What is LMI, and can you avoid it?

Do you qualify to avoid LMI?

You may be able to avoid LMI if you fall into one of these groups:

• You have a 20% deposit: borrowing 80% or less of the property value generally means no LMI.

• You're an eligible first home buyer: the Home Guarantee Scheme lets eligible first home buyers purchase with a smaller deposit, in some cases as low as 5%, without paying LMI. Eligibility rules, price caps and available places are set by the government and change, so check Housing Australia for the latest details.

• You have a suitable guarantor: a family member can offer equity in their property as extra security, which some lenders accept in place of LMI. A guarantor takes on real risk, so they should get independent legal advice first.

• You work in an eligible profession: some lenders waive LMI for certain professions, such as medical, legal or accounting professionals. Criteria vary by lender and change often.

Eligibility depends on the lender and your circumstances, so it's worth checking before you assume either way.

What if you don't qualify?

There are still ways to reduce the cost:

• Lower your LVR: even a slightly larger deposit or a slightly lower purchase price can move you into a cheaper premium bracket.

• Compare lenders: premiums can differ between lenders and their insurers, so the same loan can cost different amounts depending on who you borrow from.

• Consider paying it: paying LMI isn't always the wrong choice. It can let you buy sooner instead of spending years saving a bigger deposit. Weigh the premium against the cost of waiting, including rent and any change in property prices.

What is LMI?

Lenders mortgage insurance (LMI) is a one-off premium that lenders usually charge when you borrow more than 80% of a property's value. It protects the lender if you can't repay the loan and the property sells for less than what's owed. It doesn't protect you as the borrower

Many lenders let you add the premium to your loan. That makes it easier to afford upfront, but you then pay interest on it too.

LMI is tied to your loan-to-value ratio (LVR), which is your loan amount divided by the property value. The higher your LVR, the higher the premium tends to be, and premiums typically rise in steps as your LVR increases.

How we can help

We compare options across our panel, check whether you may be eligible for a scheme, guarantor arrangement or professional package, and show you the estimated LMI alongside each loan so you can see the full cost.

Note: LMI premiums, scheme rules and lender policies change. Speak with one of our brokers for a current estimate based on your circumstances.