Lenders Mortgage Insurance, or LMI, is designed to protect the lender, not the borrower, in case the borrower defaults on their loan (i.e. can no longer make their repayments). If the borrower defaults, the lender can repossess the property, however there’s a risk that the property price could have fallen and the lender could suffer a loss. LMI covers this risk.
What you need to know
- LMI can allow borrowers with a smaller deposit to get into the property market sooner
- Typically, LMI is only required if the borrower has less than a 20% deposit as they are seen as more risky and the lender has less of a buffer if the property value was to decrease. However, as different lenders may have different rules, ask your broker about different lenders policies
- The amount of LMI required varies and can depend on the size of your deposit, the loan amount and property value.
- Depending on the lender, the LMI amount may be added onto the loan or paid as an upfront cost
- If it’s added to the loan, it will increase your loan amount and therefore increase the interest you pay over the life of the loan
- To avoid paying LMI you could consider.
– Growing your deposit to 20% or more
– Getting a family member to go guarantor
– Asking your broker if you qualify for any LMI Waiver schemes
Let’s look at this example
If you want to buy a house that’s worth
$500,000, you would typically require a deposit of $100,000 (20% of the property’s value). If you’ve only saved $50,000, but you have sufficient income to support the loan, you may be able to take advantage of Lenders Mortgage Insurance. You could then secure a loan of $450,000 needed to buy your new home.
Need more information?
LMI requirements may differ between lenders so it’s important to understand your chosen lender’s requirements.
It should be remembered that this fact sheet is intended to provide general information of an educational nature
only. It does not have regard to the financial situation or needs of any individual and must not be relied upon as
financial product advice. As this information has been prepared without considering your objectives, financial situation
or needs you should, before acting on this, consider the appropriateness to your circumstances. As always, if you have any questions, you can contact your broker.
Licensing statement: Rayne Finance ABN [70 605 100 838] is authorised under LMG Broker Services Pty Ltd Australian Credit Licence 517192. Disclaimer: (1) As with any financial scenario there are risks involved. This information provides an overview or summary only and it should not be considered a comprehensive analysis. You should, before acting in reliance upon this information, seek independent professional lending or taxation advice as appropriate and specific to your objectives, financial circumstances or needs. This publication is provided on the terms and understanding that: (2) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication. (3) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to the maximum extent permitted by the law to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.
Explore other FAQs and Facts
Your quick guide to guarantor home loans
Saving for a deposit can be challenging, but a guarantor home loan offers a solution. By having a guarantor, typically a parent or relative, cover part or all of the deposit, buyers could enter the property market sooner. With this support, you might qualify for a home loan with just 5% or even 0% savings.
Government opens up more housing assistance places
The federal government has expanded the Home Guarantee Scheme, offering an additional 50,000 places for 2024-2025. This includes 35,000 spots for first home buyers, 10,000 for regional buyers, and 5,000 for single parents. Eligible applicants can secure a home with a low deposit and avoid lender’s mortgage insurance.
Understanding Australia’s Major Banks’ Anti-Scam Platform
Seventeen banks, including the big four, have joined forces to combat scams with the Fraud Reporting Exchange (FRX). This innovative system enables near real-time communication between banks, allowing them to swiftly report and respond to fraudulent payments as they move across institutions, enhancing security for all customers.
7 steps to increase your borrowing power
Borrowing power can vary significantly based on financial circumstances and lender choice. While two friends with similar profiles might get approved for different amounts, you can take steps to potentially increase your borrowing power. These steps include reducing expenses, increasing income, reducing debt, lowering credit card limits, improving your credit score, saving a larger deposit, and consulting a broker.
How redraw facilities and offset accounts can save you money
Offset accounts and redraw facilities both reduce the interest on your home loan by applying extra funds. Redraw facilities lower interest while providing conditional access to your money. Offset accounts, acting like savings accounts, offer easier access and higher interest savings, despite potential fees. Choose based on your need for fund accessibility and flexibility.
Federal Budget 24/25 – what does it mean for you?
Discovering the impact of the 2024/2025 Federal Budget is vital in navigating the current economic landscape. With a focus on addressing the cost-of-living crisis and bolstering the construction sector, measures such as infrastructure investment, rent assistance, and tax cuts aim to alleviate financial burdens and stimulate growth.
How a broker guides your way to owning your first home
Dreaming of your first home? A mortgage broker can be your guiding light. From assessing your borrowing capacity to breaking down costs and exploring deposit options, they make the journey smoother. With their expertise, owning your dream home in Australia becomes not just a dream, but a tangible goal.
5 things to keep in mind before refinancing
Considering refinancing your home loan? While securing the lowest interest rate is tempting, it’s vital to assess beyond that. Lenders vary in serviceability criteria, fees, turnaround times, and lending criteria. Additionally, explore promotions and consider restructuring your loan for optimal outcomes. Learn 5 key factors to save time and money.
How to calculate your equity
If you’ve owned your home for some time, you likely have built up equity—a valuable asset. Equity represents the difference between your home’s value and what you owe on your mortgage. Understanding this figure can empower you financially and open up opportunities for leveraging your home’s value.
7 ways to maximise your returns as a property investor
If you’re looking to maximise returns as a property investor, strategic decisions are key. From choosing the right location to savvy renovations, each step impacts your bottom line. And don’t forget about refinancing—regularly reviewing your home loan could unlock significant savings.