Lenders Mortgage Insurance (LMI): What It Costs and How It's Calculated

If your deposit is below 20% of the property price, most Australian lenders will require you to pay Lenders Mortgage Insurance (LMI) — a one-off premium that can run into the tens of thousands of dollars on an average home loan. The name causes almost universal confusion, so it's worth stating plainly up front: LMI protects the lender, not you. You pay for a policy that pays out to the bank, not to you, if things go wrong.

This guide covers what LMI actually is, indicative costs by deposit size, a worked example, and the legitimate ways to reduce or avoid it entirely.

The 30-second summary

• LMI is required by most lenders once your deposit is below 20% (loan-to-value ratio, or LVR, above 80%).
• It protects the lender, not the borrower — you get no payout, no cover, if you default.
• Cost rises steeply as your deposit shrinks — indicatively 0.5–1% of the loan near 80–85% LVR, up to 3%+ near 95% LVR.
• It's a one-off premium at settlement, not an ongoing cost — but refinancing above 80% LVR usually means paying it again with the new lender.
• You can capitalise it into your loan, but you then pay interest on the premium for the life of the loan.
• Genuine ways to avoid it: a 20%+ deposit, a guarantor, or an eligible government low-deposit scheme.

What LMI actually is (and isn't)

Lenders Mortgage Insurance is an insurance policy the lender takes out, insuring itself against the risk that if you default and the property has to be sold, the sale proceeds won't cover the outstanding loan. The bank chooses the insurer (in Australia, the market is served by a small number of specialist mortgage insurers, including Helia and Genworth), sets the terms, and receives the payout if a claim is triggered.

You pay the premium as a condition of getting the loan with a small deposit. That's the entire extent of your involvement — there is no borrower payout, no cover for job loss or illness (that's income protection, a separate product), and no refund pathway if you sell the home fee-and-claim-free ten years later.

Why lenders charge it — and why you're the one paying

Below 80% LVR, historical default and loss data shows lenders recover their money reliably enough through a forced sale that they don't need this extra protection. Above 80%, the statistical risk of a shortfall on default rises enough that most lenders won't lend at all without it. Rather than absorb that risk themselves, they pass the cost of insuring against it on to the borrower who is (statistically) the source of the extra risk — hence a low-deposit buyer pays a low-deposit premium.

Indicative cost by deposit size (LVR)

LMI premiums are calculated as a percentage of the loan amount, scaled by your LVR, the insurer, the lender, and the loan size. These are the industry-typical indicative ranges for a standard owner-occupier, principal & interest loan — not a quote, since actual premiums vary between the two main Australian mortgage insurers and between lenders using the same insurer:

Deposit	LVR	Indicative LMI (% of loan)
20%+	≤80%	Not required
15–20%	80.01–85%	~0.5–1.0%
10–15%	85.01–90%	~1.0–2.0%
5–10%	90.01–95%	~2.0–3.7%

Two things worth noting: the increase isn't linear — the last 5% of deposit (going from a 10% to a 5% deposit) typically costs disproportionately more in LMI than the previous 5%. And loan size matters independently of LVR — a $900,000 loan at 90% LVR pays a higher premium than a $400,000 loan at the identical 90% LVR, because the insurer's exposure in dollar terms is larger.

A worked example — $600,000 property, 10% deposit

A buyer purchasing a $600,000 property with a $60,000 deposit (10%) needs to borrow $540,000 — a 90% LVR. Applying the 85.01–90% indicative band above (~1.0–2.0% of the loan):

Item	Amount
Property price	$600,000
Deposit (10%)	$60,000
Loan required	$540,000
LVR	90%
Indicative LMI (1.0–2.0% of loan)	$5,400 – $10,800

That's a real cost sitting between your deposit and your first mortgage repayment — which is exactly why it's worth modelling before you commit to a purchase price. Run your own property price, deposit, and loan amount through the LMI calculator for a single-scenario estimate rather than a range.

How to reduce or avoid LMI

There are four legitimate paths, in order of how many buyers they apply to:

1. A 20%+ deposit — the direct route. Below 80% LVR, LMI simply isn't charged by most lenders.
2. A family guarantee — a parent (usually) offers equity in their own property as additional security instead of cash, letting you borrow above 80% LVR without LMI. The guarantee is normally released once your own equity (through repayments and/or growth) brings your LVR below 80%.
3. Government low-deposit schemes — the First Home Guarantee and related state/federal schemes let eligible first home buyers purchase with as little as a 5% deposit while the government guarantees the lender against the LMI-covered risk, so no premium is charged. Places and property price caps are limited and vary by scheme year and location — check current eligibility before assuming you qualify.
4. Professional waivers — some lenders waive LMI up to 90% LVR for borrowers in specific occupations (commonly medicine, law, and accounting), treating the profession itself as a risk offset. Policy varies significantly by lender.

Capitalising LMI into your loan

Most lenders let you add the LMI premium to the loan amount rather than paying it in cash at settlement — useful if the premium would otherwise exhaust your remaining funds. The trade-off: you now pay interest on the premium for the life of the loan. A $15,000 premium capitalised into a 30-year loan at 6.00% p.a. adds roughly $27,000 in total interest by the time the loan is repaid — nearly double the original premium. It can also push your LVR up slightly, which occasionally tips you into the next LMI cost band.

LMI vs Loan-to-Value Ratio (LVR)

LMI is a direct function of your LVR, so it's worth checking both together. Use the LVR calculator to see exactly where your deposit places you against the 80/90/95% thresholds before you go looking at LMI figures — a few thousand dollars more deposit can sometimes move you into a materially cheaper band.

Frequently asked questions

Who does Lenders Mortgage Insurance actually protect?

The lender, not you. It's a policy the bank takes out to cover its own loss if you default and a forced sale doesn't recover the outstanding loan. You pay the premium; you receive no payout or cover of any kind.

Can I avoid paying LMI?

Yes — a 20%+ deposit is the direct route. Beyond that: a family guarantee, an eligible government low-deposit scheme (like the First Home Guarantee), or a professional waiver some lenders offer up to 90% LVR for specific occupations.

Is LMI a one-off cost or an ongoing payment?

One-off, paid at settlement. It isn't refunded or transferred if you refinance — a new lender above 80% LVR will typically require a fresh premium.

Can LMI be added to (capitalised into) my loan amount?

Yes. You avoid the upfront cash cost, but you pay interest on the premium for the life of the loan — a $15,000 premium can add roughly $27,000 in extra interest over 30 years at 6.00% p.a.

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Model your own deposit and loan amount in the LMI calculator, check your LVR against the 80/90/95% thresholds, or step back and work out your full borrowing capacity first. For every other stage of buying and owning a home, see the full guide to Australian mortgage calculators.

This article provides general information current at July 2026 and does not constitute personal financial advice. LMI premiums vary by insurer, lender, loan purpose, and loan size — the figures above are indicative ranges, not quotes. Confirm the exact premium with your lender or broker before making a decision.