When Can I Remove LMI? Understanding Lenders Mortgage Insurance in Australia

What is Lenders Mortgage Insurance (LMI)?

Lenders Mortgage Insurance is a policy that protects lenders from financial loss if a borrower defaults on their mortgage. In Australia, LMI is typically required when a borrower has a deposit of less than 20% of the property’s purchase price. While LMI provides security for lenders, it is an additional cost that does not benefit the borrower directly.

When Can You Remove LMI?

Achieving 20% Equity

The most straightforward way to remove LMI is by reaching 20% equity in your home. This can be achieved through principal repayments that reduce your loan balance or through an increase in your property’s value. Once you have 20% equity, you can request your lender to reassess your LMI requirement.

Property Value Appreciation

If your property's value increases significantly, you might reach the 20% equity threshold faster than anticipated. A professional property valuation, conducted at your expense, can provide the necessary evidence to your lender. It’s important to note that not all lenders automatically remove LMI just because property values have increased; a formal request is often required.

Refinancing Your Mortgage

Refinancing your mortgage with another lender can be an opportunity to reassess your LMI situation. If your new lender determines that you have sufficient equity, they might approve your loan without the need for LMI. Keep in mind that refinancing involves additional costs, so it’s crucial to weigh the benefits carefully.

Practical Tips for Managing LMI

• Save a Larger Deposit: The most effective way to avoid LMI from the onset is to save a 20% deposit. This not only eliminates LMI but also gives you access to better interest rates.

• Consider a Family Guarantee: Some lenders offer a family guarantee option, where a family member’s property is used as additional security. This can eliminate the need for LMI, even with a smaller deposit.

• Utilise Government Schemes: Programs like the First Home Loan Deposit Scheme (FHLDS) can allow eligible buyers to purchase with a smaller deposit without paying LMI.

Common Mistakes to Avoid

• Ignoring Property Valuations: Regularly update your property’s valuation, especially in a rising market, to potentially fast-track LMI removal.

• Overlooking Refinancing Costs: Ensure the savings from LMI removal outweigh the costs associated with refinancing.

• Assuming Automatic Removal: LMI does not remove itself automatically once 20% equity is achieved. You must actively request its removal from your lender.

How Esteb and Co Can Help

At Esteb and Co, we specialise in helping clients navigate the complexities of LMI and other mortgage-related challenges. Our experienced brokers can assess your current situation, advise on the best strategies to remove LMI, and assist in negotiations with lenders. With a personalised approach, we ensure you make informed decisions that align with your financial goals.