It buys you time
What does LMI actually get you?
It lets you buy years earlier than a 20% deposit would allow. In a market where prices are rising faster than you can save, that can be worth considerably more than the premium.
MORTGAGE BASICS
Lenders mortgage insurance, without the jargon
LMI protects the lender, you pay for it, and it is sometimes still the right decision. Here is how to tell.
IN SHORT
LMI is a one-off premium charged when your deposit is below the lender's threshold
If you borrow more than a set proportion of a property's value — commonly 80% — most lenders require lenders mortgage insurance. It is an insurance policy that protects the lender if the loan defaults and the sale does not cover what is owed.
The important thing to be clear about is who it protects. You pay the premium, but the cover is for the lender. It gives you no protection at all if you fall behind.
Its actual function is to let you buy with a smaller deposit than you would otherwise need. That is a real benefit, and it comes at a real cost, which is why the comparison is worth doing rather than assuming either way.
WHY IT HELPS
How to think about it
It is usually capitalised
Do you pay it up front?
Most borrowers add the premium to the loan rather than paying cash. That keeps the cash requirement down, and means you pay interest on the premium for the life of the loan.
It is sometimes avoidable
Can you get out of it?
A family guarantee, an eligible government guarantee scheme, or a professional waiver can each remove LMI without you needing a full deposit.
HOW IT WORKS
What drives the premium
LMI is not a flat percentage. It rises steeply as the loan-to-value ratio increases, which means small changes in deposit near a threshold can make a surprisingly large difference.
- The loan-to-value ratio — the higher it is, the sharper the premium
- The size of the loan, since the premium scales with it
- Whether the property is owner occupied or an investment
- Which insurer the lender uses, as premiums differ between them
- Your employment type, which some insurers treat differently
IS IT RIGHT FOR YOU
Paying it, or avoiding it
This tends to suit you if
- Prices are rising faster than you save — waiting can cost more than the premium does.
- Your serviceability is comfortable — the deposit is the only thing holding you back.
- You are just over a threshold — a small extra contribution can cut the premium sharply.
- You qualify for a waiver — guarantee schemes and professional waivers remove it entirely.
Worth weighing up
- It is not transferable — refinancing to another lender can mean paying it again.
- Capitalising adds interest — you carry the premium in the balance for years.
- It protects the lender only — it does nothing for you if you fall into arrears.
- Refunds are limited — partial refunds, where available, apply only in a short early window.
How working with us actually goes
Step 1
We start with a conversation, not an application
Step 2
We work out what you can borrow and what it costs
Step 3
We prepare the application and deal with the lender
Step 4
We stay across the loan long after settlement
COMMON QUESTIONS
Questions we get asked about this
How much does LMI cost?
It varies with the loan amount, the loan-to-value ratio and the insurer, and it increases sharply as the LVR rises. On a large loan at a high LVR it can run to tens of thousands of dollars.
Because premium tables differ between lenders and insurers, comparing across a panel can produce a materially different figure for the same loan.
Can I get LMI refunded if I sell quickly?
Some insurers offer a partial refund if the loan is repaid within a short period of settlement, often the first year or two, on a sliding scale.
It is not universal, and the amounts are modest. It should not factor into your decision.
Does LMI transfer if I refinance?
Generally no. LMI is arranged between the lender and the insurer, so moving to a new lender while still above the threshold usually means a new premium.
That is a real consideration if you are thinking about refinancing while your equity is still thin.
How can I avoid paying LMI?
The main routes are a deposit at or above the lender's threshold, an eligible government guarantee scheme, a family security guarantee, or a professional waiver where your occupation qualifies.
Which of these is available depends on your circumstances, and they are worth checking before you assume LMI is unavoidable.
Is it better to wait and save a bigger deposit?
It depends on what prices do while you save, what you are paying in rent in the meantime, and how much the premium actually is.
It is a calculation, not a principle. We can run it both ways with your real numbers so the decision is made on evidence.
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GET IN TOUCH
Find out where you stand before you commit to anything.
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(02) 9659 1694Important information
The information on this page is general in nature. It has been prepared without taking your objectives, financial situation or needs into account, so it is not personal advice and you should consider whether it is appropriate for you before acting on it.
Any rates, figures or examples shown are indicative only. Lending is subject to approval, and lender eligibility criteria, terms, conditions, fees and charges apply. Talk to us about what your own circumstances allow.