When to Pay LMI & When to Avoid It

Lenders Mortgage Insurance is a cost that kicks in when your deposit sits below 20% of the property's purchase price.

The charge protects the lender if you default, but you pay the premium. It typically ranges from a few thousand dollars to over $30,000 depending on your loan amount and deposit size. The lower your deposit, the higher the premium. Most borrowers either capitalise it into the loan or pay it upfront at settlement.

How LMI Is Calculated

The premium depends on your loan to value ratio. A borrower with a 10% deposit pays more than someone with a 15% deposit, even if the loan amount is identical. Lenders use LVR bands, so crossing from 90% to 89% LVR can drop the premium by several thousand dollars.

Consider a tutor purchasing an apartment with a 10% deposit and borrowing at 90% LVR. The LMI premium might sit around $15,000 to $20,000 depending on the lender's insurer. If that same tutor increased their deposit to 15%, the LVR drops to 85%, and the premium might fall to $8,000 to $12,000. The difference is meaningful, but waiting to save the extra deposit also delays entry into the market.

LMI Waivers for Tutors and Educators

Some lenders waive LMI for borrowers in education roles, including tutors, up to 90% LVR. The waiver applies to owner-occupied purchases and refinances, though eligibility criteria vary between lenders. Not all tutors qualify automatically, particularly those working casually or through platforms rather than registered training organisations.

The waiver can save tens of thousands of dollars. In our experience, tutors who meet the lender's definition of an educator often borrow up to 90% LVR without paying a cent in LMI. That means accessing property sooner without the typical penalty for a smaller deposit. You can read more about LMI waivers for teachers and how they apply to different education roles.

When Paying LMI Makes Sense

Paying LMI is not always a mistake. If property values are rising and waiting another year to save a 20% deposit means paying $50,000 more for the same property, the LMI premium may be the cheaper option. If you are certain about your income stability and the property suits your long-term plans, entering the market earlier can outweigh the insurance cost.

For tutors working full-time or under contract with schools or registered organisations, home loans for tutors often include access to LMI waivers, making the decision simpler. But if you fall outside the lender's criteria, paying LMI to secure a property now rather than renting for another two years might still make financial sense.

Capitalising LMI Into Your Loan

Most borrowers add the LMI premium to the loan rather than paying it upfront. This increases your total loan amount and the interest you pay over the life of the loan. On a variable rate, capitalising $15,000 in LMI means you will pay interest on that amount for the duration of the loan unless you make extra repayments.

If you are comparing home loan options and one lender charges a higher LMI premium than another, check whether the interest rate or loan features offset the difference. A lower rate with a higher LMI cost might still be cheaper over five years than a higher rate with a smaller premium.

Refinancing and LMI

If you refinance before your property value increases or your loan balance drops enough to reach 80% LVR, you may be charged LMI again. This is one reason borrowers wait until they have built enough equity before switching lenders. However, if you refinance to a lender offering an LMI waiver for educators, you can refinance at higher LVRs without the additional cost.

Tutors refinancing an existing loan should check whether their current lender already waived LMI and whether switching will trigger a new charge. If your property value has risen since purchase, your LVR may now sit below 80%, making the point irrelevant. If not, home loan refinancing for teachers through a broker who understands LMI waivers can help you avoid unnecessary costs.

Alternatives to Paying LMI

If you do not qualify for an LMI waiver and do not want to pay the premium, a guarantor loan is one alternative. A parent or family member uses equity in their own property to support your application, allowing you to borrow at higher LVRs without LMI. The guarantor is not handing over cash but providing security, and their liability reduces as you pay down the loan. You can read more about guarantor loans for teachers and how they work in practice.

Another option is accessing the Help to Buy Scheme, which allows eligible borrowers to purchase with a smaller deposit without paying LMI. The scheme is limited to certain income thresholds and property prices, and availability varies by state.

If you are deciding whether to pay LMI, wait to save more, or explore a waiver, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions