Blog How much is Lender's Mortgage Insurance?

How much is Lender's Mortgage Insurance?

08 April 2020

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If you can’t scrape together enough for a 20% deposit, chances are you’ll need to pay Lender’s Mortgage Insurance, which can add a hefty chunk to the already daunting price tag on your home.

But how much exactly does Lender’s Mortgage Insurance cost, and how can you avoid paying it?

What is Lender’s Mortgage Insurance

Lender’s Mortgage Insurance, or LMI, is an insurance policy on a home loan which covers the lender against potential losses in the event that you, the borrower, can no longer meet your repayments. Don’t confuse it with mortgage protection insurance, which is designed to cover borrowers in case they can’t meet their repayments due to things like, illness, disability or death.

LMI was first introduced in Australia in 1965 to encourage lenders to offer lower interest rates and to create more opportunities for people to get a home loan. There are a number of providers of LMI in Australia at the moment with the largest being:

  • Genworth Financial

  • QBE

The lender will decide which one they go with, and the charges may differ slightly.

Lender's Mortgage Insurance can be very expensive indeed - below we’ll break down just how much it can cost.

How much does Lender’s Mortgage Insurance cost?

LMI costs at least a couple of thousand dollars in the vast majority of cases, but that’s a low-point. It can easily cost upwards of $10,000 or even $20,000, depending on a number of factors:

  • The cost of the house

  • The size of your deposit

  • Whether you’re a first home buyer or not (this can make it more expensive)

  • The length of your mortgage

And other factors such as your age and employment status.

The table below displays a breakdown of what LMI can cost based on a 30-year home loan for various LVRs (loan-to-value ratios) and property costs.

Estimated Lender's Mortgage Insurance (LMI) Premiums

Estimated property value

95% LVR

90% LVR

85% LVR

$200,000

$ 5,643

$ 3,024

$ 1,649

$400,000

$ 14,174

$ 7,668

$ 4,284

$600,000

$ 28,557

$ 14,634

$ 7,344

$800,000

$ 38,076

$ 19,512

$ 9,792

$1,000,000

$ 47,595

$ 24,480

$ 12,325

Source: Genworth LMI premium estimator. Prices including GST but excluding stamp duty. Based on a loan term up to 30 years.

So as you can see, LMI can be extremely costly, and if you do have to pay it, it can add thousands extra to the cost of your loan.

LMI can be paid upfront as a one-off fee, but if it’s too expensive, you can also capitalise it into the loan and pay it off as a part of your regular mortgage repayments (this would mean the LMI fee would also accrue interest).

Stamp duty on your LMI premium

The costs above exclude stamp duty on the LMI premium, which is different from stamp duty charged on the purchase of a property. Depending on which state you live in, you can also be charged a percentage on your LMI premium:

  • NSW: 9.0%

  • VIC: 10.0%

  • QLD: 9.0%

  • SA: 11.0%

  • WA: 10.0%

  • ACT: N/A

  • NT: 10%

  • TAS: 10%

So, remember to factor this in when budgeting for your house purchase, as it can be an extra few hundred or even a few extra thousand dollars.

Calculate stamp duty

How to avoid Lender’s Mortgage Insurance

Simply put, the most common way to avoid paying for LMI is to build up a deposit of 20% or greater. Most lenders won’t charge any LMI fees for borrowers with 20% or more, because they won’t deem them to be as great of a risk.

To save up for a house deposit, there are three main steps to take:

  • Look at what you're spending

  • Think about what kind of lifestyle you're comfortable with while you save

  • Make a budget and maximise your savings

Ready to start your home loan journey? Find out how much you can borrow using our borrowing power calculator:

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