Lenders Mortgage Insurance: What It Is and How to Avoid It
LMI is one of the biggest hidden costs of buying a home — yet most first home buyers don't know about it until they're deep into the loan application process. Here's what it is, what it costs, and how to avoid it entirely.
What Is LMI?
Lenders Mortgage Insurance protects the lender — not you — if you default on your home loan. It's required whenever your deposit is less than 20% of the property value (i.e., your Loan-to-Value Ratio exceeds 80%). Despite protecting the bank, you pay the premium.
LMI is a one-off cost, but it's usually added to your loan amount rather than paid upfront. This means you pay interest on the LMI premium for the life of your loan — making the true cost significantly higher than the sticker price.
How Much Does LMI Cost?
LMI costs scale steeply with your LVR. On a $650,000 property: at 85% LVR (15% deposit), expect approximately $3,500–$5,000. At 90% LVR (10% deposit), roughly $10,000–$14,000. At 95% LVR (5% deposit), $18,000–$26,000 or more. The cost also increases with the property price — a $1M property at 90% LVR could attract $20,000+ in LMI.
Three Ways to Avoid LMI
1. Save a 20% deposit. The traditional approach. No LMI, lower interest rates, stronger negotiating position. But it takes years — on a $650,000 property, that's $130,000.
2. Home Guarantee Scheme. The federal government guarantees the gap between your deposit and 20%, meaning no LMI with as little as a 5% deposit. Since October 2025, there are unlimited places and no income caps for first home buyers. This is the most common path for first home buyers in 2026.
3. Family guarantee (Bank of Mum and Dad). A parent uses equity in their property to guarantee your loan, eliminating the need for LMI. The parent doesn't give you cash — they just guarantee the shortfall. Some lenders offer dedicated family guarantee products.
Estimate Your LMI Cost
See exactly how much LMI costs at different deposit levels.
Open LMI Calculator →Use our First Home Buyer Calculator to see your total upfront costs including LMI, and the Borrowing Power Calculator to check how much you can borrow.