How Much Does LMI Really Add to Your Home’s Cost?

Saving for a 20% house deposit can feel like teaching a mischievous puppy to sit, it's a lot of patience and persistence. Not everyone has the time or inclination for this process, and that’s where lenders mortgage insurance (LMI) can step in. But how much does LMI really add to your home’s cost? And can you dodge it altogether?

LMI is a type of insurance that protects the lender (not you or any guarantors) if you fail to keep up with your home loan repayments. It’s usually applied when your deposit is less than 20%, which is the case for many first-time homebuyers today.

A recent Mozo study revealed that 84% of Australians saving for a deposit can’t afford the full 20% deposit needed to avoid LMI. With property prices rising, this challenge is becoming even greater. For context, the national median property price has jumped to $973,300, up from $949,400 last December and $649,300 in June 2019.

So, let’s break down how much LMI can cost and explore ways to manage or potentially eliminate this extra expense.

How Much Could LMI Cost?

LMI typically costs between 1% and 2% of your loan amount, depending on your deposit and loan size. The larger your deposit, the lower your LMI premium could be.

Let’s run through a scenario using this convenient LMI estimator (give it a try to see the result yourself). Picture buying a $500,000 apartment. If you have a 10% deposit of $50,000, your LMI could be around $8,680.

Another example: If you're buying a $1,500,000 home and have a $150,000 deposit, the LMI premium could rise to $36,480.

The good news? There are ways to reduce or even avoid paying LMI altogether. Here are some ideas to consider:

1. Talk to Us for Advice

Unlike other types of insurance, LMI isn’t something you can shop around for, as your bank will select the insurer. However, different lenders use different LMI providers, which means the premium can vary depending on your choice of lender.

That’s why it’s crucial to speak with us at Osinski Finance. We can provide insight into the likely LMI premiums for the various lenders you're considering, helping you make an informed decision that could save you money.

2. Pay LMI Gradually

If paying LMI upfront doesn’t work for you, consider asking your lender if you can add the LMI cost to your loan balance. This way, you can spread the cost over your home loan repayments.

For example, if you’re buying that $500,000 apartment with a $50,000 deposit, adding the $8,680 LMI premium to your loan could increase your monthly repayments by around $45 to $65 over the life of a 30-year mortgage, depending on your interest rate.

Alternatively, some insurers offer the option to pay the LMI premium in monthly instalments until you build up enough equity for your lender to be satisfied.

3. Avoid LMI Altogether

Want to completely avoid LMI? Here are a few strategies that could help you:

Use your profession

Did you know that some lenders waive LMI for certain professionals? If you’re a doctor, lawyer, accountant, vet, engineer, or pharmacist, you might be eligible for home loan benefits that could save you a significant amount. So, check if your job comes with these home loan benefits, including being qualified for these LMI waivers.

Utilise the Home Guarantee Scheme

This government scheme allows first-time home buyers to purchase with a deposit as low as 5% or 2% for single parents and without paying LMI.

Ask a family member to guarantee your loan.

A guarantor, such as your grandparents, can offer extra security, such as the equity in their home, to bring the total loan security up to the equivalent of a 20% deposit.

Next Step? Get in Touch With Us

If saving for a 20% deposit is proving difficult or if you're unsure about how much LMI will impact your home purchase, Osinski Finance can help. We’ll guide you through the process, helping you understand what you’re likely to pay for LMI and offer strategies to potentially keep the costs down. 

Whether you’re looking to secure a suitable home loan or ready to explore investing in a property, we’re dedicated to offering personalised support every step of the way. Get in touch with us today for clear, tailored advice to help you make the best financial decisions for your future.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.