Last updated: April 2026
Lenders Mortgage Insurance (LMI) Explained: What It Costs and How to Avoid It
Lenders Mortgage Insurance is a one-off premium you pay when your deposit is less than 20% of the property price. It protects the lender, not you, and can cost anywhere from a few thousand dollars to over $20,000. The good news for first home buyers: the First Home Guarantee (FHBG) lets you buy with just 5% deposit and skip LMI entirely.
What Is LMI?
When you borrow more than 80% of a property's value (a loan-to-value ratio, or LVR, above 80%), the lender considers it a higher-risk loan. Lenders Mortgage Insurance is a policy that covers the lender if you default and the property sells for less than the outstanding loan balance.
It is important to understand: LMI protects the lender, not you. If the property is sold at a loss after default, the insurer pays the lender the shortfall, but the insurer can then pursue you for that amount. So you pay the premium, but the coverage benefits the bank.
LMI is typically a one-off premium paid at settlement. Most lenders let you add (capitalise) it onto your loan, which means you do not need to find the cash upfront, but you will pay interest on that amount for the life of the loan.
How Much Does LMI Cost?
LMI costs depend on two factors: the property price and your LVR. The higher your LVR, the more you pay. Here are typical LMI estimates based on published insurer schedules:
| Property Price | 90% LVR (10% deposit) | 95% LVR (5% deposit) |
|---|---|---|
| $500,000 | ~$4,200 | ~$9,975 |
| $600,000 | ~$5,640 | ~$11,970 |
| $700,000 | ~$7,140 | ~$13,965 |
| $800,000 | ~$8,960 | ~$15,960 |
| $900,000 | ~$10,800 | ~$18,900 |
These are indicative figures based on typical insurer schedules and include stamp duty on the LMI premium (which applies in most states). Your actual cost may vary depending on your lender, the insurer they use, and any negotiated rates.
How to Avoid LMI
There are four main ways to avoid paying LMI:
Save a 20% deposit
The straightforward approach. With 20% or more equity, LMI does not apply. This takes longer but means a smaller loan and potentially better interest rates.
Use the First Home Guarantee (FHBG)
Buy with just 5% deposit. The government guarantees up to 15% of the property value, so the lender treats your loan as if you have 20% equity. No LMI required.
Family guarantee (guarantor loan)
A parent or family member uses equity in their property as additional security for your loan. This can allow you to borrow up to 100% of the purchase price without LMI, though the guarantor takes on risk.
Professional packages
Some lenders offer LMI waivers for certain professionals (doctors, lawyers, accountants, engineers) who are considered lower-risk borrowers. Eligibility varies by lender.
For most first home buyers, the First Home Guarantee is the simplest path. Since October 2025 there is no income cap and places are unlimited.
FHBG vs Paying LMI: Side-by-Side
If you have a 5% deposit and are choosing between paying LMI or using the FHBG, here is how they compare:
| Factor | FHBG (5% deposit) | Paying LMI (5% deposit) |
|---|---|---|
| Upfront LMI cost | $0 | $5,000 to $20,000+ |
| Deposit required | 5% | 5% |
| Income cap | None (since Oct 2025) | None |
| Property ownership | 100% yours | 100% yours |
| Lender choice | 30+ participating lenders | Any lender |
| Property price caps | Yes (varies by region) | No caps |
The FHBG is the clear winner for most first home buyers. The only scenario where paying LMI might make sense is if your property exceeds the FHBG price cap for your area or you want to use a lender that is not on the participating panel.
Can You Get LMI Refunded?
If you sell your property or refinance to a different lender within a few years of purchase, you may be eligible for a partial LMI refund. This is not automatic; you need to apply through your original lender, who will pass the request to the insurer.
Refund amounts decrease over time and typically cut off entirely after 2 to 3 years. The exact terms depend on the insurer. If you are planning to refinance soon after purchase, check the refund policy before paying LMI.
Note that if you capitalised the LMI onto your loan, you will have already been paying interest on that amount, so a partial refund may not fully recoup what you have spent.
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Frequently Asked Questions
Does LMI protect me as the borrower?
No. LMI protects the lender if you default on your loan and they cannot recover the full amount by selling the property. You pay the premium, but the policy covers the lender. If you default, the insurer can still pursue you for the shortfall.
Can I add LMI to my home loan?
Yes. Most lenders allow you to capitalise (add) the LMI premium onto your loan amount. This means you do not need to pay it upfront, but you will pay interest on the LMI amount for the life of your loan, increasing the total cost.
Is LMI tax deductible?
LMI is not tax deductible for owner-occupiers. If you later convert the property to an investment, you may be able to claim a portion of the LMI over the shorter of five years or the loan term. Speak to a tax adviser for guidance specific to your situation.
Do all lenders charge the same LMI?
No. LMI premiums vary between insurers (the main providers in Australia are Helia, formerly Genworth, and QBE). Some lenders self-insure or have negotiated rates. Shopping around or using a mortgage broker can help you find a better deal.
Disclaimer: This information is general in nature and does not constitute financial, legal, or tax advice. Calculations are estimates only and may not reflect your exact circumstances. Eligibility criteria and dollar amounts may change without notice. Always verify with the relevant government authority, your mortgage broker, or a licensed financial adviser before making decisions.