Lenders mortgage insurance (LMI) is one of the most misunderstood costs in Australian home buying. It’s insurance you pay for, but it protects the lender, not you. Here’s when it applies, what it costs, and the growing list of legitimate ways to avoid it.
When LMI is charged
LMI applies when you borrow more than 80% of a property’s value, that is, when your deposit is under 20%. It covers the lender’s loss if you default and the property sells for less than the loan balance. You pay the premium; the protection is theirs.
What it costs
LMI scales with your loan size and how small your deposit is. As a guide, on an $800,000 purchase it might be a few thousand dollars with a 15% deposit, but $25,000–$35,000 with a 5% deposit. The premium can usually be added to the loan rather than paid upfront, convenient, but then you pay interest on it for 30 years.
Six ways to avoid LMI
- Save a 20% deposit: the traditional route.
- Home Guarantee Scheme: eligible first home buyers purchase with 5% and pay no LMI; the government guarantees the difference.
- Professional waivers: many lenders waive LMI up to 90–95% for doctors, dentists and select professions. See medico loans.
- Guarantor loans: a family member’s equity secures the gap; no LMI even with no deposit.
- 85% no-LMI deals: a handful of lenders waive LMI at 85% LVR as a standing offer.
- Reprice later: if you’re close to 80%, a strong valuation or small top-up of savings can tip you under the line.
See which grants, schemes and duty exemptions you can stack, and what they’re worth in dollars.
Read the first home buyer guide →Is paying LMI ever the right call?
Often, yes. If saving the last 10% of your deposit would take three more years, and prices in your target suburb rise 5% a year, LMI is frequently the cheaper option, you’re buying time in the market. It’s a numbers decision, not a moral one, and it’s exactly the kind of trade-off Nathan can model with you in one call.