What is LMI (Lenders Mortgage Insurance)?

Firstly, you might be wondering, what does LMI stand for? LMI stands for Lenders Mortgage Insurance.

Banks and lenders take out LMI when someone is borrowing more than 80% of a property’s value. This is paid for by the borrower, but only insures the lender.  

LMI is a one-off payment. The only other time you might need to pay for it again is if you refinance with a different lender. Smaller deposits mean bigger risk, this is why lenders get it to safeguard themselves if you default on your loan.

What are the benefits of LMI?

As we just mentioned, for the lender, LMI is a safeguard in case you default on your loan. For the borrower, the main benefit is you get to own your home sooner. So in the short term you can buy your home with a smaller deposit, and pay LMI in the long term.

What if you want to avoid LMI? 

There are a couple ways to get a loan without LMI. Firstly, you will need to save a deposit of 20% of the property’s value or more. Or your other option is to get a guarantor. This is typically your parents.

Finally, how much is LMI?

Everyone’s situation is different, so therefore everyone’s LMI is too. Although there are a few common key factors that determine the price of LMI. These are your lender, the size of your deposit and size of your loan. There are several online LMI calculators you can use to find an estimate of how much LMI is going to cost for you.

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