Key takeaways
- LMI protects the lender, not you — it applies when you borrow more than 80% of a property’s value.
- It’s a one-off premium, usually added to the loan, ranging from a few thousand dollars to $20,000+.
- Eligible first home buyers can often avoid it entirely through government schemes; guarantors are another route.
- Paying LMI to buy years sooner is sometimes cheaper than waiting — it’s a maths problem, not a moral one.
Say “LMI” to most buyers and they hear “penalty.” In reality it’s a tool: it’s the thing that lets Australians buy with a 5–15% deposit instead of waiting years to save 20%. The trick is knowing when it’s worth using and when it’s worth avoiding.
What LMI actually is
Lenders Mortgage Insurance is insurance the lender takes out — at your expense — when your deposit is under 20% (that is, when the loan is over 80% of the property’s value, or “80% LVR”). If the borrower defaults and the property sells for less than the debt, the insurer covers the lender’s shortfall. It protects them; it gives you access to the loan.
What it costs
The premium depends on the loan size and how far past 80% you go. As rough shapes: a small step over 80% might cost a few thousand dollars; borrowing 95% of a higher-priced home can push the premium past $20,000. It’s almost always a one-off, and most borrowers capitalise it — add it to the loan — rather than pay cash at settlement.
Different lenders use different LMI providers and price the premium differently — and a few waive it entirely for certain professions or at higher LVRs. Same borrower, same house, thousands of dollars of difference. This is a place a broker earns their keep.
Five ways to reduce or avoid LMI
1. First home buyer schemes
Government-backed schemes let eligible first home buyers purchase with as little as 5% deposit and no LMI — the government effectively guarantees the gap. Eligibility, price caps and places change over time, so check what currently applies to you.
2. A guarantor
A family member’s equity as additional security can bring your effective LVR under 80% — no LMI, and often no cash deposit needed. See our guarantor home loans guide for how it works and the risks to understand.
3. A 20% deposit (or close)
The classic route. Even getting from 5% to 10–12% cuts the premium substantially — the pricing isn’t linear.
4. Profession-based waivers
Some lenders waive LMI at up to 90–95% LVR for certain professionals — commonly medical, and at some lenders legal and accounting roles. If you qualify, this is free money left on the table at the wrong lender.
5. Existing equity
Already own property? Equity can substitute for saved deposit and keep the new lend under 80%.
When paying LMI is the right call
If prices in your target market are rising faster than you can save, a $10,000 premium that gets you in two years earlier can be far cheaper than the price growth you’d miss — plus you stop paying rent sooner. If your market is flat, waiting and saving may win. It’s genuinely situational, which is why we run both scenarios with real numbers before you decide.
Find your cheapest path past LMI
Schemes, waivers, guarantors, or just the right lender’s pricing — we’ll work out which route costs you least and whether paying LMI to buy sooner actually stacks up.
Book your free game plan callFrequently asked questions
Is LMI refundable if I refinance or sell early?
Generally no — and it doesn’t transfer to a new loan or lender. If you refinance while still above 80% LVR you may pay LMI again, which is why the timing of a refinance matters when your equity is close to the threshold.
Does LMI protect me if I can’t make repayments?
No. It protects the lender’s losses, not yours — and the insurer can pursue the borrower for the shortfall it pays out. Borrower protection comes from buying within your means and holding a buffer, which we’ll always pressure-test with you.
Can I pay LMI upfront instead of adding it to the loan?
Usually yes. Capitalising it into the loan is more common because it preserves cash for settlement costs, but you’ll pay interest on it over time. We’ll show you both numbers.
This guide is general information only and does not take your personal circumstances into account. It is not financial or credit advice. Government schemes, lender policies and rates change over time and eligibility criteria apply. Speak with us for advice tailored to your situation.