LMI: What It Is and How to Avoid It

Lenders Mortgage Insurance (LMI) can add $10,000–$30,000+ to the cost of buying a home. It protects the bank — not you — yet you're the one paying for it. Here's what you need to know.

What Is LMI?

LMI is a one-off insurance premium that protects the lender if you default on your home loan. It's required whenever your deposit is less than 20% of the property price — meaning your Loan-to-Value Ratio (LVR) exceeds 80%. The premium is calculated based on your loan amount and LVR, and is typically added to your loan balance.

How Much Does LMI Cost?

LMI costs increase steeply with your LVR. On a $600,000 property: at 85% LVR (15% deposit of $90,000), LMI is roughly $3,000–$4,000. At 90% LVR (10% deposit of $60,000), roughly $8,000–$12,000. At 95% LVR (5% deposit of $30,000), roughly $15,000–$25,000.

The jump from 90% to 95% LVR is dramatic — this is why saving an extra 5% deposit can save you thousands. LMI is typically capitalised onto your loan, meaning you pay interest on it over the life of the mortgage.

3 Ways to Avoid LMI

1. Save a 20% deposit. The most straightforward path, but it takes longer. On a $600,000 property, that's $120,000 plus stamp duty and other costs.

2. Home Guarantee Scheme. The federal government's scheme allows eligible first home buyers to purchase with as little as 5% deposit with no LMI. From October 2025, the scheme has unlimited places and no income caps — making it the most accessible option for first home buyers.

3. Family guarantee / guarantor loan. A parent or family member uses equity in their property to guarantee part of your loan, effectively boosting your deposit to 20% without the cash. This avoids LMI and lets you buy sooner, but puts the guarantor's property at risk.

Also check your borrowing power and use the First Home Buyer Calculator to see your total grants and concessions.