Lenders Mortgage Insurance (LMI) is a fee banks and other finance lenders charge borrowers when they are deemed high risk. Usually, this is when their deposit is less than 20% of their property's purchase price. It protects the lender in the event that the borrower cannot make the repayments on their home loan.

How does it work?

• The borrower pays the LMI payment in a lump sum at settlement

• Many lenders will offer to finance LMI into your home loan, so that it is added to your monthly mortgage payments

• This means you won’t need to have the funds upfront, but it also means you’ll need to pay more interest on your loan

When do I need to pay LMI?

• Most financial institutions will require you to pay lenders mortgage insurance if your deposit is less than 20% of the property purchase price.

How much does LMI cost?

• There is no simple answer to this question as each LMI provider calculates the cost of LMI slightly differently.

The size of your deposit

• As soon as your deposit drops below 20% of the property's purchase price, you’ll need to pay LMI.

Save more

• Most banks only charge LMI if your deposit is less than 20% of the property purchase price.

Ask for help

• If your parents are in the position to offer financial support, you shouldn't feel ashamed to ask for their help.

Get a guarantor

• This reduces the risk of the loan by putting forward some of the equity in their property as security.

• By doing so, the guarantor reduces your LVR to less than 80%.

• Buyers are better off paying LMI rather than saving for a bigger deposit.

Consider disclosing your occupation

• LMI providers are willing to lend more money to doctors, dentists and lawyers than they are to people working in high-risk industries, as these professions are consistently in high demand and are also well paid.

• If you are a doctor, dentist or a lawyer, let your lender know, and ask them to waive your LMI premiums.

Is it better to pay LMI or save more?

• There's no right or wrong answer

• You need to take into account how the market is tracking to work out which strategy is best for you

• If property prices are falling, it makes more sense to delay your purchase and save for a bigger deposit.

• On the other hand, taking out a loan with a higher loan-to-value ratio will help you get onto the property ladder far sooner but it will also most likely mean paying more money in interest over the course of your mortgage.

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