Lenders Mortgage Insurance (LMI) is a one-off insurance premium most lenders charge when you borrow more than 80 per cent of a property’s value, meaning your deposit is under 20 per cent, and it protects the lender rather than you. Depending on your loan size and how small your deposit is, it can run from a couple of thousand dollars to well over $10,000, and on a large loan with a 5 per cent deposit it can push past $20,000 to $40,000. The cleanest way to avoid it entirely is to save a 20 per cent deposit, though there are a few other legitimate routes below.
That is the short version. Here is everything that sits underneath it, because LMI is one of those costs that quietly reshapes how much house you can actually afford.
What LMI actually is
LMI is an insurance policy. The premium is calculated once, charged once, and that is the end of the transaction from your point of view. What trips people up is the assumption that, because you are paying for insurance, you are the one being insured.
You are not. If you lose your job, fall behind on repayments, and the lender has to sell your home for less than you owe, LMI pays the lender the shortfall. You still owe any gap the insurer does not cover, and the insurer can in some cases come after you to recover what it paid out. So you pay the premium, and the bank gets the protection. It is a strange arrangement, and it is worth understanding clearly before you sign.
Lenders require it because a borrower with a small deposit is, statistically, a higher risk. The 20 per cent buffer is what banks treat as the safety margin. Dip below it and the lender wants someone else carrying the downside, which is where the mortgage insurers come in.
Loan-to-value ratio, the number that drives everything
The figure that decides whether you pay LMI, and how much, is your loan-to-value ratio, or LVR. It is simply the loan divided by the property value, as a percentage. Borrow $600,000 against an $800,000 place and your LVR is 75 per cent, comfortably under the line. Borrow $760,000 against the same place and you are at 95 per cent, deep into LMI territory.
The premium does not climb in a neat straight line. It rises gently as you move from 81 to 90 per cent, then steepens sharply above 90 per cent. The jump from a 90 per cent loan to a 95 per cent loan can more than double the premium, because the insurer views that last slice of borrowed money as where most of the risk lives. If you are close to a threshold, finding a little more deposit to drop under 90 per cent can save you a surprising amount. Working out roughly how much you can borrow at different deposit levels, which you can sketch out in our how much can I borrow guide, is a sensible first move.
Indicative LMI costs
The table below gives a rough sense of how the premium scales with deposit size on a typical owner-occupier loan. These are indicative ranges only. Actual premiums vary widely by lender, by which mortgage insurer they use, by loan size, and by your circumstances.
| Deposit | LVR | Indicative LMI premium (on a $600,000 loan) |
|---|---|---|
| 15% | 85% | roughly $5,000 to $9,000 |
| 12% | 88% | roughly $8,000 to $13,000 |
| 10% | 90% | roughly $11,000 to $16,000 |
| 5% | 95% | roughly $20,000 to $30,000+ |
Indicative only, last checked June 2026. On larger loans the dollar figures climb further, and a $1 million-plus loan at 95 per cent can run well past $30,000 to $40,000. Treat these as ballpark figures for orientation, not as a quote.
Every dollar of LMI added to your loan is a dollar you pay interest on for the life of the mortgage. The premium is one-off. The interest on it is not.
You probably pay interest on it too
Here is the part that does the quiet damage. LMI is commonly capitalised, which is finance-speak for added on top of your loan rather than paid up front in cash. That sounds convenient, and on the day it is, because you do not have to find another ten grand from somewhere.
But once the premium is rolled into the loan, it accrues interest like everything else, for as long as you carry the mortgage. A $12,000 premium capitalised onto a 30-year loan can cost you far more than $12,000 by the time the loan is repaid, because you have been paying interest on it the whole way. If you have the cash to pay LMI separately and avoid capitalising it, that is usually the cheaper path. Parking spare funds against the balance through an offset account can also blunt the interest cost over time.
How to avoid or reduce LMI
There are a handful of legitimate routes. None is a trick, and which one fits depends entirely on your situation.
Save a 20 per cent deposit
The obvious one, and the only method that avoids LMI cleanly with no strings. Reach 20 per cent of the purchase price plus your buying costs, and the premium disappears. On an $800,000 home that is $160,000, which is a serious sum and a serious wait for most people, which is precisely why the other options exist.
Use a guarantor
A family member, usually a parent, can offer their own property as additional security for part of your loan. This lifts your effective deposit position, often enough to push you under 80 per cent and skip LMI entirely. It is a genuinely useful tool, and a genuinely serious commitment, because the guarantor’s home is on the line if things go wrong. We go through the mechanics and the risks in detail in our guarantor home loan explainer. Treat that conversation with your family as a careful one.
Check the Home Guarantee Scheme
The federal Home Guarantee Scheme can let eligible buyers, in many cases first home buyers, purchase with as little as a 5 per cent deposit without paying LMI, because the government guarantees the gap instead. It is subject to a limited number of places each year, property price caps that vary by location, and eligibility conditions including income tests. Places can run out, so it is not something to rely on without checking current availability. Our first home buyer guide covers how it fits alongside other grants and concessions.
Profession waivers
Some lenders waive LMI for borrowers in certain professions they regard as low-risk, which has traditionally included doctors, and in some cases lawyers, accountants and a few others. The eligible occupations, the maximum LVR allowed, and the income requirements differ from lender to lender, and the list changes. If you are in one of these fields it is worth asking, because a waiver can save you the entire premium.
A few things to know before you commit
LMI is generally not refundable. Pay it on this purchase and you do not get it back, even if you sell or refinance a year later. It is also not transferable: switch lenders and you typically pay a fresh premium all over again, which is one reason refinancing out of an LMI loan within a couple of years can be a false economy.
Crunching your own numbers helps, and an LMI calculator lets you test how the premium shifts as you nudge your deposit up or down. Seeing the figure move can be a strong motivator to find that extra few thousand dollars.
One last note, and an important one. LMI premiums vary by lender and by the mortgage insurer they use, sometimes substantially for the same deposit, so the only way to know your real cost is to get a quote from the lender you are actually applying with.
The bottom line
LMI is the price most lenders charge for letting you buy with less than a 20 per cent deposit, and it protects them, not you. On a small loan it might be a few thousand dollars. On a large loan with a 5 per cent deposit it can sail past $20,000 to $40,000, and if it is capitalised, you pay interest on it for years. The premium climbs sharply once your LVR pushes above 90 per cent, so even a slightly bigger deposit can save real money.
Avoiding it cleanly means a 20 per cent deposit. Failing that, a guarantor, the Home Guarantee Scheme, or a profession-based waiver may get you there or close to it. This is general information rather than personal financial advice, and your circumstances will shape which path makes sense, so get a quote and, if the decision is a big one, talk it through with a licensed mortgage broker or adviser before you sign.