Lenders mortgage insurance basics

Lenders mortgage insurance comes to your rescue when you can’t make a large deposit. It can help you to buy your first home faster.

Struggling to save enough for a home loan deposit isn’t just a modern phenomenon – it’s always been difficult. Despite generations of Australians having to forgo countless movie and dinner dates, being forced to borrow from family members or needing to choose scrambled eggs on toast for breakfast at their parents’ home rather than smashed avo at the local café, it’s typically hard to scrape together enough funds to put down a deposit on a property. And even if that’s achieved, there are the regular home-loan repayments to think about, too. Of course, it’s never been tougher to save for a deposit. But there is hope. For some time, those borrowing more than 80% of their target property’s purchase price have been able to take out lenders mortgage insurance (LMI). This insurance policy, provided by a number of companies, helps financial institutions recover some of their money if borrowers are unable to service their home loan repayments. In short, LMI protects the lender, not the borrower. For those looking at buying a home, paying the LMI premium means lenders are more prepared to offer loans to customers they might otherwise see as higher risk – even those looking to borrow up to 95% of the purchase price. This means LMI gets borrowers into their dream home sooner … even if if it can be quite expensive. Here are some frequently asked questions to help you through the LMI maze:

How does lenders mortgage insurance work?

Most lenders ask borrowers for a deposit of around 20% of the value of the home loan. With LMI, however, borrowers have access to the funds with a smaller deposit. In short, LMI protects lenders while helping borrowers get their home loan approved. LMI offsets any losses the lender may suffer if the borrower can’t repay the loan amount on their mortgage. When a borrower defaults on a basic home loan, the lender will typically sell the property. However, sometimes the proceeds from the sale are not enough to cover the losses suffered by the lender. This happens when the lender adds other costs incurred while enforcing the mortgage to the cost of the loan. LMI covers the difference, protecting the lender from a default. LMI is available for both owner occupied and investment home loans. This includes home loans borrowers use to buy their first home.

How do I qualify for lenders mortgage insurance?

Some lenders may require LMI while others won’t. Many make it a borrowing precondition if customers have less than the required 20% deposit. Most lenders use it as a safety measure. To qualify for LMI, you need to be able to meet the regular monthly repayments that service your home loan. The LMI insurer will check this while you are in the process of securing your home loan. A home loan repayment calculator can help you to estimate your repayments.

How much does lenders mortgage insurance cost?

This varies depending on the LMI provider, the size and length of your loan, whether you are a first-home buyer and the amount you have as a deposit. As an example, leading LMI provider Genworth provides a calculator that shows that a first-home buyer looking to borrow $800,000 over 30 years but with just $80,000 (10%) deposit would pay $17,568 (plus stamp duty) in LMI. It estimates this would be a LMI premium of $88 on the monthly mortgage repayments.

How do I pay lenders mortgage insurance?

You usually pay LMI as part of your home repayments. You have the option to pay it only once, as an upfront cost, during the settlement of the loan. It covers the lender until the end of your home loan term. The LMI premium takes into account two key factors. The first is the type of loan you request. The second is the size of your deposit. Some lenders are willing to add this premium to the total loan amount that can reduce your upfront costs significantly. You should bear in mind that LMI might be subject to GST. Lenders will tend to include this in their quote. You would need to check this with your lender and the LMI provider.

How can I avoid paying lenders mortgage insurance?

The easiest answer is to find other ways to ensure you have more at least 20% of your property’s purchase price. This might be through making extra savings or borrowing funds from family or friends. You might also be able to convince a family member to be a guarantor, who would take responsibility for the loan debt. This is not a risk that should be taken lightly – the guarantor would be forced to repay the balance of the loan if you default. Some LMI providers may also be persuaded to waive their insurance premiums if you can prove that you work in a steady, well-paid industry with little prospect of redundancy. This includes, for instance, those employed in medical or legal professionals. It’s assessed case by case.

How much deposit is required to avoid lenders mortgage insurance?

If you’re able to come up with at least 20% deposit on the purchase price of your property, you can avoid having to take out LMI and pay the associated premiums.

Is lenders mortgage insurance a tax deduction?

The Australian Tax Office allows you to claim a deduction for borrowing expenses associated with purchasing your property, and this includes LMI. This deduction is generally spread over five years or the term of the loan, whichever is less.

How does lenders mortgage insurance benefit the buyer?

LMI allows lenders to safely loan money to those who do not have a minimum deposit for their target property. In this way, it allows borrowers to own their home sooner.

Can lenders mortgage insurance be added to my loan?

Lenders generally include the LMI premium into their monthly repayment schedule although it can be paid upfront.

How to I get rid of lenders mortgage insurance?

Once you have at least 20% equity in your property (in other words, you owe less than 80% of your property’s value), you may be able to ask your lender or LMI provider to cancel the policy. You will likely need to show a good repayment history.

How do I get a refund on lenders mortgage insurance?

You may be able to get a partial refund (up to 40%) on the amount you pay in LMI is you repay your loan early. You might also be eligible for a partial refund depending on how you’re progressing with your home-loan repayments in the first two years.

What to do next

With the help of a UNO home loans professional, you can secure a mortgage that has affordable lenders mortgage insurance. We recommend that you do the following: Find out how much you can borrow with a loan calculator Compare home loans online to lower your monthly payment Book in a quick call with our customer care team.This information is general in nature, and you should always seek professional advice when making financial decisions. Book a call in with UNO

Book Call Now

UNO home loans

Need help with your home loan?

UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy schedule

Get Started

Related Articles

TESTIMONIALS

What our customers are saying

Sally Mackenzie
February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
Read more
Rod
February 13, 2024
Scott and his team were just A-mazing. We felt supported through the whole process with the greatest quality and care. Every question answered right in time, or even before we asked. The process was smooth and we got the best outcomes we could have wished for.
Read more
Angela Biddle
February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
Read more
Fotis Bikas
January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
Read more
Tomoharu Matsui
January 11, 2024
Michael Parsons helped me a lot when it's difficult to establish my capabilities in loan.
Read more
Gillian Kearon
January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
Read more
Taner T
December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
Read more
Karaipu Brown
December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
Read more
Chris Anderson
December 18, 2023
Just completed my first loan with UNO which was so much easier than with other other brokers I have used in the past. Our broker MIKE PARSONS always had time for me and broke things down for me in the simplest of terms and was very patient with my silly questions and my constant changing of plans. I wish I had used them in the past as I wouldn't be in the situation I'm in now. Can't recommend them highly enough. Thanks UNO and Thanks MIKE 😊
Read more
Stephen Broomfield
December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
Read more
Tarek Hussain
December 6, 2023
Can't thank Amy enough for her hard work, dedication and determination on getting multiple loans completed for me. I wouldn't hesitate in recommending Amy and the Uno team to any of my associates. Will definitely be back in the near future!
Read more
Linda
November 3, 2023
If you’re looking for a trustworthy, thorough, reliable & knowledgeable Mortgage Broker then you must call Anita Callaghan! I can’t even imagine how stressful this process would’ve been without her. Anita went above and beyond to make sure she answered every question, responded to every text (even on weekends/after hours), and followed up on every detail to ensure we had all the info we needed. Anita is a true people person who is warm, empathetic, kind and supportive. You can tell she loves helping people and loves what she does, which is probably why she’s so good at it! Can’t thank you enough Anita, or recommend you more highly! You’re the best!
Read more