In short: Lenders mortgage insurance is a one-off premium you pay when you borrow more than 80% of a property's value. It protects the lender, not you. On a $600,000 purchase the premium is roughly $5,000 at 85% LVR, $11,000 at 90% and over $20,000 at 95%, and it can be avoided entirely through the First Home Guarantee, a guarantor or a 20% deposit.
Key takeaways
- LMI applies when your loan-to-value ratio (LVR) exceeds 80%, and the premium rises steeply above 90%.
- On an $800,000 purchase at 95% LVR the premium can exceed $30,000.
- Capitalising the premium into the loan avoids paying it upfront but adds 30 years of interest to it.
- First home buyers under the First Home Guarantee pay no LMI with a 5% deposit, with a Melbourne price cap of $950,000.
- A family guarantee, a professional LMI waiver or simply waiting to reach 80% LVR are the other main ways around it.
LMI is the most misunderstood cost in home lending. Buyers assume it protects them (it does not), that it is a small fee (it is not, at high LVRs), or that it is unavoidable with a small deposit (it often is not). This post gives you the actual numbers so you can weigh it properly. The premiums below are illustrative estimates, because each insurer prices differently and lenders add their own margins; the LMI calculator gives a closer figure for your loan.
What LMI is and who it protects
When you borrow above 80% of a property's value, the lender takes on more risk: if you default and the property sells for less than the debt, the lender wears the shortfall. Lenders mortgage insurance covers that shortfall for the lender. You pay the premium, the lender is the insured party, and if the insurer pays out it can still pursue you for the loss. Our guide to understanding LVR and LMI covers the mechanics. The regulator's consumer site, MoneySmart, makes the same point plainly: LMI is not mortgage protection insurance for you.
LVR is the loan divided by the lender's valuation, which is usually the lower of contract price and valuation. Check yours with the LVR calculator.
LMI at 85%, 90% and 95% LVR
The table uses illustrative premium rates of roughly 1% of the loan at 85% LVR, 2% at 90% and 4% at 95%. Real premiums vary with the insurer, the lender, the loan size and whether you are a first home buyer, but the shape of the curve is consistent: the premium rate climbs sharply as the deposit shrinks.
| Purchase price | LVR | Deposit | Loan | Illustrative LMI |
|---|---|---|---|---|
| $600,000 | 85% | $90,000 | $510,000 | about $5,100 |
| $600,000 | 90% | $60,000 | $540,000 | about $10,800 |
| $600,000 | 95% | $30,000 | $570,000 | about $22,800 |
| $800,000 | 85% | $120,000 | $680,000 | about $6,800 |
| $800,000 | 90% | $80,000 | $720,000 | about $14,400 |
| $800,000 | 95% | $40,000 | $760,000 | about $30,400 |
Notice the jump between 90% and 95%. On the $800,000 purchase, an extra $40,000 of deposit does not just cut the loan by $40,000; it cuts the premium by about $16,000. That is a 40% return on the extra savings before you have paid a cent of interest, which is why we so often tell clients to hold off for a few more months if they are close to 90%.
Stamp duty is charged on top. On the $800,000 example an owner-occupier who is not a first home buyer also pays $43,070 in duty, so the true cash needed at 90% LVR is not $80,000 but well over $120,000 plus fees. The upfront costs calculator adds it all up.
Capitalising LMI: what it really costs
Most lenders let you add the premium to the loan rather than pay it from savings. That keeps cash in your pocket at settlement but means you pay interest on the premium for the life of the loan.
Take the $600,000 purchase at 90% LVR with a $10,800 premium. For illustration, at 6.00% p.a. over 30 years, adding $10,800 to the loan increases the repayment by about $65 a month. Over 30 years that is roughly $23,300 repaid for a $10,800 premium, so the interest more than doubles the cost. If you refinance or pay the loan down faster, the interest cost falls, but the premium itself is not refunded (a partial refund may apply if the loan is repaid within the first year or two, depending on the insurer).
Capitalising also nudges your LVR. A $540,000 loan plus $10,800 is $550,800 against a $600,000 value, an LVR of 91.8%. Most lenders allow the capitalised premium to take you slightly above their normal cap, but not all, and it can push you into a higher premium band if you are near a threshold.
Five ways to avoid LMI
1. The First Home Guarantee
If you are an Australian citizen or permanent resident, 18 or over, buying to live in and have not owned property in Australia in the last 10 years, the First Home Guarantee lets you buy with a 5% deposit and no LMI. Since October 2025 there are no income caps and no limit on places. The property price cap is $950,000 in Melbourne and Geelong and $650,000 elsewhere in Victoria. On the $800,000 purchase at 95% LVR, that is roughly $30,000 saved. Check the rules at Housing Australia or use our eligibility calculator.
2. A family guarantee
A parent offers their own property as additional security for part of your loan, taking the lender's exposure below 80% and removing LMI. The guarantee is usually limited to the top-up amount, say $120,000 on a $600,000 purchase, and is released once you reach 80% LVR through repayments or growth. It is a serious legal commitment for the guarantor, set out in guarantor legal responsibilities, and we explain the structure in guarantor home loans.
3. Professional LMI waivers
Some lenders waive LMI up to 90% LVR, occasionally higher, for certain professions such as medical practitioners, and some other occupations depending on the lender. Policies change and eligibility is specific, so ask rather than assume.
4. Save to 80%, or buy at a lower price
The obvious route, and sometimes the right one. If you are at 88% LVR, the deposit savings calculator can show how long it takes to reach 80%. Alternatively, a $560,000 townhouse in Roxburgh Park instead of a $640,000 house in Craigieburn may put the same deposit under the line.
5. Structure the loan differently
Some lenders price LMI in tiers, so borrowing 89.9% instead of 90.1% can save real money. Others allow a small personal loan or a gift to top up the deposit. These are lender-specific tactics that a broker knows and a comparison website does not, and they are part of what we do for low deposit home loans.
When paying LMI is the right call
LMI is not always a mistake. If prices in your target suburb are rising faster than you can save, paying $10,000 of LMI to buy a year earlier can be cheaper than waiting. If you have no eligible guarantor and do not qualify for the Guarantee (for example, you owned a property eight years ago), it may be the only path. The test is whether the premium plus interest is less than the cost of waiting, and that is a calculation, not a feeling.
Frequently asked questions
Is LMI a one-off payment?
Yes. It is charged once when the loan is established. If you refinance to a new lender while still above 80% LVR, the new lender will charge a fresh premium, which is a strong reason to stay put until your LVR falls below 80% or to refinance with the same lender.
Does LMI protect me if I cannot pay my mortgage?
No. It protects the lender against a shortfall on sale. If you are worried about losing income, look at income protection insurance and understand your financial hardship rights under the National Credit Code, which oblige lenders to consider hardship variations.
Can I get LMI refunded?
Some insurers offer a partial refund if the loan is discharged within the first year or two. After that, nothing is refunded. Ask the lender for the refund policy in writing before you settle if you expect to sell or refinance early.
Is LMI tax deductible?
For an investment property, LMI is generally treated as a borrowing cost and deducted over five years or the loan term, whichever is shorter. For your own home it is not deductible. Confirm the treatment for your circumstances with an accountant or the ATO.
Talk to GNT Finance
Before you pay a cent of LMI, let us check whether the Guarantee, a guarantor or a different lender removes it. Book a free consultation or call Gorakh Timilsina on 0426 403 703. There is no cost to you for our home-loan service in most cases.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.