Key takeaways
- Lenders mortgage insurance (LMI) protects the lender, not you, and applies when you borrow above 80% of the property value.
- It can add thousands to tens of thousands to an investment purchase, usually added to the loan.
- You can avoid it with a 20% deposit, or by using equity from another property to keep the LVR at or below 80%.
- Some lenders waive or reduce LMI for certain professions, and a guarantor can help too.
LMI is one of those costs investors discover late and resent paying, because it protects the lender while you foot the bill. The good news is there are several legitimate ways around it. Andy has been broking in WA since 2000, and avoiding or minimising LMI is one of the first things he looks at when structuring an investment loan.
What LMI Actually Is
Lenders mortgage insurance protects the lender if you default and the property sells for less than is owed. It is triggered when your loan is more than 80% of the property value, that is, when your deposit is under 20%. It does nothing for you, it simply lets the lender say yes to a smaller deposit.
How Much It Costs
LMI is not small. Depending on the loan size and your LVR, it can run from a few thousand into the tens of thousands, and it is usually added on top of your loan, so you pay interest on it too. The higher your LVR above 80%, the steeper the premium climbs.
| Loan-to-value ratio | LMI position |
|---|---|
| 80% or below | No LMI payable |
| 81% to 90% | LMI applies, moderate premium |
| 91% to 95% | LMI applies, higher premium |
Avoiding It With a Deposit
The cleanest way to avoid LMI is a 20% deposit, which keeps your loan at or below 80% LVR. For an investor, though, tying up 20% in cash on every purchase slows your growth, which is where the next option comes in.
Using Equity Instead
You can avoid LMI by using equity from your home or another property as part of the deposit, keeping the new loan at or below 80% without draining your savings. This is a common and powerful move for investors building a portfolio. See low deposit investment loans if a smaller deposit is your only option.
Other Ways to Reduce It
A few other levers can help: some lenders waive or reduce LMI for certain professions, a guarantor can effectively boost your security, and choosing the right lender matters because LMI premiums and policies differ between insurers. Sometimes paying a little LMI to buy sooner is the smart move, sometimes it is worth waiting, it depends on your numbers and goals.
How Andy Helps
Andy works out whether LMI applies to your situation, shows you the ways to avoid or reduce it, and helps you decide whether paying it to buy sooner actually stacks up for you. See the investment home loans page and get in touch.
LMI Questions
What is LMI and who does it protect?
Lenders mortgage insurance protects the lender if you default, not you. It applies when you borrow above 80% of the property value, and you pay the premium.
How do I avoid LMI on an investment loan?
Keep your loan at or below 80% LVR, either with a 20% deposit or by using equity from another property. A guarantor or certain professional waivers can also help.
Is it ever worth paying LMI?
Sometimes. Paying LMI to buy sooner can pay off if the property grows in value meanwhile. Andy will run the numbers so you can decide.
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