What is LMI (Lenders Mortgage Insurance)?
Definition
Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance is a one-off insurance premium paid by the borrower that protects the lender if you default on your home loan. It is typically required when your deposit is less than 20% of the property's purchase price, meaning your loan-to-value ratio (LVR) exceeds 80%.
LMI is one of the most misunderstood costs in Australian property. Despite the name, it does not protect you as the borrower — it protects the lender. If you default and the property sells for less than the outstanding loan balance, the LMI provider covers the lender's shortfall. The insurer can then pursue you for the difference.
LMI can add thousands — or even tens of thousands — of dollars to your upfront costs. Understanding how it works and how to minimise or avoid it can save you significant money.
How LMI Is Calculated
LMI premiums are calculated based on two main factors: your loan-to-value ratio (LVR) and the loan amount. Higher LVR means higher risk to the lender, so premiums increase significantly as your deposit shrinks.
The two main LMI providers in Australia are Helia (formerly Genworth) and QBE. Each has its own premium schedule, and your lender determines which provider is used.
LVR Thresholds
- 80% LVR or below: No LMI required (20%+ deposit)
- 80.01% - 85% LVR: Low-tier LMI premium
- 85.01% - 90% LVR: Mid-tier LMI premium
- 90.01% - 95% LVR: Highest LMI premium
- Above 95% LVR: Most lenders will not approve the loan
Estimated LMI Costs
The following table shows approximate LMI costs for different property values and deposit levels. Actual costs vary by lender and LMI provider.
Estimated LMI by Property Value and LVR
| State | 95% LVR (5% deposit) | 90% LVR (10% deposit) | 85% LVR (15% deposit) |
|---|---|---|---|
| $500,000 | $15,000 - $18,000 | $8,000 - $10,000 | $3,500 - $5,000 |
| $700,000 | $22,000 - $27,000 | $11,000 - $14,000 | $5,000 - $7,000 |
| $800,000 | $26,000 - $32,000 | $13,000 - $16,000 | $6,000 - $8,000 |
| $1,000,000 | $35,000 - $42,000 | $17,000 - $21,000 | $7,500 - $10,000 |
| $1,200,000 | $42,000 - $50,000 | $20,000 - $25,000 | $9,000 - $12,000 |
Note: The "State" column above represents the property value. LMI costs are national and do not vary by state — they depend on LVR and loan amount.
How to Avoid LMI
There are several legitimate strategies to avoid paying LMI. For a complete breakdown, see our guide on understanding LMI and how to avoid it.
- Save a 20% deposit: The simplest way to avoid LMI entirely. On a $800,000 property, that means saving $160,000.
- Family guarantee (guarantor loan): A parent or family member uses equity in their own property as additional security. This effectively reduces your LVR below 80% without you needing to save a larger deposit. Available from most major lenders.
- First Home Guarantee (federal scheme): The Australian Government guarantees up to 15% of the property value, allowing eligible first home buyers to purchase with as little as 5% deposit and no LMI. Limited places available each financial year.
- Regional First Home Buyer Guarantee: Similar to the First Home Guarantee but specifically for regional areas. Allows a 5% deposit with no LMI.
- Professional packages: Some lenders waive LMI for borrowers in certain professions (doctors, lawyers, accountants, engineers) with as little as 10% deposit.
- Lender LMI waivers: A few lenders self-insure and waive LMI for loans up to 85% LVR as a competitive offering. Check with a mortgage broker for current options.
Can LMI Be Added to Your Loan?
Yes. Most lenders allow you to capitalise (add) the LMI premium onto your home loan rather than paying it upfront. While this means you do not need the cash on hand, it increases your total loan amount and the interest you pay over the life of the loan. On a $20,000 LMI premium capitalised over 30 years at 6% interest, you would pay approximately $23,000 in additional interest.
Frequently Asked Questions
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