Lenders Mortgage Insurance Explained: When You Need LMI and How to Reduce It
Learn when LMI applies, how it is calculated, and strategies to reduce LMI costs on high-LVR loans, including profession-based discounts.
What Triggers Lenders Mortgage Insurance?
Lenders mortgage insurance (LMI) is typically required when your loan-to-value ratio (LVR) exceeds a certain threshold. For most lenders, this means if your deposit is less than 20% of the property’s value, you may be asked to pay LMI. The exact trigger point can vary between lenders, so it’s important to check with your lender or broker.
How Is LMI Calculated?
The cost of LMI is not a fixed amount; it depends on several factors. Lenders generally calculate the premium based on your LVR, the size of the loan, and sometimes the type of property. The higher your LVR, the higher the LMI premium, because the lender sees a greater risk in lending to you. Additionally, some lenders may consider your credit history and employment type when determining the premium.
Strategies to Reduce LMI on High-LVR Loans
If you have a high-LVR loan, there are some strategies that may help reduce your LMI costs. One approach is to take advantage of profession-based discounts. Many lenders offer LMI waivers or reduced premiums for certain professions, such as doctors, lawyers, accountants, or other high-income or stable-occupation groups. If you belong to one of these professions, you could potentially save a significant amount on LMI. Another strategy is to increase your deposit to lower your LVR, even a small increase can push you below the LMI threshold. You could also consider using a guarantor, which may allow you to avoid LMI. It’s always best to compare offers from different lenders to find the most favorable terms for your situation.