Lenders Mortgage Insurance (LMI) is one of the most misunderstood costs in Australian property purchasing. Many buyers do not realise they will pay it until they are at the finance approval stage — by which point they have often already committed to a purchase. Here is everything you need to know.
What Is LMI?
LMI is an insurance policy that protects the lender — not the borrower — if you default on your mortgage and the sale of the property does not cover the outstanding loan balance. Despite being paid by the borrower, LMI exists entirely for the lender’s benefit.
When Does LMI Apply?
LMI applies when your deposit is less than 20% of the property purchase price — in other words, when your Loan to Value Ratio (LVR) exceeds 80%. For example, on a $900k property, if your deposit is less than $180k, you will likely pay LMI.
How Much Does LMI Cost?
| Property Price | Deposit (10%) | LVR | Estimated LMI Cost |
|---|---|---|---|
| $600,000 | $60,000 | 90% | $8,000 – $12,000 |
| $800,000 | $80,000 | 90% | $12,000 – $18,000 |
| $1,000,000 | $100,000 | 90% | $16,000 – $24,000 |
| $1,200,000 | $120,000 | 90% | $20,000 – $30,000 |
Note: LMI costs vary by lender and insurer. These are indicative estimates only.
5 Strategies to Avoid or Reduce LMI
- Save a 20% deposit: The most straightforward approach — get your LVR to 80% or below.
- Use a guarantor: A parent or family member can use equity in their own property to guarantee your loan, removing the LMI requirement.
- Access the First Home Guarantee: The federal government’s First Home Guarantee (formerly FHLDS) allows eligible first home buyers to purchase with a 5% deposit and no LMI.
- Use a professional LMI waiver: Some lenders waive LMI for certain professions — medical professionals, lawyers, accountants, engineers — at LVRs up to 90%.
- Negotiate a lower purchase price: Improving your negotiation position can reduce your LVR below 80%, eliminating LMI entirely.
Should You Pay LMI to Buy Sooner?
This is a genuine strategic question. In a rising market, buying sooner with LMI can make financial sense if the capital growth you capture exceeds the LMI cost. In a flat or falling market, it rarely does. A Collings Property Advisor can help you run this analysis for your specific situation.
How a Property Advisor Can Help With LMI
One of the most valuable things a property advisor does is help buyers assess whether LMI is worth paying in their specific market context. We also help buyers negotiate purchase prices that can move them across the 80% LVR threshold — effectively eliminating LMI through better negotiation.
Collings Property Advisory: $4,500 + GST flat fee. No commission. No conflict of interest.
Frequently Asked Questions
Is LMI tax deductible for investment properties?
LMI on an investment property loan is generally tax deductible, spread over 5 years or the loan term (whichever is shorter). Always confirm with your accountant.
Can I add LMI to my loan?
Yes. Most lenders allow you to capitalise LMI into your loan balance, which means you pay it off over the loan term rather than upfront.
Does LMI protect me if I cannot make repayments?
No. LMI protects only the lender. If you default, you are still liable for any shortfall after the lender recovers their costs from selling the property.
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