Generally, if you do not want to pay mortgage insurance, you need to borrow less than 80% and have the 20% deposit plus costs available. However, this is not the most suitable option for most of us as it can take a long time to save the deposit.

The trick to save money on lender’s mortgage insurance is then for you to consider this as a factor when you are choosing your lender. Most people are not aware that different lenders charge different LMI premiums and usually choose a lender based only on a low interest rate. You can save thousands when you choose a lender whose LMI premium is lower than another bank.

There are also some lenders who will let you borrow up to 85% without having to pay mortgage insurance. Some others let you pay a risk fee without having to pay the full mortgage insurance.

There is another way that you can save on LMI. Consider this example below.

My client had $60,000 to contribute towards purchasing an investment property worth $400,000. He also wanted to keep the LVR below 90%. The usual way to calculate the loan amount is to keep LVR at 89.9% (to save on LMI) and use all the deposit available. This way the total mortgage insurance with ABC lender was $6,830.00.

Alternatively, if he reduces his base loan amount and then adds the mortgage insurance to his loan (called capping LMI), the premium is now reduced to $3,380, thereby saving my client a massive $3000.