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LMI: what it costs, who it protects, and when paying it is the right call

08/19/2026

Lenders Mortgage Insurance protects the lender, not you. You pay the premium; if you default and the sale does not cover the debt, the insurer pays the lender and can then pursue you for the shortfall. Knowing that, it can still be the right thing to pay — and that is the part worth thinking through properly.

When it applies

Generally when you borrow more than 80% of the property value. Below that, no LMI. Above it, the lender wants the risk insured and passes the cost to you.

The premium is usually capitalised — added to the loan rather than paid upfront — which means you also pay interest on it for the life of the loan. That is the cost people underestimate.

What drives the premium

  • Your LVR. The main lever, and it is not linear. The jump from 85% to 90% costs more than the jump from 80% to 85%, and 95% costs sharply more again.
  • The loan size. Bigger loan, bigger premium.
  • Your situation. Self-employed and low-doc applications are priced higher, and the insurer applies its own rules on top of the lender’s.

The practical implication: if you are close to a threshold, finding a little more deposit can save much more than it costs. Going from 89% to 85% LVR is often worth the wait or the extra help.

How to avoid it

  1. Save to 20%. Clean, and often slower than the market moves.
  2. Use the government 5% deposit scheme if you are an eligible first home buyer — no LMI at 5%, no income caps, no place limits. Details here.
  3. A family guarantee. Parents pledge equity in their property rather than cash, lifting your effective security above 80%. How that works.
  4. Professional waivers. Some lenders waive LMI for defined occupations — medical, legal, accounting and a few others — at higher LVRs. Worth asking if that is you.

When paying it is the better call

Do the comparison honestly, because “avoid LMI at all costs” is bad advice as often as it is good.

Saving from 10% to 20% deposit takes most people a few years. Over that time the property you want may rise by more than the premium you avoided, and you have paid rent throughout. If prices in your area are moving and your income is stable, paying LMI to buy now can be clearly cheaper than waiting.

The other way round is also true: in a flat market, with a secure position and a real savings plan, waiting and skipping the premium is straightforwardly better.

Nobody can tell you which market you are in. What you can do is put both scenarios on paper with real numbers rather than a rule of thumb.

Two things people get wrong

  • “LMI protects me if I cannot pay.” It does not. It protects the lender, and the insurer can come after you for the shortfall.
  • “I paid it once so I am covered.” It is not transferable. Refinance to another lender while still above 80% and you pay again — one of the better arguments for waiting until your LVR drops before switching.

The 5% deposit scheme · Repayment calculator · Book a consultation

General information only — it does not take your objectives, financial situation or needs into account and is not credit assistance. LMI premiums, thresholds and waiver criteria vary between lenders and insurers and change over time. Easy Loan Finance is a Credit Representative (CRN 568863) of Beagle Finance Pty Ltd, Australian Credit Licence 383640.