What is LMI and Do You Actually Need to Pay It?

Lenders Mortgage Insurance — or LMI — is one of those things that catches many first home buyers by surprise. It can cost tens of thousands of dollars, and many people don't realise they're paying it until they're already in the process. Here's everything you need to know.

What is Lenders Mortgage Insurance?

LMI is insurance that protects the lender — not you — if you default on your home loan and the property is sold for less than the outstanding loan balance. Despite being insurance for the lender's benefit, the cost is passed on to you, the borrower.

When Do You Have to Pay LMI?

LMI is generally required when you borrow more than 80% of the property's value — in other words, when your deposit is less than 20%. The technical term for this is a loan-to-value ratio (LVR) above 80%.

For example, if you're buying a $700,000 property and have a $70,000 deposit (10%), you're borrowing $630,000 — or 90% of the property value. You'd be required to pay LMI on the amount above 80%.

How Much Does LMI Cost?

LMI is calculated as a percentage of the loan amount and varies based on your LVR and the loan size. As a rough guide:

• 5% deposit on a $600,000 property: LMI approximately $18,000–$24,000
• 10% deposit on a $600,000 property: LMI approximately $8,000–$12,000
• 15% deposit on a $600,000 property: LMI approximately $3,000–$5,000

LMI can typically be added to your loan (capitalised), which means you don't pay it upfront — but it does increase your loan balance and the total interest you pay over time.

Ways to Avoid Paying LMI

1. Save a 20% Deposit

The most straightforward way — save until you have 20% of the purchase price. This eliminates LMI entirely and also gives you access to a wider range of lenders and better rates.

2. First Home Guarantee Scheme

The government's First Home Guarantee Scheme allows eligible first home buyers to purchase with as little as a 5% deposit without paying LMI. The government guarantees the remaining portion of the deposit. Places are limited each financial year.

3. Guarantor Loan

A parent or close family member uses equity in their own property to guarantee part of your loan. This can allow you to borrow without LMI even with a smaller deposit — though it does put the guarantor's property at risk.

4. Professional or Industry Waivers

Some lenders offer LMI waivers for certain professions — typically doctors, lawyers, accountants and other high-income professionals. If you're in one of these professions, ask us about your options.

Should You Pay LMI to Get Into the Market Sooner?

This is a genuine question worth thinking through carefully. If property prices are rising faster than you can save, paying LMI to get into the market sooner may actually work in your favour financially — even though you're paying an extra cost upfront.

On the other hand, if prices are flat or falling, waiting to save a larger deposit avoids LMI and gives you a stronger financial position. We help you run the numbers for your specific situation.