Thinking you need a 20% deposit to buy your first home? You’re not alone, and you’re not entirely wrong. But here’s the good news; there are certain situations where eligible buyers may be able to avoid LMI, depending on lender criteria and government scheme eligibility.
Let’s unpack what LMI really is, how it works, and smart ways you might be able to avoid it.
What Is LMI and Who Does It Protect?
Lenders Mortgage Insurance is a one-off premium charged by lenders when your deposit is under 20%, that is, when your loan-to-value ratio (LVR) exceeds 80%. It protects the lender (not you) if you can’t repay the loan.
Depending on your loan size, LMI can cost anywhere from a few thousand to tens of thousands of dollars. It’s usually capitalised into your loan, meaning you’ll pay interest on it too. Ouch.
3 Smart Ways to Avoid or Reduce LMI
1. Use the First Home Guarantee (5% deposit, no LMI)
This federal scheme allows eligible first-home buyers to purchase with just a 5% deposit, without paying LMI; this can be a significant benefit for eligible buyers who have a smaller deposit. Places are limited and income thresholds apply, so check your eligibility early.
2. Consider a Guarantor Loan
A family member (often a parent) can use the equity in their home to ‘guarantee’ part of your loan. This can reduce the need for LMI in some cases, depending on lender policy and the guarantor’s circumstances. It’s a generous move; just remember it comes with risks for the guarantor if you default.
3. Save a Little More (Even to 15%)
While 20% avoids LMI completely, some lenders offer discounts or reduced premiums if your deposit is at least 15%. Even a small reduction in your LVR may reduce LMI costs, depending on lender pricing.
Should I Pay LMI if I Have To?
For some buyers, paying LMI is a trade-off they consider if entering the market sooner aligns with their goals, but this depends entirely on individual circumstances. It’s essential to weigh the cost against your long-term goals.
You’re Not Alone (And You’ve Got Options)
If LMI caught you by surprise, you’re in good company. Many first-home buyers don’t realise it’s not insurance for them, and that it can be avoided. Whether through government support, a family guarantee, or smart deposit planning, There may be options available that can help reduce LMI or support an earlier purchase, depending on eligibility and lender criteria.
Want to Learn More About LMI and How to Beat It?
Our free First Home Buyer e-book dives deeper into LMI, including examples, comparisons, and general strategies to help you understand your options. It also breaks down other costs, government schemes, and steps from deposit to keys.
Download the guide nowand take your next step with clarity and confidence. You don’t have to navigate it alone; clear information can help you feel more confident in your next steps.
