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Understanding Lenders Mortgage Insurance (LMI) in Australia

Lenders Mortgage Insurance (LMI) is one of the most commonly misunderstood costs in the property buying process. Many buyers are surprised to learn that LMI protects the lender, not the borrower — yet the borrower is the one who pays for it. Understanding how LMI works, when it applies, and how to avoid it can save you thousands of dollars on your home purchase.

LMI is required whenever a borrower has a deposit of less than 20% of the property value, meaning the Loan-to-Value Ratio (LVR) exceeds 80%. The insurance covers the lender's risk in case the borrower defaults and the property must be sold at a loss. Without LMI, most lenders would not approve loans above 80% LVR — so while it is an additional cost, LMI actually enables many Australians to enter the property market sooner.

How LMI Premiums Are Calculated

LMI premiums are calculated based on two primary factors: the loan amount and the LVR. The higher the LVR and the larger the loan, the more expensive the LMI premium. Premiums are typically expressed as a percentage of the loan amount and are calculated on a tiered scale. For example, a borrower at 85% LVR might pay around 0.9% of the loan amount, while a borrower at 95% LVR could pay 3.5% or more.

The two main LMI providers in Australia are Helia (formerly Genworth) and QBE. Some larger banks, such as Commonwealth Bank and Westpac, self-insure for some loan types. Each provider has its own premium table, and lenders may also add a margin on top. This means LMI costs can vary significantly between lenders for the same loan — making it important to compare options.

Should You Pay LMI or Wait to Save More?

This is one of the most debated questions in Australian property. The answer depends on your local property market, interest rates, and personal circumstances. In a rapidly appreciating market, paying LMI and buying sooner could mean you benefit from property growth that outweighs the LMI cost. In a flat or declining market, waiting to save a larger deposit may be more prudent.

Consider a $750,000 property. With a 10% deposit ($75,000), your LMI might cost approximately $15,000. However, if property prices grow by just 3% over the 18 months it takes you to save to 20%, the property would cost $784,000 — an additional $34,000. In this scenario, paying LMI early would have been the more cost-effective choice, even accounting for the additional interest on the higher loan.

The First Home Guarantee Scheme

The Australian Government's First Home Guarantee (formerly First Home Loan Deposit Scheme) allows eligible first home buyers to purchase a home with as little as 5% deposit without paying LMI. The government guarantees the difference between the borrower's deposit and 20%, removing the need for LMI entirely. The scheme has property price caps that vary by region and limited places available each financial year.

Similarly, the Family Home Guarantee supports single parents to buy homes with as little as 2% deposit, and the Regional First Home Buyer Guarantee extends the scheme to regional areas with favourable conditions. These government schemes represent a significant opportunity to avoid LMI costs entirely.

LMI for Investment Properties

LMI for investment properties typically costs more than for owner-occupied properties, as lenders consider investment loans slightly higher risk. Some lenders also have lower maximum LVR limits for investment properties — typically 90% rather than 95%. However, the tax deductibility of LMI on investment properties (claimed over five years) can offset some of the cost.