Lender’s mortgage insurance explained

Find out what lender's mortgage insurance is and how it could affect your home loan and what you pay back.

Lender’s mortgage insurance is something you can probably expect to pay if you’re borrowing more than 80% of a property’s purchase price.

We explain what it’s for, who arranges it and some potential ways you may be able to avoid it.

What is lender’s mortgage insurance for?

When it comes to arranging a home loan, if you have a deposit equal to or greater than 20% of a property’s purchase price, generally you won’t be asked to pay this type of insurance.

However, if a lender agrees to lend you more than 80% of the property’s purchase price, there is a higher risk that—if the loan isn’t repaid as agreed—the lender will lose money.

That’s where lender’s mortgage insurance comes in and it’s important to understand it is there to protect the lender, not the borrower, unlike some other types of insurances.

What does lender’s mortgage insurance cost?

Lender’s mortgage insurance is a one-off cost that will generally come down to the lender you choose, the loan amount, the size of the deposit you have, and the value of the property that you’re looking to buy.

The lender will generally buy the insurance, pass on the premium to you the borrower, with the cost (a non-refundable fee), typically due upon settlement.

Alternatively, it may be possible to add the lender’s mortgage insurance fee to your total home loan amount, but it’s important to note that this will increase what you owe, what you will have to pay back in interest, not to mention your minimum monthly loan repayments.

How to avoid lender’s mortgage insurance

There are some ways that you could potentially avoid lender’s mortgage insurance such as:

  • Try to save up a deposit that’s 20% or more of the property’s purchase price
  • See if a family member could act as guarantor for your home loan.

For a bit of background, going guarantor is where someone uses the equity in their own property as additional security for the loan that you’re taking out.

Guarantors generally need to be family members and there are risks involved that they and you will want to be aware of. For instance, if you can’t meet your responsibilities as a borrower, they may have to repay the loan for you. For more information on, read our article about going guarantor.

Looking for more information?

The following articles and info pages may provide some additional help and pointers:

Meanwhile, if you’d like to talk to an AMP Bank relationship manager about the AMP Bank home loans that are on offer, you can request a call back via our online form.

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Any advice in this article is general only and is provided by AMP Life Limited (AMP Life). It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

The credit provider and product issuer of home loans is AMP Bank Limited, AFSL 234517 and Australian Credit Licence 234517. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.