Lenders mortgage insurance (LMI)
Lenders mortgage insurance (LMI) explained
Not sure whether you’ll have to pay lenders mortgage insurance (LMI) or not? Selling Houses Australia host, Andrew Winter, has some LMI tips for future homebuyers.
Andrew Winter
Home Loans
Video Transcript
Hi, I’m Andrew Winter, host of Selling Houses Australia.
Anyone who’s bought a property before – myself included – can attest to the long list of
costs that come with buying a home.
But some unfortunate borrowers are saddled with an additional home loan cost, known as
Lender’s Mortgage Insurance – or L-M-I for short.
Why do some people pay LMI?
Well, it’s largely to do with the size of your home loan deposit.
You can expect to pay LMI if your deposit is less than 20% of the total size of your home loan.
That’s because a smaller deposit equals more debt for you, and more risk for the lender.
So, to help compensate itself for this risk, the lender takes out insurance on the loan
in the form of LMI, which in turn may cost you thousands, if not tens of thousands of
dollars in extra home loan costs.
You can either pay the total amount upfront, or have it factored into your home loan as
part of your regular repayments.
The latter option is a bit ‘out of sight, out of mind’ which can be nice, but most
borrowers will opt to roll their LMI into their home loan in order to reduce their upfront costs.
So how can prospective homebuyers avoid paying LMI?
Well for the average borrower, there’ll generally be a couple of ways.
The first is strictly for the first home buyers out there – look up the government’s
First Home Guarantee program, it’s specifically designed to help first home buyers avoid paying LMI.
And the second is for everyone – save a larger deposit!
Even if you can’t quite get yourself to the 20% mark, or you don’t qualify for any
LMI waivers, you’ll typically pay less in LMI the larger your deposit is
saving really pays off!
And you know what also pays off?
Comparing your home loan options!
Why settle for the first home loan you see, when you can use Compare the Market’s new
home loan comparison tool to find a home loan that really suits you.
Compare a wide range of home loans from lenders around the country on rates, fees, features
and more today, with Compare the Market.
Expert tips for LMI
Our General Manager of Money at Compare the Market, Stephen Zeller, wants to make sure Australians understand how LMI works and how much they might have to pay based on their financial situation. With that in mind, he has some LMI-related tips for homebuyers:
Stephen Zeller
General Manager – Money
Look into the Australian Government 5% Deposit Scheme
There are many incentives for first home buyers to enter the market right now. If you’re a first home buyer, you could be saving thousands of dollars by securing a place in the Australian Government’s 5% Deposit Scheme, and buy a home with just 5% deposit and no LMI. It’s worth doing your research.
Support for single parents
Eligible single parents can get into the market with as little as 2% of the purchase price saved as a deposit under the government’s 5% deposit program. You don’t have to be a first-time buyer either, as long as you don’t own property when your new home settles. There are no income caps as well, making this option more accessible than many people realise.
We can help you calculate your LMI costs
With so many different schemes, grants and lender offers for first home buyers, trying to calculate your potential LMI costs can feel overwhelming. Thankfully, our home loan comparison tool will consider your buying circumstances and give you an estimate of your potential LMI costs.
What is lenders mortgage insurance (LMI)?
Lenders mortgage insurance (LMI) is a type of insurance policy lenders usually require homebuyers to pay when taking out a home loan with a loan-to-value ratio (LVR) of more than 80%, meaning their initial home loan deposit is less than 20% of the property value.
Lenders generally view a higher LVR as indicative of higher risk, so an LMI policy provides the lender with a degree of financial protection in line with the perceived risk of lending money.
The cost of LMI is designed to help protect the lender against the losses they could incur if you are unable to pay your home loan repayments. Although you pay the one-off premium, it doesn’t protect you, the homeowner, and it cannot be transferred from one lender to another – meaning that if you refinance or switch lenders with an LVR higher than 80%, you may have to pay LMI in full all over again.
How does lenders mortgage insurance (LMI) work?
Lenders mortgage insurance (LMI) works by shifting the risk of a low-deposit loan from the lender to an insurer. The lender will calculate your loan-to-value ratio (LVR) and determine whether or not you’ll be required to take out LMI as part of the home loan application process. In return, it may allow you to buy a home sooner with a smaller deposit. If you default, the insurer covers the lender’s losses.
If you do get approved for a home loan on the condition that you pay LMI, there are a couple of ways you can do so, including capitalising it (i.e. adding it to your home loan balance) and paying for it through your regular mortgage repayments over the loan term, or paying it as a one-off, upfront cost, typically at the time of loan settlement. That being said, most borrowers opt to capitalise their LMI into their loan.
The decision to pay your LMI upfront or capitalise it into your home loan is one you’ll make with the help of your lender or mortgage broker based on your financial circumstances. Capitalising LMI into your loan could free you up to direct more of your saved deposit towards your purchase and other upfront property buying costs. However, it will also increase your total loan balance and the interest you pay, as it compounds over time.
If you suspect you may have to pay LMI based on the current size of your deposit, you may want to explore your LMI payment options by talking to our team of expert mortgage brokers.
How much does lenders mortgage insurance (LMI) cost?
Lenders mortgage insurance (LMI) can range from thousands to tens of thousands of dollars, depending on the size of your deposit and how much you are borrowing. There’s no one-size-fits-all answer for how much LMI costs, as several factors can influence the amount you pay, such as:
- Your LVR. The smaller your deposit amount relative to the size of your proposed home loan, the higher your LVR will be and, subsequently, the higher your LMI costs are likely to be.
- The value of the property. Your property’s purchase price will also influence how much you’ll be required to pay in LMI. There’s a big difference between a 5% deposit on a $500,000 home loan and a 5% deposit on a $1,000,000 home loan – the latter home loan requires the lender to take on a great deal more risk.
- The LMI provider your lender uses. Premiums can vary between private mortgage insurers and lenders who offer LMI themselves. So, you could very well pay a different amount of LMI on the exact same home loan amount through different lenders.
- The loan purpose. Some financial institutions may apply different LMI rates depending on what you want to use the property for (e.g. an investment property or an owner-occupied property that you plan to live in).
- Occupation discounts: Some lenders offer LMI waivers or discounts for certain professions viewed as lower-risk or higher-income, such as doctors, lawyers and accountants, though eligibility criteria can vary.
- Whether you’re a first home buyer: First home buyers may be offered a discount on their LMI depending on the lender they’re with. They can also apply to have their LMI waived entirely through various government programs.
Is lenders mortgage insurance (LMI) the same as mortgage protection insurance (MPI)?
No, lenders mortgage insurance (LMI) is different to mortgage protection insurance. LMI is a one-off fee paid by the borrower to protect the lender in the event of default, whereas MPI is an optional cover that you (the borrower) can choose to insure your mortgage repayments.
It works similarly to income protection insurance, covering your repayments in case of unexpected events such as involuntary redundancy, disability or death. If such an event occurs and you meet the eligibility criteria, your MPI provider will compensate you in the form of either a lump sum or ongoing payments, which you can use to help cover your regular home loan repayments.
Does lenders mortgage insurance (LMI) have any benefits for the borrower?
Lenders mortgage insurance (LMI) can help you enter the property market sooner with a smaller deposit, in some cases around 5%, if you meet all other lending criteria. This opens a wide range of benefits for you, including:
- entering the housing market sooner and starting to build home equity
- buying in a different location
- buying a larger house
- having greater financial capacity for renovations
- family members may choose to contribute towards the LMI premium instead of acting as a guarantor for your loan.
Of course, this can also come with risks; you’re borrowing more, so your mortgage repayments will be higher as a result and an interest rate increase could put you under mortgage stress.
So, while LMI can help you enter the property market sooner, you’ll need to think long and hard about whether you’re comfortable signing up for larger home loan repayments and a higher risk.
LMI vs stamp duty: What’s the difference?
Stamp duty is a mandatory tax imposed by state and territory governments on the transfer of a property’s legal title from one party to another as the result of a sale, whereas LMI is a lender-imposed premium that not all borrowers will have to pay. The only similarity between LMI and stamp duty is that they can both be paid as upfront homebuying cost or added to the loan amount.
Stamp duty on a property can also be thousands, if not tens of thousands, of dollars. Stamp duty is not determined by your deposit size, but rather:
- the state or territory you’re buying in
- the property price
- whether you’re an investor or an owner-occupier
- whether you’re a first home buyer
- whether the house is newly built, or if you’re buying vacant land.
Do I actually need lenders mortgage insurance (LMI)?
No, you don’t necessarily need LMI, but you may have to pay if your lender requires it. Generally, lenders apply it if your deposit is below 20% to cover them against loss if you default.
So, strictly speaking, no one ‘needs’ LMI but some borrowers may decide it’s worth the added cost based on their specific borrowing circumstances, and some may decide it’s not.
Consider two different prospective homebuyers:
- Jamie is looking to buy a home as soon as possible because he’s currently renting, and he feels that the sooner he buys a house, the sooner he can stop ‘throwing away’ money in the form of rent payments.
- Trudy wants to buy a home at some point in the future, but currently lives with her parents and isn’t in a hurry to buy, preferring instead to wait and grow her savings.
Jamie may decide that LMI is a cost he’s willing to bear, as the money he’ll spend on LMI would be less than the money he’d put towards paying rent in the time it would take him to save a larger deposit.
Trudy may decide she doesn’t want to have to pay LMI and is happy to continue living with her parents while she works towards saving up a larger deposit.
Whether you decide to spend time saving a larger deposit or commit to borrowing with a higher LVR and paying LMI, your decision should be based on your personal circumstances, goals and timeframes.
Can you avoid paying for lenders mortgage insurance (LMI)?
Yes, you can avoid paying lenders mortgage insurance (LMI) by increasing your home loan deposit, using a guarantor, or accessing government schemes and lender waivers, although eligibility will depend on your financial situation and the lender’s criteria.
If you’d prefer not to pay LMI or minimise it, there are a range of options that may be available, including:
- Saving a bigger deposit. A bigger deposit means a lower LVR, and the lower your LVR the better when it comes to LMI. Even if you can’t save your way to a 20% deposit, having 10% instead of 5% will generally help you pay less in LMI. So, if you’re happy to defer buying, simply saving more can be one of the easiest ways to avoid or reduce your LMI.
- Having a family member as a guarantor. A guarantor is someone who’ll ‘guarantee’ that your home loan repayments will be met by taking on responsibility for them if you’re unable to make the repayments yourself. A guarantor will typically offer the equity they have in their own home as the guarantee. Having a guarantor for your home loan may be enough to avoid paying LMI for some lenders, but it’s worth considering the risk you’d be taking by asking the would-be guarantor to shoulder the burden on your behalf should you have any trouble repaying the loan.
- Applying through the 5% Deposit Scheme. The Australian Government 5% Deposit Scheme (formerly the Home Guarantee Scheme) helps eligible homebuyers build or purchase a new house with a deposit of around 5%, and single parents with just 2%. The government then guarantees the remaining 15% (or 18% in the case of the single parents), which means eligible homebuyers can reach the 20% deposit threshold and avoid having to pay LMI on their home loans.
- Look for LMI offers. Some lenders have generous LMI offers available for certain types of borrowers such as accountants or solicitors, as well as workers in the medical industry such as nurses and doctors. Be sure to do your own research and check the lending criteria of any lender you’re considering. You can also speak with one of our expert mortgage brokers, who can help you compare options and check if your profession may be eligible for LMI benefits.
Can my lenders mortgage insurance (LMI) premiums be refunded?
In most cases, lenders mortgage insurance (LMI) is non-refundable; however, you may be entitled to a partial refund in certain circumstances. For example, LMI premiums may be partially refunded if the home loan is repaid within the first one to two years from the date of policy issuance, with all repayments having been made on time.
Any partial refund will be at the discretion of the lender.
It may be a good idea to chat to one of our expert mortgage brokers or a lender. Also, always read the home loan key fact sheets and credit guide before taking out a loan, to make sure you’re aware of the terms and conditions regarding LMI.
Will I have to pay LMI if I’m refinancing my home loan?
You may have to pay LMI when refinancing if you don’t have 20% of the home’s value in the form of cash or existing equity. LMI can’t be transferred from one lender to another, and you may find yourself paying more in LMI on your new home loan if your LVR ends up being higher. To avoid this, it’s sometimes better to wait until you’ve built up enough equity in your home to ensure your new home loan will have an LVR of 80% or less.
Can LMI be paid monthly?
Yes, LMI can be “paid” monthly if it’s added to your home loan (capitalised). Otherwise, it’s paid upfront at settlement. If you capitalise your LMI into your home loan, you’ll be paying it off via your regular home loan repayments, which could be monthly depending on the repayment frequency you and your lender have agreed on.
Lenders will generally give you the option of making weekly, fortnightly or monthly repayments, and the repayment frequency you choose will determine how you’re repaying your LMI.
How much does LMI cost in Australia?
Lenders mortgage insurance (LMI) costs vary depending on your loan size, deposit, and property value, and can range from a few thousand to tens of thousands of dollars.
The table below demonstrates the LMI costs you might incur at different deposit sizes as a non-first home buyer based on the median dwelling values of state and territory capital cities around the country.
| Capital city | Median value | With a 5% deposit | With a 10% deposit | With a 15% deposit |
| Melbourne | $822,969 | $31,034.73 | $17,185.25 | $8,343.40 |
| Sydney | $1,292,157 | $53,532.29 | $29,692.79 | $14,430.60 |
| Brisbane | $1,116,180 | $46,241.81 | 25,648.30 | $11,316.04 |
| Adelaide | $944,673 | $35,624.24 | $19,726.7 | $9,577.26 |
| Perth | $1,039,949 | $39,217.19 | $21,716.26 | $10,543 |
| Hobart | $744,296 | $28,067.91 | $15,542.42 | $7,545.80 |
| Canberra | $898,242 | $33,873 | $18,757.13 | $9,106.55 |
| Darwin | $619,351 | $17,380.05 | $10,180.44 | $5,494.20 |
| National average | $940,048 | $35,449.85 | $19,630.13 | $9,530.38 |
| Figures based on Helia’s LMI calculator. Assumes a 30-year loan term, owner-occupier mortgage for a non-first home buyer. Dwelling price data via Cotality.1 Accessed May 2026. | ||||
Meet our home loans expert, Stephen Zeller
Stephen has more than 30 years of experience in the financial services industry and holds a Certificate IV in Finance and Mortgage Broking. He’s also a member of both the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the Mortgage and Finance Association of Australia (MFAA).
Stephen leads our team of Mortgage Brokers, and reviews and contributes to Compare the Market’s banking-related content to ensure it’s as helpful and empowering as possible for our readers.
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1 Cotality Home Value Index. Accessed May 2026.