Lenders Mortgage Insurance (LMI) is often a significant cost for borrowers with deposits under 20%. Understanding how it works can help you make informed decisions about your home purchase timing and deposit strategy.
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What is LMI?
LMI protects the lender (not you) if you default on your loan and the property sale doesn't cover the outstanding debt. Despite protecting the lender, the borrower pays the premium.
How Much Does LMI Cost?
LMI costs depend on your loan amount and Loan-to-Value Ratio (LVR). Typical costs range from 1% to 4% of the loan amount.
| LVR | Approximate LMI Cost |
|---|---|
| 85% | 0.5% - 1.5% |
| 90% | 1.5% - 2.5% |
| 95% | 2.5% - 4% |
Ways to Avoid LMI
- Save a 20% deposit
- Use a family guarantee
- Apply for First Home Guarantee (limited places)
- Choose a lender with LMI waiver for professionals