- Lenders Mortgage Insurance (LMI) protects lenders from losses in the event a borrower defaults.
- LMI is usually charged for borrowers with a Loan to Value Ratio (LVR) above 80%.
- The 5% Deposit Scheme means that first home buyers may be able to buy with a smaller deposit and avoid paying LMI, providing their property is under the price cap.
Along with stamp duty, LMI can be one of the most significant costs homebuyers have to pay on top of the sale price.
What is lenders mortgage insurance?
Lenders mortgage insurance (LMI for short) is an insurance policy which covers the mortgage lender against the losses they may incur in the event that the borrower can no longer pay loan repayments (an event known as a 'default' on the home loan).
LMI shouldn't be confused with mortgage protection insurance, which covers borrowers for their mortgage in case of death, sickness, disability, or unemployment.
Despite the fact that LMI covers the lender, the cost is generally passed on to the borrower. LMI premiums can be paid upfront, or added to the loan.
What is LMI in Australia?
In Australia, lenders mortgage insurance is a standard requirement for most borrowers with a deposit smaller than 20% of the property's value. Unlike in some countries where borrowers may choose to pay higher interest instead of taking out insurance (Lender-paid mortgage insurance, or LPMI, in the US for example), LMI in Australia is generally non negotiable. Borrowers have no say in the choice of insurer with lenders selecting providers - usually Genworth, QBE or Helia.
How does lenders mortgage insurance work?
If a property is under mortgage, it means the lender has the right to repossess it if the borrower defaults on their repayments. The lender then sells the property and, ideally, recoups the outstanding loan amount.
But imagine the value of the property has fallen substantially, to the point where it is worth less than the outstanding loan. The lender would likely make a loss in this case, since they would not be able to recoup the full amount owed by selling the property. If the lender is covered by LMI, they can make an insurance claim to make up for this loss. With this risk of loss passed on to the LMI provider, lenders are more willing to approve loans at a higher loan-to-value ratio (LVR), often up to a maximum of 95% of the property's value or sale price (whichever is lower).
Do I need to pay LMI?
Here's how LMI might affect you if you're:
- A First home buyer: The expanded 5% deposit scheme means there's no limit to how many first home buyers can participate, and buy with a deposit as small as 5% without paying LMI. However, there are still property price caps for each area, so if you're buying something valued above the local price cap you may still have to pay LMI premiums.
- A Property investor: If you're buying a property as an investment you don't qualify for the 5% Deposit Scheme, so unless an exemption applies you'll likely be charged LMI if your deposit is less than 20%.
- Refinancing: When you refinance, your lender usually reassesses your serviceability as if its a new loan. That means that if your LVR is still above 80% you may be charged LMI unless an exemption applies.
- Building: Lenders generally still charge LMI on construction loans if LVR is above 80%.
Savings.com.au's two cents
The expanded 5% Deposit Scheme is thought by some to pose an existential threat to the entire LMI industry. Since existing homeowners often have enough equity built up to have an LVR below 80% when they buy their next place, it was often first home buyers that were charged for LMI. Helia Chair Leona Murphy acknowledged the "negative impact" the 5% Deposit Scheme was having on premium volumes in 2025.
However, if you're not a first homebuyer or you are but you're buying a property above the price cap, you'll still likely be charged LMI if your LVR is above 80%. The premiums can be expensive, so it's worth exploring whether you qualify for an exemption or weighing up whether paying LMI is worth it to be able to buy sooner.
How much is lenders mortgage insurance in Australia?
The upfront cost of LMI premiums typically varies by the size of the loan and the LVR, as illustrated below. They can also depend on what type of borrower you are. For instance, first-time borrowers often pay a different LMI premium than existing borrowers, even at the same LVR and loan size.
LMI premiums for existing borrowers
| Estimated property value | 95% LVR LMI cost | 90% LVR LMI cost | 85% LVR LMI cost |
|---|---|---|---|
| $400,000 | $17,138 | $6,944 | $3,390 |
| $600,000 | $34,485 | $10,800 | $5,100 |
| $800,000 | $45,980 | $14,400 | $6,800 |
| $1,000,000 | $57,475 | $22,392 | $11,135 |
Source: Savings.com.au's Lenders Mortgage Insurance Calculator. Prices including GST but excluding stamp duty. Based on a loan term up to 30 years.
On top of these rates, you will typically also need to pay a stamp duty on top of LMI.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Is lenders mortgage insurance worth paying?
While some say good things come to those who wait, others say the early bird catches the worm.
In Australia, if you wait to buy property until you've saved up a sizeable deposit (20%+), you can save money by not having to pay LMI.
However, if you're an early bird that jumps into the market after only saving the minimum deposit (typically 5%), you'll likely get in sooner and potentially avoid further property price rises. This action may end up saving you more than the cost of paying LMI, particularly if property prices are rising quickly.
There are some ways to purchase with a 5% deposit and avoid paying LMI though, such as utilising the Australian Government's 5% Deposit Scheme or having a guarantor.
However, you still need to consider the higher interest costs of having a low deposit, given you'll be paying interest on a larger amount and may not qualify for lower interest rates.
How to avoid lenders mortgage insurance
Typically, lenders exempt borrowers from having to pay for lenders mortgage insurance if the deposit on the property is over 20% (80% LVR) of the property's value or sale price. This is because lenders perceive borrowers with deposits over 20% as less likely to default on a loan. A 20% deposit is viewed as a large enough buffer to protect lenders from a fall in the value of the property so they can recover the amount owed to them if the borrower defaults.
Some circumstances may require a larger deposit though. In specific suburbs with high default rates and/or at risk of a large fall in prices (like what was seen in some of the regional mining towns when the boom ended), lenders may require a bigger deposit for the borrower to be exempt from LMI, like 30 or 40%.
Other ways of avoiding lenders mortgage insurance
Borrowers can be exempt from having to pay LMI for other reasons, such as:
Having a guarantor: Many lenders will waive LMI on the loan (no matter how small the deposit) if the borrower is backed by a quality guarantor (such as a parent) that legally accepts responsibility for the mortgage repayments if the borrower cannot make them. Guarantors offer equity in their own home as additional security for the loan.
Working in a highly-regarded profession: Borrowers working in specific professions (such as doctors, accountants, lawyers etc.) that are considered to be highly paid and relatively stable can sometimes borrow up to 90% LVR without having to pay LMI.
Use government assistance: Government guarantees like the First Home Guarantee, Family Home Guarantee and Regional First Home Guarantee let some home buyers secure a property with a deposit as low as 5% (or 2% for the Family Home Guarantee) without having to pay LMI. The Government essentially acts as a guarantor for up to 15% of the property value, providing extra security for the lender so they do not need to take out insurance.
Apply with certain lenders: If you're in the market for a loan, you should always be shopping around to compare home loan deals available. Look out for lenders that offer discounts or waived LMI fees for certain borrowers.
No LMI home loans: There are a couple of non traditional lenders in Australia that specialise in offering loans without LMI. Sucasa and OwnHome both offer novel approaches that could allow borrowers with an LVR above 80% to avoid paying LMI. This may mean higher rates, but could work out to be cost effective depending on your situation.
Sometimes a combination of other factors can also see LMI waived on the home loan, like a perfect credit history or requesting a modest loan amount for a property in a low-risk suburb.
When do you pay LMI?
LMI premiums can be paid as an upfront one-off payment at settlement or can be added to the loan amount and gradually paid off in the regular mortgage repayments. This means the premium will accrue interest though, costing you more over the long term.
Is lenders mortgage insurance tax deductible?
If you are buying an investment property, the cost of lenders mortgage insurance, including stamp duty, is tax deductible. Generally, it is claimed over a period of five years from the date of settlement. If you are buying property to live in though, this is not a business expense in the ATO's eyes, and cannot be claimed. If you end up renting out your property down the track, you are able to claim LMI, but only for the period the property is rented out for. If you buy an owner-occupied property and begin renting it out after a year, you can only make LMI claims for four years, not five.
Can you get a refund of lenders mortgage insurance premiums?
When you refinance to a different lender or buy a new house, it's unlikely that you'll get this premium back. You may even have to pay for LMI again if your LVR is still above 80%.
However, in cases where the loan is terminated early, you may be eligible for a partial refund of LMI premiums. Qualifying for an LMI refund also depends on the lender's LMI policy provider and meeting certain criteria, so it's worth checking with your lender to see if you're eligible.
How do I avoid LMI when refinancing?
LMI only covers your initial loan. If you refinance, the lender will make another assessment of the riskiness of this new loan, so it won't matter if you've already paid LMI. If you have managed to pay off enough of your loan that the LVR of the new loan is now below 80%, you're in the clear and won't be charged again. If the LVR remains above 80% though, you will probably need to pay for LMI twice. The simplest way to avoid paying LMI when refinancing is to have an LVR below 80%. The quicker you pay off your mortgage, the more equity you build up. Alternatively, you could try going the other way, and decreasing the LVR by increasing the value of your property, perhaps through renovations or home improvements. You could also try asking a member of your family to go guarantor.