advisor. They can provide personalised advice, help you compare different lenders, and identify any programs or strategies, such as increasing your deposit or finding guarantor options, to minimise or eliminate LMI costs.

How much is LMI?

Want to find a mortgage broker in Sydney, Melbourne, Brisbane, Adelaide or Perth?

What is LMI?

You might like: Is it worth paying for a financial advisor?

How much is Lenders Mortgage Insurance?

You might like: How much does it cost to build a house?

How is LMI calculated?

Want to find a mortgage broker in Sydney, Melbourne, Brisbane, Adelaide or Perth?

How to avoid LMI

You might like: How much does it cost to build a duplex?

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