Lenders Mortgage Insurance — what it is, what it costs, and how to avoid it
LMI protects the bank, not you, but you pay for it. Here's exactly how much it costs at different deposit sizes, and the legitimate ways to avoid it.
What LMI actually is
Lenders Mortgage Insurance is a one-off insurance premium that borrowers with less than 20% deposit are required to pay. The policy protects the lender, not you, if you default and the property sells for less than the outstanding loan balance.
LMI is not a fixed amount. It's a percentage of the loan amount, and the rate increases steeply as LVR rises above 80%. Going from 90% LVR to 95% LVR typically doubles the premium on the same property.
The 80% threshold
LMI only applies when LVR exceeds 80%, that is, when your deposit (plus any equity) is less than 20% of the property value. Once your LVR drops to 80%, LMI disappears entirely. This is why 20% is the target deposit figure.
LMI is paid once at settlement (or capitalised into the loan). It does not recur unless you refinance to a higher LVR.
LMI cost example
Indicative only. Actual LMI varies by lender, insurer, and loan structure.
LMI costs by deposit size
On a $500,000 purchase. Note how steeply the premium climbs as your deposit shrinks.
| Deposit | LVR | LMI estimate | Note |
|---|---|---|---|
| 5% ($25,000) | 95% | ~$18,500 | Highest premium tier |
| 10% ($50,000) | 90% | ~$10,200 | Significant saving |
| 15% ($75,000) | 85% | ~$5,400 | Lower premium tier |
| 20% ($100,000) | 80% | Nil | LMI threshold (no cost) |
| Estimates based on $500,000 purchase. LMI premiums vary by lender and insurer (Genworth / QBE). Figures shown before capitalisation. | |||
How to buy with less than 20% deposit, without paying LMI
First Home Guarantee
The Federal Government's First Home Guarantee (35,000 places/year) lets eligible buyers purchase with 5% deposit: the government guarantees the remaining 15% so no LMI applies. Income caps and price caps apply. Apply through your broker.
QLD grants & schemes →Family guarantee (guarantor)
A parent or eligible family member provides equity in their property as additional security. This can bring your effective LVR below 80%, avoiding LMI without needing the full 20% saved. Requires independent legal advice for the guarantor.
Profession-specific waivers
Some lenders waive LMI for specific professions: typically medical professionals (GPs, specialists, dentists), lawyers, and accountants. These products allow 90% LVR without LMI if you qualify. Ask your broker if your profession is eligible.
LMI FAQs
Who does LMI protect: me or the bank?
The bank. Lenders Mortgage Insurance protects the lender against loss if you default and the property is sold for less than the outstanding loan. You pay the premium but receive no coverage. This is a frequent source of confusion: LMI is not home insurance, income protection, or mortgage protection for the borrower. It is solely for the lender's benefit.
Can LMI be added to the loan?
Yes. Most lenders allow you to capitalise (add) the LMI premium to the loan balance rather than paying it upfront. This increases your loan amount and the interest you pay over time. For example, capitalising $15,000 in LMI on a 6% loan over 30 years costs approximately $32,000 in total (premium + interest). This is worth knowing when comparing 'save more for 20%' vs 'buy now with LMI'.
Is LMI refundable if I refinance or sell?
Partially, in limited circumstances. Some LMI providers offer a pro-rata refund within the first 12–24 months if you refinance or sell, but only if you refinance to the same lender or within a specific lender group. Genworth and QBE (the two main LMI providers) have different policies. Generally, treat LMI as a sunk cost. Your broker can confirm the policy for your specific lender.
Does the First Home Guarantee avoid LMI?
Yes. The Federal Government's First Home Guarantee (formerly FHLDS) allows eligible first home buyers to purchase with as little as 5% deposit without paying LMI: the government guarantees the remaining portion of the loan. There are 35,000 places per financial year. Income caps apply ($125,000 for singles, $200,000 for couples as of 2024). Property price caps apply by location. Your broker can confirm eligibility and apply.
Can a family guarantee help me avoid LMI?
Yes. A family guarantee (also called a guarantor loan) lets a parent or close family member use equity in their own property as additional security. This can bring your effective LVR below 80% without needing a larger deposit, avoiding LMI entirely. The guarantor carries risk (they're liable if you default) so it requires careful consideration and independent legal advice for the guarantor.
Is LMI ever worth paying?
Yes, in rising markets. If property prices in your target area are increasing at 5–8% per year, waiting 3 years to save a 20% deposit could mean paying $80,000–$150,000 more for the same property, far more than LMI. LMI becomes a cost of entry to a rising market, not just a fee. Your broker can model the break-even for your specific scenario.