Answering your Lenders Mortgage Insurance questions

In Australia, we’ve seen house prices rise* at a record rate over the past 12 months. This is great news for Aussies who own their own home or have an investment property, but it’s making things a lot harder for first-time buyers looking to get into the property market.

If you’re a first home buyer and you don’t know how you’re going to save hundreds of thousands of dollars for a deposit with housing prices so high, paying Lenders Mortgage Insurance might be an option for you to consider. And who better to tell you everything you need to know about Lenders Mortgage Insurance than one of our Mobile Lending Managers, Susan Walters, who has 17 years of experience in home lending.

Susan is answering our most frequently asked questions about Lenders Mortgage Insurance, including what it is, what it’s for, how much it costs, how it can affect your home loan and much more.

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What is Lenders Mortgage Insurance (LMI)?

Lenders Mortgage Insurance, also often abbreviated to LMI is a one-off fee that you will need to pay if you borrow more than 80% of your home’s value (in other words, if you have a small house deposit). It’s there to protect the lender in case you are unable to repay your loan.

In basic terms:

• lenders protect themselves with Lenders Mortgage Insurance, and
• borrowers can buy a home sooner with a smaller deposit.

Who needs to pay LMI?

You usually only need to pay Lenders Mortgage Insurance if you borrow more than 80% of your home’s value. For example, if you take out a loan for $400,000 but only have a $20,000 deposit you can expect to pay LMI.

However, there may be other instances where you’ll be expected to pay LMI. So, it’s always important to talk to your lender – they can tell you everything you need to know about your LMI, especially how much it will cost.

How do you pay for LMI?

You don’t need to arrange Lenders Mortgage Insurance yourself, your lender will sort it for you. In most cases, the LMI fee is bundled in with your home loan amount. However, some lenders may let you pay it upfront, as a lump-sum.

Why is LMI a good thing?

Saving a 20% deposit for a house isn’t easy for most people. It can take years, and if property prices continue to increase you may find that once you’ve saved your 20% deposit, the prices of the properties you were looking at have gone up, meaning you’d need to keep saving to build that 20% deposit.

With Lenders Mortgage Insurance, you can have as little as a 10% deposit (or 5% in some cases). Yes, you will have to pay LMI, but it’s usually added to your loan, so you won’t have to pay a lump-sum up front. Most importantly, LMI could help you get the keys to your home sooner, and then any increase in property prices will benefit you.