Lenders Mortgage Insurance can add $15,000–$40,000 to your home loan — and it protects the bank, not you. Here's exactly what LMI is, how much it costs, and five legitimate ways to avoid it entirely.
What is LMI?
Lenders Mortgage Insurance (LMI) is an insurance policy that lenders require when your deposit is less than 20% of the property's value — meaning your Loan-to-Value Ratio (LVR) is above 80%. Despite the name, it protects the lender if you default and the property sells for less than your outstanding loan amount. You pay the premium, but you receive no benefit.
How much does LMI cost?
LMI is calculated as a percentage of your loan amount, with rates increasing sharply as your LVR rises. For a $700,000 property:
- 5% deposit (95% LVR): LMI of approximately $23,000–$30,000
- 8% deposit (92% LVR): LMI of approximately $15,000–$20,000
- 10% deposit (90% LVR): LMI of approximately $12,000–$16,000
- 15% deposit (85% LVR): LMI of approximately $5,000–$8,000
- 20% deposit (80% LVR): No LMI
LMI can typically be added to your loan (capitalised) rather than paid upfront — but you'll then pay interest on it for the life of the loan, increasing the total cost significantly.
Why do lenders charge LMI?
When a buyer has a small deposit, the lender takes on more risk. If the borrower defaults and the property sells for less than the outstanding loan, the lender faces a loss. LMI transfers this risk to an insurance company (Genworth or Arch MI in Australia). The insurer pays the lender's loss — but can then pursue the borrower to recover that amount.
5 ways to avoid LMI
1. Save a 20% deposit
The most straightforward option. Once your deposit reaches 20% of the purchase price, LMI disappears entirely. The challenge is timing — property prices may rise while you save. See our deposit saving guide for strategies to get there faster.
2. Use the First Home Guarantee
The federal government's First Home Guarantee allows eligible first home buyers to purchase with just a 5% deposit — and no LMI. The government guarantees the missing 15%, removing the lender's risk without charging you LMI. 35,000 places are available each financial year. See our full guide to the First Home Guarantee.
3. Use a guarantor
If a parent or close family member owns property with sufficient equity, they can act as guarantor for part of your loan. The guarantee covers the portion between your deposit and 20% LVR — eliminating LMI without requiring you to save more. The guarantor's property serves as additional security and is released once your LVR reaches 80% through repayments or property growth.
4. Professional LMI waiver
Some lenders offer LMI waivers for specific professions considered low-risk: doctors, dentists, lawyers, accountants, and some senior engineers. These schemes typically allow borrowing up to 90–95% LVR without LMI. Check with a broker whether your profession qualifies.
5. Use an LMI-free lender at high LVR
A small number of lenders offer loans at 80–85% LVR without LMI as a competitive differentiator. These may have slightly higher interest rates to compensate — compare the total cost over your expected loan term to determine whether it's better value than paying LMI and getting a lower rate elsewhere.
Is it ever worth paying LMI?
Sometimes. If property prices are rising faster than you can save additional deposit, the cost of waiting (higher purchase price) can exceed the cost of LMI. In high-growth markets, buyers have paid $15,000 in LMI to avoid missing market appreciation of $50,000+. This calculation is highly market-dependent and requires careful analysis.
A mortgage broker can model both scenarios — paying LMI now vs. saving longer — using current market data for your target suburbs.