Who qualifies for a lenders’ mortgage insurance waiver?
Why do lenders require lenders’ mortgage insurance?
Lenders require LMI if the amount being borrowed is more than 80% of the property’s value. They believe that the risk of borrowers defaulting on their loans is higher for those who pay less of a deposit as their monthly repayments will also be higher compared to those who can pay a larger deposit.
LMI providers also conduct background checks to see if a borrower can afford to make monthly repayments. This assures lenders that the borrower can take on the financial responsibility of purchasing a home.
Read more: What Australian home buyers need to know about lenders’ mortgage insurance
How is lenders’ mortgage insurance calculated?
Each insurance provider calculates LMI premiums slightly differently using a range of factors, including the size of the loan, deposit amount, loan type, and borrower’s employment status.
Most financial comparison websites also have their own LMI estimators that borrowers can access to help with the calculation.
To get an idea of how much LMI premiums are worth, Insurance Business tried out insurance giant Genworth Financial’s LMI fee estimator. The prices listed in the table below are for first home buyers of owner-occupied housing, borrowing with a loan term of up to 30 years and excluding stamp duty. The values are updated as of March 2022.
Property value
5% deposit
10% deposit
15% deposit
$300,000
$7,090.67
$4,100.93
$2,186.05
$400,000
$11,897.45
$6,943.91
$3,770.13
$500,000
$14,871.82
$8,679.89
$4,712.67
$600,000
$23,954.25
$13,284
$6,463.09
$700,000
$27,946.62
$15,498
$7,540.27
$800,000
$31,939
$17,712
8,617.45
Source: Genworth Financial
Which professions can access a lenders’ mortgage insurance waiver?
LMI providers are often willing to lend more money to people in “high-demand and well-paying” professions. These include doctors, dentists, and lawyers, who are considered low-risk borrowers and may even be eligible for an LMI waiver. Generally, members of the following professions may be able to have this type of insurance waived.
1. Medical professionals
Doctors can have LMI waived for loans of up to $4.5 million at 100% of the property’s value as long as they are a member of an accepted industry organisation such as the Australian Medical Association (AMA). It also pays to be on the list of “preferred medical professionals,” which includes surgeons, dentists, optometrists, pharmacists, chiropractors, and veterinarians.
2. Legal professionals
Law practitioners must be a member of a relevant organisation to qualify for an LMI waiver. These professionals include solicitors, judges, barristers, and lawyers, who earn at least $150,000 annually or will be reaching this salary range soon, rental income included. The maximum loan limit is $2 million, and this should not be more than 90% of the home’s purchase price.
3. Accountants
Just like legal professionals, accountants can avoid paying LMI for loans not exceeding $2 million and 90% of the property’s worth. But they must hold membership in a relevant industry body. Eligible professionals include actuaries, auditors, financial managers, and chief financial officers, with a yearly income of $150,000 or higher. Rental income will also be considered.
4. Mining specialists
One of the highest-earning professions in Australia, specialists in the resource, energy, and mining industries, including geophysicists, geologists, quantity surveyors, and mine surveyors, can waive the LMI for loans amounting to $2 million at up to 90% of the property’s value. Yearly income should be at least $150,000.
5. Professional athletes
Professional athletes should have an accredited agent or manager to qualify for an LMI waiver. Their home loans should not exceed $2 million and 90% of the home’s worth, while annual income should also not be below $150,000.
6. Entertainment industry professionals
Professionals working in the fashion, theatre, film, television, and music industries who are earning at least $150,000 every year can have the LMI waived as long as the maximum loan amount is not more than $2 million and 90% of the property price.
Meeting the above-mentioned requirements, however, does not automatically qualify a person for an LMI waiver. Lenders typically require borrowers to have a clean credit history, regardless of their profession.
Read more: QBE: The Australian dream of homeownership is set to change forever
Why do some professionals qualify for LMI waivers while others do not?
Lenders often view people in the listed professions as low-risk borrowers because they are high-income earners, meaning mortgage lenders see them as having the financial capacity to afford to borrow large sums of money, make payments on time, and rarely default on their payments.
Additionally, high-net-worth professionals often belong to a circle of other high earners in their fields. A positive experience with a lender can result in a recommendation to another co-worker. This benefits lenders as it allows them to pad their network of low-risk and high pay-off customers.
But what about those who do not belong to these professions?
Not belonging to these high-earning professions does not necessarily mean a borrower automatically has to pay lenders’ mortgage insurance. There are still ways to avoid it.
The best way to dodge paying for LMI is to save enough for a 20% deposit. This amount might be bigger than the actual LMI cost but for aspiring homebuyers who have already been saving and are close to the target amount, this cost should not be a concern.
Another way is to get a guarantor, which can be the borrower’s parents or guardians. But because guarantors will be securing their property against the home loan, it is crucial for the mortgage holder to stay on top of their repayments.
First-home buyers can also apply for a range of government-sponsored subsidies such as the First Home Loan Deposit Scheme (FHLDS), which grants eligible borrowers a special government guarantee that waives LMI fees for as low as 5% deposit. For single parents, there is the Family Home Guarantee that can help them purchase a home with as little as a 2% deposit.
