Lenders Mortgage Insurance (LMI) is a cost that catches many first home buyers off guard. It can add thousands — sometimes tens of thousands — of dollars to your home purchase. But it’s also the key that unlocks homeownership for buyers who don’t have a 20% deposit saved. Here’s everything you need to know.
What Is Lenders Mortgage Insurance?
LMI is an insurance policy that protects the lender — not you — if you default on your home loan and the property sale doesn’t cover the outstanding debt. It’s required by most lenders when you borrow more than 80% of the property’s value (i.e. when your deposit is less than 20%).
Despite protecting the lender, the premium is paid by you — either upfront or capitalised into your loan.
How Much Does LMI Cost?
LMI premiums vary based on your loan-to-value ratio (LVR) and loan amount. As a rough guide:
On a $600,000 loan at 90% LVR (10% deposit), LMI might cost approximately $12,000–$18,000. On a $600,000 loan at 95% LVR (5% deposit), LMI can exceed $25,000. At 85% LVR, LMI is significantly cheaper — typically $5,000–$8,000.
Most borrowers add LMI to their loan, which means you also pay interest on it over the loan term.
Ways to Avoid Paying LMI
Save a 20% deposit — The most straightforward approach, though for many buyers this means years of additional saving.
Use a guarantor loan — A family member (usually parents) uses equity in their own property to guarantee part of your loan, allowing you to borrow without LMI even with a smaller deposit. The guarantee can typically be released once you’ve built sufficient equity.
First Home Guarantee (FHBG) — The Australian Government guarantees up to 15% of your loan, allowing eligible first home buyers to purchase with a 5% deposit and no LMI.
Professional LMI waivers — Certain professions (medical doctors, accountants, lawyers, engineers) qualify for LMI waivers at some lenders, allowing borrowing up to 90% or even 95% without LMI. Ask your broker if you qualify.
Lender-specific policies — Some lenders have more competitive LMI premiums than others, particularly at the 85–90% LVR range. A broker can compare these across multiple lenders to minimise your cost.
Is Paying LMI Ever Worth It?
Surprisingly, yes. In a rising property market, the cost of LMI can be far outweighed by the capital growth you’d miss out on by waiting an extra 2–3 years to save a full 20% deposit.
If a property you’re eyeing is worth $800,000 today and grows at 7% annually, it’ll be worth approximately $980,000 in two years. The extra $180,000 in capital growth likely makes the $15,000 LMI cost look trivial in hindsight.
The decision comes down to your individual circumstances — how fast you can save, the market you’re entering, and your risk tolerance. This is exactly the kind of analysis a good mortgage broker should do with you.
How Assembly Finance Helps
We help clients evaluate whether to pay LMI, use a guarantor, access the First Home Guarantee, or wait and save. We also compare LMI premiums across lenders to ensure you pay the minimum necessary if LMI is unavoidable.
Get in touch with James for a free, no-obligation LMI assessment.
