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Understanding Lenders Mortgage Insurance

If you’re a first home buyer, one of the biggest challenges you face is saving a sufficient deposit for a home.


As a general rule, the banks require you to have about 20% of the purchase price in order to take out a loan, otherwise you will need to pay Lenders Mortgage Insurance (LMI).

LMI is a cost that protects the lender in the event that you as the borrower are unable to make your home loan repayments.

While LMI sounds like an added expense that should be avoided, it does allow you buy a property with a smaller deposit, which in turn allows you to get into the market sooner than later.

This is particularly helpful if you’re buying in an area where demand is high and property values are continually on the rise.  

You may be holding off from buying because you’re trying to save for a biggest deposit, but by the time you’re ready to buy, property prices may have gone up and you could end up missing out.

Therefore, it is definitely worth a consideration if you’re wanting to get your foot on the property ladder.

The cost of LMI will vary depending on the size of your deposit and the value of the home, but it is a once-off cost that is either payable upfront at settlement or added to your overall loan amount, in which case you pay it off over the life of the mortgage.

It is important to remember that property is a long-term strategy, so the amount you pay in LMI is a relatively small expensive in the overall cost.

In addition, if your property grows in value, that can sometimes make up for the cost of LMI.

That said, if you do not want to pay the cost of LMI, there are alternative ways of getting into the market with a smaller deposit.

You can either have a parent go guarantor on your home loan, or they can provide a financial gift to you to make up for the shortfall.

At Mortgage Choice, we can help discuss the options available to you on how you can make your home ownership goals a reality, so speak to us today.


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