LMI – Control Your Loan Payments When Banks Say No

For many Australians, buying a home is a significant milestone, often accompanied by the financial challenge of saving for a deposit. If you’re struggling to reach that 20% deposit threshold, you might be familiar with Lenders Mortgage Insurance (LMI). A common question that arises is whether LMI can be added to your home loan. Let's delve into this topic and explore practical solutions tailored for you.

Understanding Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance is a policy that protects lenders from financial loss if a borrower defaults on their home loan. It is typically required when a borrower has a deposit of less than 20% of the property's purchase price. This insurance allows lenders to offer loans to a broader range of borrowers, including those who may not have the full deposit saved.

While LMI protects the lender, the cost is borne by the borrower, often running into thousands of dollars. Fortunately, there are options to manage this expense, such as adding it to your loan amount.

LMI Costs and Loan Integration

As of 2026, the cost of LMI can vary significantly depending on several factors, including the size of your deposit, the loan amount, and the lender. Typically, LMI costs range from 1% to 3% of the loan amount. For example, if you’re borrowing $500,000 with a 10% deposit, your LMI could cost between $5,000 and $15,000.

Many lenders allow borrowers to capitalise LMI, meaning the cost is added to the loan amount. This can alleviate the immediate financial burden, allowing you to proceed with your property purchase without having to pay LMI upfront.

Steps to Adding LMI to Your Loan

Here’s how you can capitalise LMI into your home loan:

1. Consult Your Mortgage Broker: Start by discussing your options with a knowledgeable mortgage broker, such as those at Esteb and Co. With access to over 83 lenders, they can help you find a lender that offers LMI capitalisation.
2. Assess Your Eligibility: Ensure you meet the lender’s criteria, which may include credit checks and income verification.
3. Select the Right Lender: Compare different lenders’ interest rates and policies regarding LMI to find the most suitable option.
4. Calculate Your Total Loan Amount: Include the LMI cost in your total loan amount, and understand how it impacts your monthly repayments.
5. Submit Your Loan Application: Work with your broker to complete and submit your loan application, ensuring all documentation is accurate and complete.

Expert Tips and Considerations

• Consider Long-Term Costs: While adding LMI to your loan can help with upfront costs, remember that it increases your total loan amount and interest paid over time.
• Explore LMI Waivers: Some lenders offer LMI waivers for professionals in certain fields, such as medicine or law. Check if you qualify for any exemptions.
• Negotiate with Lenders: Use the competitive market to your advantage by negotiating better terms or rates, especially with the help of a broker.
• Factor in Interest Rates: Keep an eye on current interest rates, which can impact your overall borrowing costs. Rates in 2026 range from 6.49% to 7.80% among different lenders.

Frequently Asked Questions

• Can I avoid paying LMI altogether? Yes, if you have a 20% deposit or qualify for an LMI waiver, you can avoid paying LMI.
• Does adding LMI to the loan affect my borrowing power? Yes, it increases your loan amount, which may impact future borrowing capacity.
• Is LMI refundable if I refinance? Generally, LMI is not refundable, even if you refinance your loan.
• Are there any government schemes to assist with LMI costs? The First Home Loan Deposit Scheme (FHLDS) may assist eligible first-home buyers in avoiding LMI.
• How do lenders calculate LMI? LMI calculations are based on factors like loan size, deposit amount, and risk profile.
• Does LMI cover me if I can’t make repayments? No, LMI protects the lender, not the borrower. Consider income protection insurance for your coverage.
• Can LMI be transferred if I buy another property? LMI is specific to each loan and property, so it cannot be transferred.