In most cases, LMI is non-refundable; however, you may be entitled to a partial refund in certain circumstances. For example, LMI premiums may be partially refunded if the risk decreases and the home loan is repaid within the first one to two years, with all repayments having been made on time.
Any partial refund will be at the discretion of the lenders.
It’s a good idea to chat to our home loan expert or lender and read the home loan key fact sheets before taking out a loan, to make sure you’re aware of the terms and conditions regarding LMI.
When it comes to paying LMI on a home loan, the same rules generally apply to refinancing. If you don’t have 20% of the home’s value in the form of cash or existing equity, you may have to pay LMI.
LMI can’t be transferred from one lender to another, and you may find yourself paying more in LMI on your new home loan if your LVR ends up being higher. To avoid this, it’s sometimes better to wait until you’ve built up enough equity in your home to ensure your new home loan will have an LVR of 80% or less.
No, LMI isn’t the same as mortgage protection insurance (MPI). LMI is protection for the lender if you can’t pay your loan back, whereas MPI is a type of income protection insurance which can protect the borrower (you) against unexpected events such as involuntary redundancy, disability or death.
In the case of such an event and if you meet the criteria, your MPI provider will compensate (you in the form of either a lump sum or ongoing payments to help you cover your regular home loan repayments.
LMI in Australia is arranged by the lender, and they will generally use a provider such as QBE or Helia. They may even self-insure.
LMI reduces the risk you pose to your lender, but it can also benefit you as a borrower. For example, it may help you enter the property market earlier with a smaller deposit, sometimes as small as 5%.
This opens up a wide range of options for you, including:
Of course, this can also come with risks; you’re borrowing more, so your mortgage repayments will be higher as a result, meaning an interest rate increase could put you under mortgage stress.
So, while LMI can help you enter the property market sooner, you’ll need to think long and hard about whether you’re comfortable signing up for larger home loan repayments and higher risk.
The only similarity between LMI and stamp duty is that they can both be paid as an upfront homebuying cost. Stamp duty is a mandatory tax imposed by state and territory governments on the transferral of a property’s legal title from one party to another as the result of a sale, whereas LMI is a lender-imposed premium that not all borrowers will have to pay.
Stamp duty on a property can also be thousands, if not tens of thousands, of dollars. Unlike LMI, however, it’s not determined by your deposit size, but rather:
It’s important to stress that the answer to this question will depend on whether you choose to pay your LMI upfront or to capitalise it into your home loan. If you choose to pay it upfront, you won’t pay it monthly (because it’ll already be paid for).
However, if your lender will let you capitalise your LMI into your home loan, you’ll be paying it off via your regular home loan repayments, which could be monthly depending on the repayment frequency you and your lender have agreed on.
Lenders will generally give you the option of making weekly, fortnightly or monthly repayments, and the repayment frequency you choose will determine how you’re repaying your LMI.
LMI (if required), along with stamp duty, will typically be by far the largest upfront expenses associated with buying a home (if you choose to pay your LMI upfront). But there are a few others to be aware of that can really add up, including:
If you want to buy a home now and don’t have a 20% deposit, you’ll most likely have to pay LMI, regardless of whether you think you ‘need’ it or not.
So, strictly speaking, no one ‘needs’ LMI – but some borrowers may decide it’s worth taking out based on their specific borrowing circumstances, and some may decide it’s not.
Consider two different prospective homebuyers:
Jamie may decide that LMI is a cost he’s willing to bear, as the money he’ll spend on LMI is dwarfed by the money he’d put towards paying rent in the time it would take him to save a larger deposit.
Trudy may decide she doesn’t want to have to pay LMI and is happy to continue living with her parents while she works towards saving up a larger deposit.
Whether you decide to spend time saving a larger deposit or commit to borrowing with a higher LVR and paying LMI, your decision should be decided based on your personal circumstances, goals, and timeframes.
The table below demonstrates the LMI costs you might incur at different deposit sizes based on the median dwelling values of state and territory capital cities around the country.
|Capital City||Median value||With a 5% deposit||With a 10% deposit||With a 15% deposit|
|Figures based on Helia’s LMI calculator. Assumes a 30-year loan term, owner-occupier mortgage for a non-first home buyer. Dwelling price data via CoreLogic.¹|
¹ CoreLogic Home Value Index, April 2023.