Lenders Mortgage Insurance (LMI) Explained: Costs & How to Avoid It
What LMI is, when it kicks in, indicative costs at 90% and 95% LVR, and six ways to avoid it, from the 5% deposit scheme to professional waivers. Plus why LMI is tax deductible for investors.
Lenders mortgage insurance (LMI) is a one-off premium you pay when you borrow more than 80% of a property's value. It protects the lender, not you. If you default and the sale doesn't cover the loan, the insurer pays the bank. You still owe the shortfall.
LMI is often the single biggest upfront cost after stamp duty, and it is the one most first home buyers underestimate. The good news is that it can often be avoided entirely, and when it can't, it isn't always a bad deal.
When you pay LMI
LMI is triggered by your loan-to-value ratio (LVR): the loan amount divided by the property value the lender assesses.
- 80% LVR or below: no LMI with most lenders
- 80% to 85%: modest premium, often low four figures
- 85% to 90%: premiums climb steeply
- 90% to 95%: the most expensive band, often five figures
How much LMI costs
Premiums are set by the two main insurers (Helia and QBE) and vary by lender, loan size, LVR, whether you are an owner-occupier or investor, and the state you buy in (most states charge stamp duty on the premium). As a rough guide for an owner-occupier loan:
| Property value | 90% LVR | 95% LVR |
|---|---|---|
| $500,000 | $7k–$10k | $15k–$20k |
| $750,000 | $12k–$18k | $25k–$32k |
| $1,000,000 | $20k–$28k | $38k–$48k |
These are indicative ranges only. Ask your lender or broker for an exact quote, because the difference between lenders on the same loan can be thousands of dollars.
Paying it: upfront or added to the loan
Most lenders let you capitalise the LMI premium, adding it to the loan instead of paying cash. That keeps your deposit intact, but you pay interest on the premium for the life of the loan, and it pushes your LVR slightly higher. On a $20,000 premium at 6% over 30 years, the total cost including interest is roughly $43,000.
Six ways to avoid LMI
1. The 5% deposit scheme
The First Home Guarantee lets eligible first home buyers borrow up to 95% with no LMI. Since October 2025 there is no income cap and no limit on places. Full details in our 5% deposit scheme guide.
2. A family guarantee
A parent or close family member uses equity in their own home as extra security for part of your loan. The lender treats your LVR as 80% or lower and waives LMI. The risk is real for the guarantor: if you default, their home is on the line for the guaranteed amount.
3. Professional LMI waivers
Many lenders waive LMI up to 90% LVR (sometimes 95%) for doctors, dentists, lawyers, accountants, engineers and other listed professions, usually with a minimum income. Ask a broker, because not every lender advertises it.
4. Help to Buy
Under the federal shared-equity scheme you need just 2% deposit and pay no LMI, because the Government takes an equity stake instead. See our Help to Buy guide.
5. Buy slightly cheaper
If you are just over 80%, dropping your price by $20k to $40k can bring you under the threshold. Use the Suburb Finder to find comparable postcodes a step down in price.
6. Save the full 20%
The traditional route. Weigh the LMI you save against the extra rent you pay and any price growth while you save. In fast-rising markets, paying LMI and buying sooner has often come out ahead.
LMI for investors
Investors pay LMI on the same LVR thresholds, often at slightly higher rates. The upside: for an investment property, LMI is a borrowing expense and is tax deductible over five years (or the loan term if shorter).
Many investors deliberately borrow at 88% to 90% LVR, accepting LMI to keep cash free for the next deposit. Whether that makes sense depends on your buffer and the cash flow of the property.
Can you get LMI back?
Generally no. If you refinance to a new lender, you may pay LMI again if your new LVR is over 80%. Some insurers offer a partial refund if you discharge the loan within the first two years, but it is limited. Treat LMI as a sunk cost.
Work out what you can actually afford
Every PropPulse postcode report shows the estimated median price, stamp duty and monthly repayments, so you can see how close you are to 80% LVR in each suburb. Get a free report.