First Home Buyer's Guide

Lender's Mortgage Insurance (LMI)

Lender’s mortgage insurance is the policy which you pay to protect your bank against loss if you default.


Lender’s mortgage insurance or LMI is a once off payment and is calculated as a percentage of the loan amount.


That percentage increases the higher the loan amount and the higher the percentage of the purchase price you want to borrow (known as loan to value ratio or LVR).


The three things you should know:


1. Thresholds

LMI is calculated base on whole percent LVR thresholds and loan amount bands. This means that small changed in LVR or Loan amount could have a big impact on the amount of LMI payable.


Example LMI Table

Consider the difference just $5,000 extra deposit could make if you were purchasing a $325,000 property at either 91.5% or 93%.


Loan at $297,500

(91.5% LVR)

LMI = $6,397

Loan at $302,500

(93.1% LVR)

LMI = $9,259

In this example, borrowing just $5,000 more would increase your LMI premium by almost $2,900.


2. Mortgage Insurers have their own policy

If a loan is in LMI territory, it is likely that your lender will also have to seek mortgage insurer approval. This means that they have the final say, even if the lender says yes the. Mortgage insurer could say no.


It also means that just by changing lender, you could still get the same answer.


3. Not all LMI is the same

There are three insurers in Australia and some of the big banks also self-insure. They all have their own policy and they all charge their own rates. This means a difference of potentially thousands between lenders and insurers.


LMI has had a profoundly positive impact in Australian property. For the economy LMI is another layer of protection for our banking system and for consumers a method of being able to borrow greater than 80% of the value of a property.

Pro tip: get advice upfront on which lender/insurer is best for you and check your thresholds.

  • Grey Facebook Icon
  • Grey LinkedIn Icon

© 2018 Parker Lane. 

Parker Lane is a trading name of Upside Downside Pty Ltd. Australian Credit License Number 482276

The information contained in this website may not be current or complete, or may not remain current or complete, and therefore under no circumstances should be relied upon. No warranty or representations as to its accuracy or completeness is provided. We are not liable to your or any other person for loss, damage or injury arising from the use of, or reliance on, this information, including but not limited to loss suffered in connection with incorrect or out of date information. It is not intended to be a substitute for professional financial advice and does not purport to guarantee any projected amount of borrowings. All applications for credit are subject to normal credit approval criteria. Parker Lane specifically disclaims any responsibility or liability for any losses or damages arising from any use of or reliance upon any calculations or conclusions reached using this website. See our credit guide for further details.