Lenders Mortgage Insurance is one of the most misunderstood costs in the home buying process. Many buyers confuse it with insurance that protects them — it does not. Here is exactly what LMI is, how much it costs, and the legitimate ways to avoid it.
Lenders Mortgage Insurance is an insurance policy taken out by the lender — not by you — that protects the lender if you default on your loan and the property sells for less than the outstanding balance. Despite the lender taking out the policy, the cost is passed on to you as the borrower.
LMI is triggered when your loan exceeds 80% of the property's value (an LVR above 80%). The higher the LVR, the higher the LMI premium. LMI does not benefit you in any way — it purely protects the lender's interest.
LMI premiums are calculated as a percentage of the loan amount. At 85% LVR (15% deposit) the premium is typically 1% to 2% of the loan amount. At 95% LVR (5% deposit) it can reach 3% to 4%.
On a $600,000 loan at 95% LVR, the LMI premium could be $18,000 to $24,000. This is typically added to the loan balance — but you pay interest on it for the life of the loan, making the true cost higher. Use our borrowing power calculator to see how LMI affects your repayments.
The clearest way to avoid LMI is to save a 20% deposit. However, there are other legitimate paths.
The First Home Guarantee allows eligible first home buyers to purchase with 5% deposit without paying LMI — the government guarantees the portion above 80% instead. A family guarantee arrangement, where a parent uses equity in their own property as additional security, can also eliminate LMI without requiring a 20% cash deposit. Some professions — including medical, legal and accounting professionals — qualify for LMI waivers from certain lenders at up to 90% LVR. Lendology confirms whether you qualify for any of these alternatives.
Not necessarily. In a rising market, the cost of waiting to save a larger deposit — in terms of increased property prices — can exceed the LMI premium. Lendology models both scenarios: paying LMI now versus waiting to reach 20%. For some buyers, paying LMI and entering the market earlier is the better financial decision.
LMI premiums are generally non-refundable and non-transferable. If you sell or refinance before the loan is repaid, you do not receive a refund. This is an important consideration when weighing up whether to accept LMI.
For investment properties, LMI is deductible over 5 years or the loan term, whichever is shorter. For owner-occupied properties it is not deductible. Check with your accountant for your specific situation.
Doctors, dentists, vets, lawyers, accountants and some other professionals qualify for LMI waivers at up to 90% LVR at certain lenders. Lendology confirms eligibility as part of your application.
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