What is lenders mortgage insurance (LMI) and how can I avoid it?

LMI usually applies when your loan to value ratio (LVR) is above 80%, meaning your deposit is less than 20% of the property's value as assessed by the lender. Some lenders apply it at lower LVRs for certain loans, such as some low doc or self-employed loans.

LMI is charged once, when the loan settles. Most lenders let you add it to the loan amount (capitalise it) instead of paying it in cash, although that means paying interest on it.

The premium is set by the insurer and depends mainly on the loan size and the LVR. The higher either one is, the higher the premium, and the jump from 85% to 90% or 95% LVR is significant. It can range from a few thousand dollars to tens of thousands on a larger loan with a 5% deposit.

Because premiums differ between insurers and lenders, we quote the actual LMI figure for your loan before you commit.

The main options are:

• Save a 20% deposit so your LVR is 80% or less
• Use the Australian Government 5% Deposit Scheme, which removes LMI for eligible buyers within property price caps
• Use a family guarantor who offers equity in their property as extra security
• Use a professional LMI waiver if you are an eligible doctor, lawyer, accountant or other included profession
• Buy a slightly cheaper property so your deposit covers 20%

Sometimes. LMI is a real cost, but if prices are rising faster than you can save, buying sooner with a smaller deposit can leave you better off than waiting. It depends on your budget, the property and how long saving the rest would take. We can model both paths side by side.