Saving for a 20% house deposit can feel like training a stubborn pet – it takes patience and perseverance. Not ready to wait? You could consider Lenders Mortgage Insurance (LMI), which allows buyers to enter the market with a smaller deposit. But how much does LMI actually cost, and can it be avoided?
LMI is a type of insurance that protects the lender—not you or any guarantors—if you can’t keep up with home loan repayments. Typically, it applies when your deposit is less than 20%, and with rising property prices, that’s increasingly common.
A recent Mozo study found that 84% of Australians saving for a deposit are unable to reach the full 20% needed to avoid LMI, partly due to climbing property values. For instance, the national median property price is now $973,300, up from $949,400 in December last year.
Let’s break down what LMI might cost and explore ways to manage—or potentially sidestep—the expense.
How Much LMI Might You Pay?
LMI generally ranges from 1% to 2% of the loan amount, depending on your deposit size and total loan value. The larger your deposit, the lower the LMI premium tends to be.
For example, say you’re buying a $500,000 property with a 10% deposit of $50,000. In this case, LMI could cost around $8,680. But if you're buying a more expensive property, such as a $1,500,000 home with a $150,000 deposit, the LMI premium could reach $36,480.
The good news is that there are several ways to potentially reduce or even eliminate the cost of LMI. Here are three ideas to consider:
1. Explore Options with Us
Unlike other forms of insurance, LMI isn’t something you can shop around for independently. Your lender arranges the cover, and the cost depends on the specific LMI provider they use. Since different lenders partner with different insurers, LMI premiums may vary depending on the lender.
This is why it’s valuable to speak with us. We can help compare potential LMI costs across lenders, potentially saving you money on your home loan in Townsville, Brisbane, Gold Coast, Sunshine Coast in Queensland, Australia.
2. Pay LMI Gradually
Rather than paying LMI upfront, some lenders may allow you to add the premium to your loan balance. This lets you pay LMI off gradually with your regular home loan repayments, although you’ll end up paying interest on the added amount over the life of the loan.
For instance, if you’re purchasing a $500,000 apartment with a $50,000 deposit, adding the LMI premium to your home loan could increase your monthly repayments by around $45-65, depending on the interest rate at the time.
Alternatively, some LMI insurers offer the option of paying the premium in monthly instalments until you reach enough equity in the property to satisfy the lender.
3. Look into Waiving LMI Altogether
Want to avoid LMI altogether? Here are some strategies that could help you bypass the cost:
Ready to Take the Next Step? Contact Us
If saving for a 20% deposit feels out of reach, contact us today. We’ll help you assess potential LMI costs and explore ways to keep this expense under control. As your mortgage broker in Townsville, Brisbane, Gold Coast, Sunshine Coast in Queensland, Australia, we can help simplify the process and guide you toward the best options for your financial goals.
To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at finance@pfga.com.au.
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