Skip to Content
What is Lenders Mortgage Insurance?

Categories

What is Lenders Mortgage Insurance? And why we don’t charge it!

Buying a home is super exciting, but there’s a few different fees to consider. One of the main ones is Lenders Mortgage Insurance, but not all banks charge it. Keep scrolling to find out why.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance AKA LMI is a type of mortgage insurance that protects banks if a customer can’t make their home loan repayments.

How does LMI work and why do banks need it?

LMI is offered to banks by insurance companies like QBE and Genworth, which are two big Aussie LMI providers. Banks take care of the paperwork and then pass this cost on to their customers.

But with UBank, you won’t pay it. More on this later!

The reason some banks need LMI is because loaning someone more than 80% of the price of their property comes with some risks.

If a homeowner can’t cover their home loan repayments, they might have to think about selling to pay back the bank. But if the value of the property has gone down since they bought it, and the sale of their property doesn’t pay off the loan, the insurance company jumps in to make up the difference.

Is LMI added to the loan or already included?

LMI isn’t included, so it’s usually an extra cost on top of your home loan. If you’ve got the cash, you can pay for it upfront, otherwise, it will be added onto your loan amount and repayments.

How to avoid LMI (and the perks that come with it)

The best way to dodge LMI is by saving a deposit of 15-20% (depending on the lender). While a smaller deposit might get you into the market quicker, having at least 15-20% means:

  • You borrow less
  • You might not have to pay as much interest
  • The savings could help you make extra super contributions, top up your emergency fund or give you more financial freedom. Time for a new car?

Why we don’t charge LMI

At UBank, we’re all about helping our customers get on the property ladder with repayments they can easily afford, which is why we require a minimum deposit of 15-20%. Paying a bit more upfront means you owe less and could have more cash each month to live the good life.

UBank offers owner occupiers home loans of up to 85% Loan to Value Ratio (LVR) without having to pay LMI. The LMI premium on an average loan size of $480K at an LVR of 85% is approximately $5,000

The average Australian who is actively saving puts away about $717 per month. This means aspiring homeowners could enter the market around seven months earlier than if they had to pay LMI.

Something else to consider is that if you want to refinance while your LVR is still over 80%, you might have to pay LMI twice. Just another reason why it’s best to avoid paying LMI in the first place.

How much is LMI?

If you do end up paying LMI, the final cost depends on a few things like:

  • How much you’ve borrowed
  • The size of your deposit
  • If you’ve bought an investment property or a home sweet home.

Here’s an example of how much a home buyer might have to pay if they take out LMI.

Note: These are example interest rates which could change. To find out how much you might pay, click here.
 

   5% deposit  20% deposit

 House price

 $800,000

 $800,000

 Loan length

 30 years

 30 years

 Interest rate (owner occupier)

 2.64% p.a.

 2.64% p.a.

 LMI (added to the loan)*

 $31,939

 N/A

 Monthly repayments**

 $3,187

 $2,576

 Interest

 $355,404

 $287,218

*Source: Genworth
**Source: Moneysmart


That’s $100,125 in LMI fees and extra interest that you could be pocketing over the life of your loan.


Pro tip: Does your home loan deposit need a boost? Score our bonus interest rate each month when you combine a
USave savings account with a USpend transaction account and meet the bonus interest criteria.***


Now that you’ve got the lowdown on LMI, the choice is yours. If you can wait it out and grow your deposit, it could save you big time. Once you’ve done that, it’s time to lock in a loan and find your dream home. Happy house hunting!


To check out our epic interest rates, click here.

Or, if you’re ready to start your home loan application, click here.

 

*** To qualify for the bonus variable interest rate on eligible amounts in your USave account(s) in a calendar month, you must have both a USave and USpend account and deposit $200 or more into your USpend transaction account or your linked USave savings account from a non-UBank account during the same month. The bonus variable interest rate will be applied to a combined balance of up to $250,000 held in your USave account(s), including joint accounts. Any remaining balance greater than $250,000 will earn the USave base variable rate. Bonus interest is earned the same month you meet the bonus interest criteria and paid by the first day of the following month.

The information contained in this article is of a general nature only. It doesn’t take account of any person’s objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and seek independent legal, financial, and taxation advice.

Before making a decision to acquire USave, USpend or UHomeLoan, you should obtain and consider the Terms and Conditions available at ubank.com.au. USave and USpend are issued by UBank, a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686 (NAB).

Credit is provided by AFSH Nominees Pty Ltd ABN 51 143 937 437 Australian Credit Licence 391192. UBank is the mortgage manager for UHomeLoan products. Terms and conditions, fees and charges, credit criteria apply to all UBank’s home loan products and are available on application.