Lenders Mortgage Insurance (LMI) is insurance that protects the lender — not the borrower — if you default on your home loan. It is payable when your deposit is less than 20% of the property value (i.e. your loan-to-value ratio exceeds 80%). Despite protecting the lender, the cost is passed on to the borrower — either as an upfront payment or capitalised into the loan.
How Much Does LMI Cost in Australia?
LMI premiums vary by lender, loan amount and LVR but are typically:
| LVR | LMI Premium (approx. on $600k loan) |
|---|---|
| 85% (15% deposit) | $5,000-$8,000 |
| 90% (10% deposit) | $12,000-$18,000 |
| 95% (5% deposit) | $20,000-$30,000 |
LMI can be paid upfront or added to the loan balance — in which case you pay interest on it over the life of the loan, increasing the total cost.
How Can I Avoid Paying LMI?
The main ways to avoid LMI include: saving a 20% deposit (the standard threshold); using a guarantor (a family member who offers equity in their property as additional security); accessing the Federal Government’s Home Guarantee Scheme (which allows eligible first home buyers to purchase with as little as 5% deposit without paying LMI); and choosing a lender with a professional waiver (some lenders waive LMI for doctors, lawyers and other professionals).
Is It Worth Paying LMI to Enter the Market Sooner?
This is one of the most common questions Australian property buyers face. The answer depends on the market. In a rising market, the capital growth you capture by buying earlier may significantly outweigh the LMI cost. In a flat or falling market, paying LMI to buy sooner may not be justified. A mortgage broker can model both scenarios for your specific situation.
Frequently Asked Questions
Does LMI protect me as a borrower?
No. LMI protects the lender, not you. If you default, the lender claims from the LMI insurer — but the insurer can then pursue you for recovery of the amount paid. Do not confuse LMI with income protection or mortgage protection insurance, which protect borrowers against loss of income.
Can I get LMI refunded if I refinance?
Partially. Some LMI policies offer a partial refund if you refinance within the first 12 months with the same lender. If you switch lenders, LMI paid to the previous lender is generally not transferable and you may need to pay a new LMI premium with your new lender if your LVR is still above 80%.
What is the Home Guarantee Scheme?
The Federal Government’s Home Guarantee Scheme allows eligible first home buyers and single parents to purchase property with a deposit as low as 2-5% without paying LMI. The government guarantees the portion of the loan above 80% LVR. Places are limited each financial year and income and property price caps apply.
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