How To Decide If You Need Lenders Mortgage Insurance
A significant number of borrowers are unclear about Lenders Mortgage Insurance, often referred to as LMI. A recent survey of mortgage brokers conducted by LMI provider Helia found that while most brokers believe LMI can help buyers enter the market earlier, many borrowers still do not fully understand how it works or when it applies.
That confusion matters, because LMI can be either a useful tool or an unnecessary cost depending on your circumstances.
Our Client Experience Manager, Carly Collins, knows a thing or two about turning property goals into reality, combining her experience in Sydney property markets and global finance with hands on insights from renovating homes alongside her builder husband.
Photo: Maggie Langtry
What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance is an insurance policy that protects the lender if a borrower defaults on their loan and the sale of the property does not cover the outstanding balance. It does not protect the borrower.
The cost of LMI varies depending on the size of the loan, the property value and location, and the size of your deposit. It can be paid upfront or capitalised into the loan, which increases the total amount borrowed.
When is LMI usually required?
Most lenders require LMI when a borrower has a deposit of less than 20 per cent of the property value. This is because a smaller deposit increases the lender’s risk.
However, there are exceptions. Certain professions, including doctors and lawyers, may be eligible for reduced LMI or, in some cases, no LMI at all, even with a smaller deposit. These policies vary by lender and change over time.
The upside and the downside
The main advantage of LMI is that it can allow you to enter the property market sooner, rather than waiting years to save a larger deposit. In rising markets, that timing can matter.
The downside is cost. LMI can be significant, and once paid it is generally not refundable. Whether it makes sense comes down to weighing the cost against the potential benefits of buying earlier.
So, do you need it?
There is no one-size-fits-all answer. For some borrowers, LMI is a practical trade-off. For others, waiting or restructuring the loan makes more sense.
The key is understanding the options available to you and how different lenders assess risk, deposits and income. That is where proper advice matters.
If you would like to talk through the numbers and whether LMI makes sense for your situation, I am happy to help you work through the pros and cons so you can make an informed decision.