Understanding Lender-Paid LMI and LMI Waivers

Lender-paid LMI and an LMI waiver both mean you don't get a Lenders Mortgage Insurance bill, but they are not the same thing. With one, the cost may be moved somewhere else. With the other, no premium is charged. If you are a primary teacher buying with a small deposit, knowing which one you are being offered can change your repayments.

Lender-Paid LMI vs LMI Waiver: What Is the Difference?

With lender-paid LMI, the lender covers the premium for you. Where a lender covers the LMI cost, it may build that cost into the interest rate or fees, so ask the lender how it recovers the cost. With an LMI waiver, no premium is charged at all. Lender policies differ and change over time, so ask your broker what is on offer right now.

LMI is usually charged when your deposit is under 20% of the property value. It protects the lender, not you. That is why people look for no LMI loans in the first place.

A lender-paid option can feel like a waiver because you see no premium on your settlement statement. The lender may still recover that cost, and it could show up in the interest rate or in extra fees, depending on the lender. A waiver means no LMI premium is charged, but the rate, fees and product conditions still differ by lender, so compare the waiver loan's rate and fees as well.

How Lender-Paid LMI Works and What It Costs You

Lender-paid LMI removes the upfront premium, but the lender may build the cost into your rate or fees. If it is added to the rate, you pay a little more each month instead of a lump sum at the start. Ask the lender exactly how the cost is recovered.

There is also capitalised LMI, where the premium is added to your loan. You don't pay it at settlement, but your loan amount is larger. You then pay interest on the premium as well. Both options are a way to spread the cost, not remove it.

This may suit some buyers. If you need cash left over for moving costs or a buffer, a slightly higher cost per month may be a fair price. Ask for the exact rate and fees with and without the lender-paid feature so you can compare the two.

LMI Waivers: Profession-Based and Government-Backed Options

A waiver can come from a lender's policy for certain professions or from a government guarantee. Profession-based waivers are lender policy and are often limited to certain LVRs, loan sizes and products. Teachers are not automatically on every lender's profession list, so check this before you assume it applies to you.

The government route is the First Home Guarantee, part of the Home Guarantee Scheme. Housing Australia guarantees up to 15% of the property's value to the lender, so the lender treats your loan as though you had a 20% deposit. You can read more on our Home Guarantee Scheme and 5% deposit scheme for teachers pages.

There are conditions. You need to apply for an owner-occupier loan with principal and interest repayments. You must be a first home buyer or not have owned property in Australia in the past 10 years. The property must also sit under the price cap for its location, and you must use a participating lender. The trade-off is a high LVR. Borrowing up to 95% means larger repayments and less equity in your home at the start.

If you are weighing up your options, our LMI waivers for teachers page explains how we look at them.

Example: A Primary Teacher at 90% LVR Compares Three Loans

In this example, a primary teacher with a 10% deposit finds the lender-paid option costs about $84 more a month than a scheme-backed loan, so she takes the scheme-backed loan. These figures use illustrative rates and are not a quote. The 7.00% rate for the lender-paid loan is an assumption only, as the rate on a real loan will vary by lender.

Consider a first home buyer on a teacher's salary who needs a $500,000 loan over 30 years. Her broker lays out three paths. The first is a loan with capitalised LMI, which adds the premium to her balance. The second is a lender-paid LMI loan. The third is a First Home Guarantee loan, where no LMI is charged.

For the third path, assume an illustrative rate of 6.75% p.a. Principal and interest repayments on $500,000 come to about $3,243 a month. For the lender-paid loan, assume the cost is built into a rate 0.25 percentage points higher, at 7.00% p.a. Repayments rise to about $3,327 a month. That is roughly $84 more each month for the same loan amount.

She is a genuine first home buyer, plans to live in the home, and the property sits under the price cap. Her broker checks that a participating lender can take her application. She chooses the scheme-backed loan. She pays no premium upfront, doesn't grow her loan with capitalised LMI, and avoids the extra $84 a month in this comparison.

If she had not qualified, the next step would be comparing the lender-paid loan against capitalised LMI. That is a closer call, and it depends on how long she plans to keep the loan.

How to Compare No LMI Loans Without Fixating on the Rate

Compare the total cost of each loan, not just the headline interest rate. A loan with no LMI can still cost more over time if the rate or fees are higher.

Ask your broker for each option side by side: the interest rate, the fees, the repayment, and the loan amount after any capitalised premium. Check whether the rate is variable or fixed, and what happens when a fixed period ends. If a lender offers interest rate discounts, ask whether they apply to the no-LMI product as well. Our page on getting a lower interest rate covers this in more detail.

You can also use our borrowing capacity calculator to see what you could borrow before you talk to anyone. Our home loans for teachers page shows how we work with educators, and our mortgages for teachers page covers the loan types we compare.

Whether you are buying your first home or your next one, you don't have to work out which no LMI option fits alone. Call one of our team or book an appointment with a mortgage broker for teachers at a time that works for you. We will compare your options from lenders across Australia and show you the numbers.

Frequently Asked Questions