How to avoid paying LMI

Lender’s Mortgage Insurance (LMI) is typically required when your loan amount exceeds 80% of the property’s purchase price or valuation, especially during refinancing. Lenders view loans with a Loan-to-Value Ratio (LVR) above 80% as higher risk, triggering the need for LMI. However, there are strategies to avoid this costly premium. By increasing your deposit, exploring a guarantor loan, or choosing a lender with tailored products, you can sidestep LMI and save thousands. Here’s how to secure your dream property without the added financial burden.

Save for a higher deposit

The purpose of LMI is to protect lenders should the borrower fail to make loan repayments when the LVR exceeds 80 per cent. When the loan amount is more than 80 per cent of the value of the property being mortgaged, the risk to the lender of not recouping their costs, should the borrower default, is increased. A higher deposit means a smaller loan amount and therefore a lower LVR thereby reducing the lender’s risk. A loan of 80% or less of the property’s value is the key to avoiding paying LMI.

Get a guarantor

If you don’t have the financial capacity to meet a 20 per cent deposit but still want to avoid LMI, you do have the option of getting a guarantor for your loan. A close relative, such as a parent, sibling or perhaps a grandparent, may be eligible to act as a guarantor and they use the equity in their property to help you secure yours and keep your total loan below 80%. In some instances, having a guarantor on your loan may mean that you won’t need a deposit at all.

A little insider knowledge from a mortgage broker may go a long way in helping you to find a loan that won’t require you to fork out for LMI.