Jigar ModiThe short answer
Sometimes, yes. LMI is a real cost and it protects the lender, not you. But saving for years to avoid it has costs too, and the rules may have changed since someone gave you that advice. The question is which cost is bigger for you.
What LMI is
Lenders mortgage insurance is usually charged when you borrow more than 80% of a property's value. It protects the lender if the loan goes bad. It's often added to your loan, so you pay interest on it too.
Some government schemes let eligible first home buyers buy with a smaller deposit and no LMI. Rules change, so check what applies to you now. The first home buyer guide links to the official sites.
I paid a big LMI bill on my first home
In 2007 I borrowed 95% to buy a two-bedroom row house. The LMI was huge. It was still the best decision we made in those years, because it got us started.
That doesn't mean LMI is right for everyone. It means the LMI figure on its own doesn't answer the question.
Advice that ages badly
A typical couple I see. He's in IT, she's a nurse, PR done, about $65,000 saved, renting in the west. A friend bought in 2019, paid a fortune in LMI and told them to save a bigger deposit first.
Good advice. For 2019.
Saving more feels like progress. Sometimes it's just waiting with extra steps.
What they needed was one evening to see what had changed since then.
How to weigh it
- What would LMI cost at your deposit, and would it be added to the loan?
- How long would it take to reach 20%, and what rent would you pay in that time?
- Does any government scheme apply to you today?
- With the bigger loan, do you still keep a buffer after settlement?
Put both costs side by side. Then decide.
About Jigar Modi
I came to Australia in 2000 as a student with $850. I've worked inside two major banks and spent over 10 years in mortgage broking. That's over 15 years in lending, and more than $450M in settled lending.
Founder of First Home Ready. I help Indian professionals and families avoid costly financial mistakes before they sign. Read my story
Related questions
- Should my first home be my dream home?
- How do I know if I'm ready to buy my first home?
- How much should I spend on my first home?
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This is general information, not personal advice. Rules change, so check what applies to you now.