Low deposit home loans
Buying with less than 20% down.
Lenders Mortgage Insurance Explained
LMI is usually the largest surprise cost in a purchase with a small deposit. Here is what it is, when it applies, and the ways around it.
Lenders Mortgage Insurance protects the lender, not you, if you default and the property sells for less than the debt. It generally applies when you borrow more than 80% of the property value. It is a one-off premium, usually added to the loan, and it is not transferable if you refinance.
We deliberately do not publish an LMI calculator. Premiums are set by the mortgage insurers, and each lender negotiates its own schedule with them. Two lenders can quote materially different premiums on an identical loan, and the gap grows as the LVR rises. Any single number we showed you would look precise and be wrong often enough to matter on a decision this size.
What we will do instead is get you the actual figure from the specific lenders worth applying to, before you commit to anything. That takes one conversation.
When it applies
The trigger is your loan-to-value ratio: the loan divided by the property value. Above 80%, most lenders require LMI. At or below 80%, they generally do not.
The premium rises steeply rather than smoothly as the LVR climbs. The difference between a 90% and a 95% loan is far larger than the difference between 80% and 85%, which is why finding even a little more deposit can save a disproportionate amount. It is also why the exact valuation matters so much: a valuation coming in slightly under contract price can push you across a threshold and add thousands.
It protects the lender, not you
This is the part people find genuinely surprising, so it is worth stating plainly. You pay the premium. The insurer covers the lender. If you default and the sale does not clear the debt, the insurer pays the lender and can then pursue you for that shortfall.
It is not a bad deal for that reason alone, because it is what lets you buy years earlier than you otherwise could. But it should be understood for what it is: a cost of borrowing at a higher ratio, not a protection you are buying for yourself.
Ways to avoid or reduce it
- A larger deposit. Reaching 20% removes it entirely. Our deposit savings goal calculator shows how long that takes.
- A guarantor. A family member's equity lifts your effective deposit above 20% without you finding the cash. See guarantor home loans.
- Government guarantee schemes. Eligible first home buyers can buy with a small deposit and no LMI under a federal guarantee. See first home buyers.
- Profession-based waivers. Some lenders waive LMI entirely for certain occupations, commonly medical, legal and accounting professionals, sometimes to 90% or higher. Which occupations qualify differs by lender, and it is one of the clearest cases where comparing across a panel is worth real money.
Two things that catch people out
It is not transferable. If you paid LMI and later refinance to another lender above 80%, you pay it again. This alone can make refinancing uneconomic, and it is why the break-even calculator matters before you switch.
Capitalising it costs more than it looks. Most people add the premium to the loan rather than paying it upfront. That is usually sensible for cash flow, but you then pay interest on it for the life of the loan, so the real cost is well above the premium itself.
Common questions
It depends on the lender, the insurer, your LVR and the loan size, and it varies enough between lenders that a published estimate would mislead. We will get you the actual figures from the lenders worth applying to.
Some insurers offer a partial refund if the loan is discharged within the first year or two, but the terms vary and many offer nothing. Ask before you rely on it.
On an investment property, borrowing costs including LMI are generally deductible over five years or the loan term, whichever is shorter. On your own home, no. Confirm with your accountant.
It depends on what the market does while you save. Paying LMI to buy now can cost less than two more years of price growth, or it can be money wasted if prices flatten. We will lay out both and let you decide with real numbers.
Want the real LMI figure for your purchase?
We will get quotes from the lenders actually worth applying to, and check whether you qualify for a waiver.
Related
Guarantor home loans
Avoiding LMI using family equity.
First home buyers
Schemes that remove LMI for eligible buyers.