What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is a one-time premium paid by borrowers when their home loan deposit is less than 20% of the property value. It protects the lender (not you) if you default on your loan.
Despite its name, LMI provides you with no insurance protection. It purely covers the lender's risk of lending to a borrower with a small deposit.
Who pays LMI and when?
You pay LMI. It's typically added to your loan balance rather than paid upfront, meaning you pay interest on it over the life of your loan, which makes it more expensive than the headline premium suggests.
LMI is charged at settlement as a one-time fee. If you refinance later, you may need to pay LMI again depending on your new LVR.
How much does LMI cost?
LMI is calculated as a percentage of your loan amount, and the premium scales significantly with your LVR (Loan to Value Ratio). The higher the LVR, the higher the premium.
Example LMI costs (approximate)
For a $600,000 property:
- 10% deposit ($60,000): LVR 90%, LMI approximately $15,000–$22,000
These are estimates only. Actual LMI varies by lender, loan amount, and property type. Use our LVR Calculator to see where you stand.
The trap: Because LMI is added to your loan balance, you then pay interest on it. On a 95% LVR loan, you might pay $25,000 in LMI that costs an additional $30,000+ in interest over 30 years.
When is LMI triggered?
LMI kicks in when your LVR exceeds 80%. That means:
The 7 ways to avoid or reduce LMI
1. Save a 20% deposit
The most straightforward path. A 20% deposit puts your LVR at exactly 80%, the threshold below which LMI doesn't apply. The downside: it takes longer to save, during which property prices may rise faster than your savings.
2. First Home Guarantee (Government Scheme)
The First Home Guarantee allows eligible first home buyers to purchase with a 5% deposit without paying LMI. The government guarantees the remaining 15% of the loan, eliminating LMI entirely. Income caps and property price limits apply. Places are limited each financial year.
This is the most powerful way to avoid LMI with a small deposit, and it's free.
3. Guarantor loan
A guarantor (typically a parent) uses equity in their own property to guarantee a portion of your loan. This can eliminate or significantly reduce LMI. If the guarantor covers the shortfall to 20%, no LMI applies.
The guarantor's property is at risk if you default on the guaranteed portion, so this requires careful consideration and independent legal advice for the guarantor.
4. Professional LMI waivers
Some lenders waive LMI for specific high-income professions including:
Eligibility criteria vary significantly by lender. If you work in one of these fields, you may be able to borrow up to 90% LVR without paying LMI.
5. First home buyer stamp duty concessions
In Queensland, first home buyers can access stamp duty concessions that reduce upfront costs, leaving more of your savings available as deposit, potentially getting you above 80% LVR sooner.
6. Lender LMI caps and deals
Some lenders periodically offer LMI waivers or discounted LMI premiums as promotions. We keep track of these deals and match you to the best available offer for your situation.
7. Increase your deposit with a gift
Legitimate gifted funds from a family member can be counted as part of your deposit by most lenders (with documentation). A gift that bridges you to 20% eliminates LMI entirely.
Is paying LMI ever the right call?
Sometimes yes. Consider this scenario:
You have $80,000 saved (a 13% deposit on a $600,000 property). You can:
Option A: Wait 18 months and save $40,000 more to hit 20% Option B: Buy now with LMI
If property prices rise 8% in those 18 months, the $600,000 property becomes $648,000. The additional $48,000 in equity you've gained far exceeds the $15,000–$20,000 LMI cost. You're better off buying now and paying LMI.
If property prices are flat or falling, waiting to save makes more sense.
This analysis is property-market specific and changes constantly. We'll run the numbers for your situation.
LMI vs the First Home Guarantee
The First Home Guarantee is almost always preferable to paying LMI if you qualify. It:
The catch: places are limited (10,000 First Home Guarantee places per financial year nationally), income caps apply, and property price caps apply by location.
Check your eligibility on our Grants page or book a free call.
How we help
LMI decisions are nuanced. The right answer depends on:
We'll model every scenario with real numbers from real lenders (including current LMI premiums from multiple insurers) so you can make a fully informed decision.
Book a free call. It takes 15 minutes and could save you tens of thousands of dollars.