Buying a home is one of life’s biggest milestones — but for many, the journey comes with a lot of new terms and costs to navigate. One term that often catches people off guard is Lenders Mortgage Insurance, more commonly known as LMI. Whether you’re a first-home buyer or considering an investment property, understanding LMI can help you make informed financial decisions and avoid surprises.
What Is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is an insurance policy that protects the lender (not you, the borrower) in case you can’t repay your home loan. It’s designed to reduce the risk for banks and lenders when they approve loans with a high loan-to-value ratio (LVR) — usually over 80% of the property’s value. This means if you’re buying a property and have less than a 20% deposit, LMI is likely to apply.
Why Does LMI Exist?
From a lender’s perspective, loans with smaller deposits are riskier. If a borrower defaults on the loan and the property needs to be sold, there’s a higher chance the lender won’t recover the full loan amount. LMI helps cover that risk.
It also has a benefit for borrowers: it makes it possible to buy a home sooner without needing to wait until you’ve saved a 20% deposit.
Who Typically Pays for LMI?
Lenders Mortgage Insurance – LMI is usually paid by the borrower, even though it protects the lender. The cost varies based on:
- The size of your deposit
- The value of the property
- The loan amount
- Whether the property is for owner-occupier or investment
- The lender you’re applying through
Most borrowers choose to add the LMI cost to their loan (called capitalising), so they don’t have to pay it upfront. This means you’ll pay interest on it over the life of the loan.
Keep in mind, LMI is typically non-refundable, even if you refinance or pay off your loan early. Some lenders may offer a partial refund within the first 1–2 years, but this isn’t common.
When Is LMI Required?
Lenders Mortgage Insurance – LMI generally applies when:
- You’re borrowing more than 80% of the property’s value (LVR > 80%)
- You’re a first-home buyer with a small deposit
- You’re self-employed or have irregular income
- You have a limited or poor credit history
Each lender has their own LMI rules, but the 80% LVR mark is a common threshold.
Can LMI Be Avoided?
Yes — in some cases, borrowers can avoid paying Lenders Mortgage Insurance – LMI altogether. Here’s how:
1. Save a 20% Deposit
This is the simplest and most straightforward way. With 20% or more of the property’s value saved, most lenders won’t require LMI.
2. Use a Guarantor
Some borrowers use a family guarantor — typically a parent who offers their own property as security — which can eliminate the need for LMI even with a small deposit.
3. Qualify for an LMI Waiver
Some lenders offer LMI waivers to specific professionals, such as:
- Medical professionals (doctors, dentists, specialists)
- Lawyers and legal professionals
- Accountants and actuaries
- Certain engineers and government employees
These waivers usually apply if the borrower has a 10% deposit and meets strict criteria around income and employment stability.
4. Apply for a Government Scheme
Government-backed programs like the First Home Guarantee allow eligible first-home buyers to purchase with just 5% deposit and no LMI, provided they meet income, property, and loan requirements.
Is LMI Bad?
Not necessarily. While LMI is an extra cost, it can be a useful tool if you’re ready to buy but haven’t reached a 20% deposit. It allows many people to get into the market sooner, especially in areas where saving a large deposit could take years.
But it’s still a cost you should factor into your decision. Understanding how much LMI might be — and whether it’s worth it in your situation — is key.
Lenders Mortgage Insurance is one of those things that can feel like a hurdle, but in reality, it’s just another piece of the puzzle. With the right advice and a good strategy, it might even work in your favour — especially if you’re eager to stop renting and start building equity.
If you’re unsure whether LMI applies to you or how much it might cost, speak to a mortgage broker who can walk you through your options, compare lenders, and help you find the best path forward.
MI can be confusing — but you don’t have to figure it out alone. If you’re unsure whether it applies to you, how much it might cost, or if you could avoid it altogether, get in touch with us. We’ll walk you through your options and help you make the smartest move for your situation.