Understanding Lenders Mortgage Insurance (LMI)

When your deposit is less than 20 % of a property’s purchase price, lenders generally require lenders mortgage insurance (LMI). This one‑off premium protects the lender if you default; it does not protect you. Money.com.au explains that LMI costs can range from thousands to tens of thousands depending on your loan size and deposit money.com.au.

When is LMI required?

• For most lenders, when your loan‑to‑value ratio (LVR) exceeds 80 %. The LVR is the loan amount divided by the property value.

• Some lenders may waive LMI for certain professionals (e.g. doctors) or under guarantor loans.

  
  

How much does LMI cost?

• The premium increases as your deposit decreases. For instance, Money.com.au’s table shows that a 5 % deposit on a $500,000 property could see an LMI premium around $17,000, while a 20 % deposit attracts no LMI money.com.au.

• From 1 October 2025 the Federal Government’s Home Guarantee Scheme will expand so that many first‑home buyers with a 5 % deposit can avoid LMI money.com.au. This could save you tens of thousands at settlement.

  
  

Can I avoid LMI?

• Save a larger deposit: Aim for 20 % or more if possible. Moneysmart notes that a bigger deposit reduces your LVR and helps you avoid LMI moneysmart.gov.au.

• Use a guarantor:  A family member may pledge equity in their home, allowing you to borrow more without LMI (see Article 17 for more on guarantor loans).

• Government schemes:  The First Home Guarantee and other schemes let eligible buyers borrow up to 95 % of the property value without LMI housingaustralia.gov.au.

Discuss your situation with a broker, who can calculate potential LMI premiums and explore ways to minimise or avoid them.