Lenders Mortgage Insurance is one of the most misunderstood costs in Australian property buying. Many buyers think it protects them — it does not. Here is what LMI actually is, how much it costs, and how to avoid paying it.
What Is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is an insurance policy that protects the LENDER (not the borrower) if the borrower defaults on their loan and the property sale does not cover the outstanding debt. Despite the borrower paying for it, LMI provides zero benefit to the borrower.
When Is LMI Required?
LMI is typically required when a borrower has less than a 20% deposit — i.e. when the Loan-to-Value Ratio (LVR) exceeds 80%. Some lenders apply it at lower thresholds; a small number of specialist products allow up to 85% LVR without LMI.
How Much Does LMI Cost?
| Property Price | Deposit | LVR | Estimated LMI |
|---|---|---|---|
| $600,000 | $60,000 (10%) | 90% | ~$11,000 – $14,000 |
| $600,000 | $75,000 (12.5%) | 87.5% | ~$8,000 – $10,000 |
| $800,000 | $80,000 (10%) | 90% | ~$15,000 – $19,000 |
| $1,000,000 | $100,000 (10%) | 90% | ~$20,000 – $25,000 |
LMI amounts are estimates only. Actual premiums vary by lender and insurer. LMI can typically be capitalised into the loan.
How Do I Avoid Paying LMI?
- Save a 20% deposit (the standard threshold)
- Use a guarantor loan (a parent or family member guarantees part of the loan using equity in their own property)
- Access government schemes: the Home Guarantee Scheme allows eligible first-home buyers to buy with as little as 5% deposit without LMI (subject to caps and eligibility)
- Some professional packages for doctors, lawyers and accountants waive LMI at higher LVRs
- Some lenders offer no-LMI products to specific borrower profiles
Can Paying LMI Ever Make Financial Sense?
In a strongly rising market, paying LMI to enter the market earlier can make financial sense if the capital growth on the property exceeds the LMI cost. However, this involves market timing risk and should be modelled carefully with a mortgage broker. In a flat or falling market, LMI is a pure sunk cost.
GeeVee Verdict
LMI protects the bank, not you. Avoid it wherever possible by saving a 20% deposit, using a guarantor, or accessing the Home Guarantee Scheme. If you do pay LMI, capitalise it into the loan rather than paying cash upfront, and treat it as the cost of earlier market entry — not a benefit.
Frequently Asked Questions
Can I get an LMI refund if I sell the property quickly?
LMI premiums are generally non-refundable once the loan settles, regardless of how quickly you sell or pay down the loan.
Is LMI tax deductible on an investment property?
Yes. LMI paid on an investment property loan is tax-deductible, typically spread over 5 years or the loan term (whichever is shorter). Speak to your accountant to confirm.
Does LMI differ between lenders?
Yes. LMI premiums vary between lenders and are set by two main LMI providers in Australia (Genworth and QBE). Different lenders use different insurers and pricing models — a mortgage broker can compare the true cost across lenders.
Whether you’re buying your first investment property, building a portfolio, or exploring SMSF property investment, the Collings Property Platform gives you access to off-market opportunities, portfolio tracking, investment tools, and property insights powered by GeeVee AI. Join free today and start building your property future. collings.com.au/portal
Find your next property with Collings
Track suburbs, get matched to on-market and off-market listings, and manage your whole property search in one place. Access the Collings property portal.
