Lenders Mortgage Insurance (LMI) Australia: What It Is, What It Costs, and How to Avoid It

Lenders Mortgage Insurance costs tens of thousands of dollars and protects the bank — not you. If you default on your loan and the lender sells the property at a loss, LMI covers the lender's shortfall. You're paying for their insurance. And if they claim on it, they can still come after you for the balance.

Understanding exactly what LMI costs, when you're forced to pay it, and how to legally avoid it can save you $10,000–$40,000 on a home purchase.

When does LMI apply?

LMI is charged whenever a borrower has less than a 20% deposit — in lender terms, when the loan-to-value ratio (LVR) exceeds 80%.

LVR ≤ 80% (deposit ≥ 20%): No LMI
LVR 81–85%: LMI applies — lower cost
LVR 86–90%: LMI applies — moderate cost
LVR 91–95%: LMI applies — highest cost

The LVR is calculated based on the lender's valuation of the property, not your purchase price. If you pay $800,000 but the lender values it at $780,000, your LVR is calculated on $780,000.

How much does LMI cost?

LMI is not a flat fee — it scales with both the loan size and the LVR. The premium is usually added to the loan (capitalised), which means you pay interest on the LMI cost for the life of the loan.

Approximate LMI costs (indicative — varies by lender and insurer):

Property value	Deposit	LVR	Approx. LMI premium
$600,000	$60,000 (10%)	90%	$12,000–$16,000
$600,000	$90,000 (15%)	85%	$7,000–$9,500
$800,000	$80,000 (10%)	90%	$16,000–$22,000
$800,000	$120,000 (15%)	85%	$9,500–$13,000
$1,000,000	$100,000 (10%)	90%	$22,000–$30,000
$1,000,000	$150,000 (15%)	85%	$13,000–$17,000

These are indicative ranges. Actual LMI premiums vary by lender (some use QBE, others Genworth/Helia) and are impacted by whether the property is owner-occupied or investment, the borrower's employment type, and the loan purpose.

When capitalised into the loan, you also pay interest on the LMI amount. At 6.2% over 25 years, a $15,000 LMI premium costs approximately $23,000 in total (including interest) if you never pay the loan down early.

Use our Stamp Duty Calculator to calculate all your upfront costs including LMI, stamp duty and legal fees.

Is LMI tax deductible?

For owner-occupied properties: No — LMI on your home is not tax deductible.

For investment properties: The ATO treats LMI as a borrowing expense — not immediately deductible in full. Like other borrowing costs, it must be amortised over 5 years or the life of the loan, whichever is shorter. So $15,000 in LMI is deductible at $3,000/year for 5 years.

Six legitimate ways to avoid LMI

1. Save a 20% deposit

The most straightforward approach. You need 20% of the lender's valuation, not the purchase price. Allow for purchase costs (stamp duty, legal fees) on top — so a $800,000 property typically requires $160,000 deposit plus $30,000–$40,000 in costs = $190,000–$200,000 total savings.

2. Use the First Home Guarantee scheme

Eligible first home buyers can purchase with a 5% deposit without LMI under the federal First Home Guarantee. The government guarantees the missing 15%, eliminating the LMI cost entirely. There are no income caps and places are unlimited as of 2026. Property price caps apply by location.

This is the single most valuable LMI-avoidance strategy for first home buyers who qualify.

3. Use a guarantor (family guarantee)

A parent or close family member can use equity in their own property to guarantee a portion of your loan. With a family guarantee covering the shortfall, your LVR from the lender's perspective drops below 80% — and LMI doesn't apply.

The risk: The guarantor's property is security for your loan. If you default, the lender can pursue the guarantor's asset. Most banks limit the guarantee to only the portion of the loan above 80% LVR, reducing the guarantor's exposure.

The guarantee is typically released once your loan balance (through repayment + property value growth) drops to 80% LVR.

4. Access professional packages (LMI waiver)

Several lenders waive or discount LMI for specific professions, typically at 85% or 90% LVR without LMI. The eligibility is narrow and varies by lender, but commonly includes:

Doctors, dentists, optometrists, and some allied health professionals
Lawyers and barristers
Senior accounting and finance professionals (CPA, CA)
Some engineers (specifically licensed)
Registered nurses or midwives (lender-specific)

If you're in one of these professions, a mortgage broker can identify lenders offering LMI waivers. The saving is often $10,000–$25,000.

5. Use equity from an existing property

If you already own property with equity, you can use that equity as security against the new purchase instead of cash. This "guarantor" arrangement using your own equity avoids LMI because the combined security (your existing property + new property) gives the lender adequate security above 80% LVR.

6. Accept LMI — but negotiate who charges it

If you must pay LMI, compare lenders. Some offer more competitive LMI premiums than others. Some waive LMI at 85% LVR for larger loan sizes. Some add the LMI to the loan (capitalise) at no extra interest; others charge it as an upfront fee.

Also: paying a slightly higher deposit — say from 10% to 12% — can meaningfully reduce the LMI premium even if it doesn't eliminate it. A 2% deposit increase on an $800,000 property ($16,000) might save $5,000–$8,000 in LMI.

Is LMI ever worth paying?

For most buyers, LMI is a cost to be minimised or avoided. But there are situations where it makes economic sense:

When LMI may be worthwhile:

You're entering a rapidly rising market and delaying 12 months to save more deposit would cost more in price growth than the LMI premium
You're an investor and LMI is partly tax-deductible (amortised over 5 years)
You're at 95% LVR and the property is genuinely excellent — the leverage amplifies your return significantly

When it's clearly not worth it:

You're 6 months away from 20% and the market isn't rising fast
The LMI premium exceeds the expected price growth in the time saved
You're at 85% LVR and could hit 80% with a small additional amount

Frequently asked questions

What is Lenders Mortgage Insurance in Australia?

LMI is an insurance policy taken out by the lender (not you) that protects the bank if you default on your loan and the property sells for less than the outstanding debt. It's charged to the borrower whenever the LVR exceeds 80% — you pay to protect the bank. It does not protect you if you can't make repayments.

How much does LMI cost in Australia?

LMI cost depends on the loan size and LVR. As a rough guide: a $800,000 property with a 10% deposit (90% LVR) incurs LMI of approximately $16,000–$22,000. At 15% deposit (85% LVR), the same property costs $9,500–$13,000 in LMI. These are indicative — get an exact quote from your lender.

Can I avoid LMI without a 20% deposit?

Yes. The most accessible option is the First Home Guarantee — eligible first home buyers can purchase with 5% deposit and no LMI. A guarantor arrangement also avoids LMI. Some professions (doctors, lawyers) qualify for LMI waivers at 85–90% LVR with certain lenders.

Is LMI refundable if I sell my property?

Generally no — LMI premiums are non-refundable once paid. If you sell the property or refinance within a few years of paying LMI, you don't get the premium back. When refinancing to a new lender, you may need to pay LMI again if your LVR is still above 80%.

Can LMI be added to my loan?

Yes — most lenders allow LMI to be capitalised (added to the loan balance). This avoids the upfront cash outlay but means you pay interest on the LMI amount for the loan's life. Capitalising $15,000 of LMI at 6.2% over 25 years adds approximately $8,000 in interest.

LMI premiums vary by lender, insurer, loan type, property type and borrower circumstances. Always get a specific quote. This article is for general information only and does not constitute financial or mortgage advice.