How To Avoid Lenders Mortgage Insurance
Avoiding Lenders Mortgage Insurance (LMI) can save you thousands when buying a home. LMI protects the lender if you default on your mortgage and usually applies when your deposit is less than 20% of the property price.
How to Avoid Lenders Mortgage Insurance
1. Save a Deposit of at Least 20%
- The simplest way to avoid LMI is to put down 20% or more of the home’s purchase price.
- This shows lenders you have a good equity buffer, so they don’t require LMI.
2. Get a Guarantor Loan
- Have a family member (usually a parent) guarantee part of your loan using their property as security.
- This can reduce or eliminate LMI because the lender has additional security.
3. Consider a Family Pledge or Guarantee
- Similar to a guarantor loan but often structured as a family pledge where part of a family member’s property equity backs your loan.
- It reduces risk for the lender.
4. Choose a Lender that Waives LMI
- Some lenders offer LMI-free home loans or loans with low deposits without LMI.
- Usually come with stricter criteria or higher interest rates, so compare carefully.
5. Split Your Loan (Piggyback Loan)
- Take two loans:
- One for 80% of the property price (no LMI)
- A second “piggyback” loan for the remaining amount
- Note: piggyback loans may have higher interest rates or fees.
6. Negotiate with Your Lender
- Some lenders might waive or reduce LMI fees for loyal customers or those with strong financial profiles.
- It’s worth asking!
7. Increase Your Repayments
- If you start with a smaller deposit, paying extra on your mortgage can help build equity faster.
- Once you reach 20% equity, refinance to get rid of LMI.
Summary Table
| Method | How It Helps Avoid LMI |
|---|---|
| Deposit 20%+ | No LMI needed as risk is low |
| Guarantor or Family Pledge | Adds security, reducing lender risk |
| LMI-free Loans | Some lenders offer loans without LMI |
| Piggyback Loans | Splits loan to keep primary loan under 80% |
| Negotiate with Lender | Possible fee reduction or waiver |