Lenders Mortgage Insurance (LMI) Australia: What It Costs and How to Avoid It
On a $750,000 property purchase with a 10% deposit ($75,000), LMI can add $13,000–$20,000 to the cost of your loan — before you have even turned a key. The insurance protects the bank if you default, not you personally, yet you pay the premium. Understanding exactly when LMI applies, what it costs at different LVR tiers, and the six legitimate ways to avoid it can save you a significant sum or allow you to enter the property market sooner than you otherwise could.
What Is Lenders Mortgage Insurance?
Lenders Mortgage Insurance is a one-off insurance premium that protects the lender — not the borrower — if you default on your home loan and the sale of the property does not cover the outstanding debt. It is typically required when a borrower's deposit is less than 20% of the property's purchase price, which means the LVR (loan-to-value ratio) exceeds 80%.
The two main LMI providers in Australia are Helia (formerly Genworth) and QBE. Lenders choose which insurer to use and pass the premium cost onto the borrower. The premium can be paid as a lump sum at settlement or capitalised (added) onto the loan balance — the latter means you also pay interest on the LMI premium for the life of the loan.
An important point that confuses many buyers: LMI does not protect you. If you default and your property is sold for less than the outstanding loan, the insurer pays the lender the shortfall. The insurer can then pursue you personally to recover that money. LMI provides no benefit to the borrower — it is purely a risk management tool for lenders that the borrower funds.
When Does LMI Apply?
LMI applies whenever your LVR exceeds 80%. LVR is calculated as: loan amount ÷ property value × 100.
Example: Property value $800,000. Deposit $100,000. Loan required: $700,000. LVR: $700,000 ÷ $800,000 = 87.5%. LMI is required because 87.5% exceeds the 80% threshold.
Note that the lender uses their own valuation of the property, not necessarily the purchase price. If you pay $850,000 for a property that the lender values at $800,000, the LVR is calculated on $800,000. This can sometimes push your LVR above 80% even when you expected to be below it — an important consideration when bidding at auction.
LMI is a one-off premium — you do not pay it annually like regular insurance. However, it is not transferable between lenders. If you refinance and your LVR is still above 80% at the time of refinancing, the new lender will require their own LMI assessment and you may need to pay again. This is one of the less-discussed costs of refinancing early in a loan when you have limited equity.
LMI Cost Estimates by Loan Amount and LVR
LMI premiums are calculated as a percentage of the loan amount and vary based on the LVR tier and the insurer. These figures are estimates — actual premiums may vary between lenders and insurers.
| Loan Amount | LVR 85% (15% deposit) | LVR 90% (10% deposit) | LVR 95% (5% deposit) |
|---|---|---|---|
| $400,000 | $4,800–$7,200 | $7,600–$11,600 | $12,800–$16,000 |
| $500,000 | $6,000–$9,000 | $9,500–$14,500 | $16,000–$20,000 |
| $600,000 | $7,200–$10,800 | $11,400–$17,400 | $19,200–$24,000 |
| $700,000 | $8,400–$12,600 | $13,300–$20,300 | $22,400–$28,000 |
| $800,000 | $9,600–$14,400 | $15,200–$23,200 | $25,600–$32,000 |
These are estimates. Use our LMI calculator for a more precise figure based on your specific situation. LMI premiums are subject to stamp duty in some states, which adds 7.5–11% to the above figures.
Six Ways to Avoid LMI
1. Save a 20% Deposit
The most straightforward path. On an $800,000 property, a 20% deposit is $160,000. This takes discipline and time — typically 3–7 years for most Australian households depending on income and savings rate — but it eliminates LMI entirely and usually secures a lower interest rate. See our guide on how to save a house deposit for strategies to get there faster.
2. Use a Family Guarantee (Guarantor Loan)
A guarantor loan allows a family member (usually a parent) to use equity in their own property as additional security for your loan. This reduces the effective LVR below 80% without requiring a 20% cash deposit. For example, if you have a 10% deposit ($80,000) on a $800,000 property, a parent could guarantee $80,000 of security from their home, bringing the total security to 20% and eliminating LMI.
Guarantor loans carry real risk for the guarantor — if you default, their property is at risk. This should be discussed openly with any family member considering this arrangement, and independent legal and financial advice is strongly recommended for both parties.
3. First Home Guarantee (FHBG)
Under the federal government's First Home Guarantee (previously the First Home Loan Deposit Scheme), eligible first home buyers can purchase with as little as a 5% deposit without paying LMI. The government guarantees the remaining 15% of the deposit with the lender. Places are allocated per financial year and are capped — for 2025-26, 35,000 places are available. Income and property price caps apply (for example, singles earning under $125,000 and couples under $200,000; property price caps vary by state and region).
4. Regional First Home Buyer Guarantee
A separate scheme specifically for buyers in regional areas, with the same structure as the FHBG but targeted at regional and rural locations where property prices tend to be lower. Property price caps are lower than for the main FHBG scheme.
5. Professional Exemptions
Some lenders offer LMI waivers for specific professions considered low-risk borrowers. These typically include medical professionals (doctors, dentists, specialists), lawyers, accountants, and in some cases engineers and accountants. The specific professions and conditions vary by lender — some require the professional to be currently working in the field, others require a specific income level. It is worth asking your lender or broker if your profession qualifies.
6. Pay a Higher Rate Instead
Some lenders offer a "no LMI" product for higher LVR loans, in exchange for a slightly higher interest rate. This effectively converts the LMI premium into an ongoing interest cost rather than an upfront lump sum. Whether this is better than paying LMI upfront depends on how long you hold the loan before reaching 80% LVR — over a long period, the higher rate can cost more than the LMI would have.
Is LMI Ever Worth Paying?
For property investors and some owner-occupiers, paying LMI can actually make financial sense when weighed against the opportunity cost of waiting to save a 20% deposit.
Consider a Sydney buyer in 2020 who chose to pay $15,000 LMI to enter the market with a 10% deposit rather than saving for another 18–24 months. During that period, Sydney property prices rose approximately 30%. On a $1 million property, that is $300,000 in additional value — far exceeding the $15,000 LMI cost. This does not always work out this way (property prices also fall), but it illustrates why paying LMI to enter the market earlier is sometimes the rational choice in a strongly rising market.
For property investors, LMI on a loan used to purchase an income-producing property is generally tax-deductible over the lesser of five years or the loan term. On a $16,000 LMI premium in the 37% tax bracket, the deduction is worth approximately $5,920 over five years. This reduces the effective after-tax cost of LMI for investors.
Frequently Asked Questions
- Can I get my LMI refunded if I pay off my loan early?
- LMI premiums are generally non-refundable once paid. If you pay down your loan quickly and bring your LVR below 80%, the LMI policy does not end and you receive no refund. However, your ongoing interest saving from the lower balance is a form of financial benefit regardless.
- Do I pay LMI again if I refinance?
- If your LVR is still above 80% when you refinance to a new lender, the new lender will require LMI for the new loan and you pay again. This is one of the reasons refinancing can be costly in the early years of a high-LVR loan. Some lenders will accept a transfer of the existing LMI policy — check whether this is possible before refinancing.
- Does LMI protect me if I cannot make repayments?
- No. LMI protects the lender, not the borrower. If you cannot make repayments and your property is sold for less than the outstanding loan, the insurer covers the lender's shortfall — then pursues you personally to recover that amount. You should have income protection insurance or mortgage protection insurance (a separate product) if you want cover for your own circumstances.
- What is the stamp duty on LMI in Australia?
- In most states, stamp duty applies to LMI premiums at rates of around 7.5–11%. For example, in NSW the stamp duty on LMI is 9%, so an LMI premium of $16,000 incurs additional stamp duty of $1,440. This is usually capitalised into the loan along with the LMI premium itself.
