min read
· Posted on
February 21, 2024

What is lender's mortgage insurance?

Fear not, we've got lenders mortgage insurance explained in a way you'll actually understand.

What's the key learning?

  • LMI is a premium you'll need to pay if your deposit is less than 20%.
  • This insurance covers your lender, not you.
  • Saving a bigger deposit or finding a guarantor are the main ways to avoid paying LMI on your home loan.

Around 57% of Aussie millennials haven’t heard of lenders mortgage insurance (LMI), so if you’ve found yourself coming to this article clueless, you’re not alone. Whether or not you’ve heard of LMI already, you’re likely thinking ‘what the hell is it?’.

Lenders mortgage insurance explained

LMI stands for lenders mortgage insurance and it pretty much does exactly what it says on the tin. It’s the premium you have to pay when you’re buying a house (go you!) if the amount you’re borrowing for your home loan is more than 80% of the property price… AKA, you’ve saved up less than a 20% deposit.

What does LMI cover? 

Put simply, this type of insurance covers your lender, not you. LMI exists to protect your credit provider just in case you can’t pay back your loan. There’s no direct benefit in it for you, but it could be worth it if you’re looking to get onto the property ladder quicker to beat the clock on rising prices.

How do I pay LMI?

You can pay LMI as a one-off upfront cost at settlement time. But the good news is, you can also add LMI to your loan amount and pay it off gradually. Just remember, that means you’ll be paying interest on the LMI amount. 

How to avoid LMI

When it comes to avoiding LMI, there’s a simple answer: take the time to save a bigger deposit that’s more than 20% of the value of the properties you’re looking at. Sometimes slow and steady really does win the (property) race. Having a guarantor is another way to avoid LMI (e.g. someone like a parent who accepts legal responsibility for your repayments in case you can’t make them).

What size LMI premium should I expect to pay?

There are a few factors at play when determining exactly how much LMI you’ll pay. We’re talkin’:

  • The size of your loan
  • The size of your deposit 
  • Whether the source of your deposit is genuine savings or a gift (TY mum and dad).

Ready to win at money?

Sign up for Flux and join 100,000 members of the Flux family

A button to App StoreGoogle Play store button
Excellent  4.9 out of 5
Star rating