Lenders Mortgage Insurance (LMI) is paid on all home loans by the lender to a third party or in-house insurance organisation. It is charged to you if the loan amount is 80% or more of the lender’s valuation of the property you are purchasing.
You can avoid paying LMI by contributing at least 20% of the property valuation. To do this, you may need to seek funds from other sources:
- another home loan secured by another property;
- selling assets;
Sometime lenders will allow the LMI to be capitalised, which means it’s added onto the loan amount.
LMI is expensive but can be worthwhile – it’s the only way you can buy a property if you haven’t saved up a 20% deposit.