Lenders charge LMI if you have a low deposit. You can avoid LMI by saving a bigger deposit or using a guarantor, and you can even borrow the LMI premium along with your loan.
Lenders mortgage insurance (LMI) can be expensive: If you bought a $600,000 house with a 5% deposit of $30,000 then your LMI premium could cost over $22,000 (based on Finder's LMI estimator).
You can avoid or reduce your LMI costs by saving a larger deposit or using a parental guarantor to cover part of your deposit. Eligible first home buyers can use the First Home Guarantee to avoid LMI completely. And you can also borrow the LMI premium by folding into your loan.
LMI is protection for your lender, not for you. LMI doesn't cover you if you miss repayments due to illness or job loss. Mortgage protection insurance covers you in these situations.
How much is lenders mortgage insurance?
The amount you pay for lenders mortgage insurance depends on the size of your loan and deposit. If you're getting a low deposit home loan, you'll need to estimate your potential LMI costs and factor them into your total home-buying expenses.
Here are some LMI premium estimates made using Finder's LMI calculator. These estimates can give you a quick idea of just how expensive lenders mortgage insurance can be.
Property value
Deposit ($)
Deposit (%)
Estimated LMI cost*
$600,000
$30,000 $60,000 $90,000
5% 10% 15%
$22,788 $11,772 $5,941
$800,000
$40,000 $80,000 $120,000
5% 10% 15%
$34,982 $17,042 $9,064
$1,000,000
$50,000 $100,000 $150,000
5% 10% 15%
$43,728 $22,644 $11,959
*These costs are estimates only, taken from Finder's LMI premium estimate calculator. These numbers do not reflect genuine LMI quotes from an insurer.
Minimise your LMI costs with a larger deposit
As the examples above show, LMI can add thousands of dollars to the cost of buying a home. The cost of your property and the size of your deposit determine your LMI costs.
If buying the same property, a borrower with a 15% deposit pays less LMI than a borrower with a 5% deposit.
"LMI gives your lender the confidence to accept a smaller deposit, giving you the ability to get into the property market sooner. On average, it now takes a couple on a median salary 14 years to save for a 20% deposit towards a house in Sydney (Helia Home Buyer Sentiment Report 2024). Rather than waiting years to try and save a 20% deposit, LMI allows home buyers to bridge this deposit gap and buy a house or investment property with a smaller deposit amount sooner."
How do I pay my lenders mortgage insurance premium?
Borrowers usually pay LMI during settlement, when your lender provides the funds for your loan and you take possession of the property. This means you can pay your lenders mortgage insurance in a lump sum up front.
But there is another option: You can capitalise the premium, which means you add the premium to your loan. For this to happen, you'll need to borrow your LMI costs along with your loan amount, so that you're paying it off over time.
How does LMI capitalisation work?
You buy an $800,000 property with a 10% deposit.
You borrow $720,000.
Your LMI premium is around $17,000.
You capitalise the premium into your loan and borrow $737,000.
Your loan interest rate is 6.20% and your loan term is 30 years.
Your loan with your LMI premium included adds an extra $104 a month to your home loan repayments.
Finder survey: Do Australians have a good understanding of what's needed for a home loan before applying?
Response
Yes
86.58%
No
13.42%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Is LMI compulsory?
Yes, LMI is a requirement that banks and lenders have when you save a deposit of less than 20%. The purpose of LMI is to reassure your lender that you are a "safe bet". They want you to take out an LMI policy so they feel reassured that, if you stop making repayments and they have to sell the property, they will recover the full value of their loan.
If you have a 10% deposit, and your property has to be sold by your lender in a forced sale, there's a chance the property could sell for around the same amount of your loan or even less. This could leave your lender "out of pocket" in a forced sale situation.
LMI helps to offset this risk to the lender. If they have to sell your property and you only have 5-10% equity, with an LMI policy in place, they know they will recover all of their loan, even if the property sale doesn't cover it. They will get the full value of the loan repaid by claiming on your LMI policy.
LMI is not legally compulsory, although it is a firm policy of most lenders. Some lenders will choose to "self-insure", and they may charge you a risk fee instead of LMI. You can avoid paying LMI using some of the strategies listed below.
What is the typical approval process for LMI?
According to Helia, the approval process for LMI involves both the lender and the insurer and typically follows these steps:
Application submission: The borrower applies for a home loan through a lender (bank or non-bank lender), who assesses the application based on the borrower's credit history, income, deposit amount, and overall financial situation.
Loan-to-Value ratio (LVR) assessment: The lender calculates the Loan-to-Value Ratio (LVR), which is the loan amount as a percentage of the property value. If the LVR exceeds 80% (meaning the borrower's deposit is less than 20%), LMI is usually required. Lenders often specify this in their lending criteria.
Insurer assessment: After determining that LMI is necessary, the lender submits the loan application to an LMI provider. The insurer independently assesses the risk profile of the loan, considering factors like the borrower's credit score, employment history, and property type and location. They also review the LVR and other potential risk indicators.
Approval by insurer: If the insurer approves the application, they issue the LMI policy, which covers the lender against losses if the borrower defaults on the loan. The approval criteria can vary by insurer, but it generally involves a thorough risk assessment aligned with the lender's standards.
Final approval by lender: With LMI in place, the lender completes their final checks and gives the go-ahead for the loan. They ensure the policy from the insurer aligns with their requirements.
How to avoid LMI
Use the First Home Guarantee. If you are a first home buyer, the First Home Guarantee may allow you to buy a property with a 5% deposit without paying lenders mortgage insurance. Eligibility for this government scheme depends on where you are buying, your income and the value of the property you are buying.
Keep your loan-to-value ratio (LVR) below 80%. If you have a 20% deposit (which is an LVR of 80%), you don't have to pay LMI.
Take out a family guarantee. A family guarantee or family pledge is when one of your family members guarantees part of your loan with their own property. This way you can borrow money with a low deposit and avoid LMI.
How to reduce the cost of LMI
If you can't avoid LMI completely you can still reduce your costs by:
Increasing your deposit size. Even if it still comes with LMI, a 15% deposit means a smaller LMI premium than a 5% deposit.
Buying a cheaper property. Reducing your budget means you can get a bigger deposit relative to the cost of the property.
Use a first home owners grant to boost your deposit. If eligible, a first home owner grant can form part of your deposit.
LMI pros and cons
Pros
LMI lets you enter the market faster without spending years saving a big deposit.
When property prices are rising, entering the market earlier can make buying with LMI cheaper in the long run.
You can borrow your LMI costs along with your loan, eliminating it as an upfront cost.
Cons
LMI is an extra home buying cost that can add thousands or tens of thousands of dollars on top of the purchase price.
Buying with a small deposit means borrowing more money. This means paying more in interest charges.
LMI providers
Many lenders handle LMI with their own insurance products. These have different names depending on the lender. Many other lenders rely on 1 of 2 large lenders mortage insurers: Helia and QBE.
Helia
Helia (formerly Genworth) is an insurer that has offered services to Australian property owners since 1965. Helia was the first LMI insurer in Australia.
QBE
QBE provides a range of insurance products across the globe. To consumers in Australia, they provide personal insurance covering your car, home, travels and more. They also handle workers compensation and a range of other related services.
More questions about lenders mortgage insurance
There's no doubt that avoiding paying an LMI premium will save you money, but it's worthwhile considering what that "saving" might cost you.
There are times when paying LMI can be worth it, including:
If it will take you 10 years (or longer) to save a 20% deposit. If you're buying a home in a capital city, you may need a 6-figure deposit to reach 20%. It may be worth paying a small sum in LMI today to get your foot on the property ladder sooner.
If you're stuck paying high rent and the perfect property comes on the market. If the right property comes along, you need to decide if it's worth paying the extra cost to get the home of your dreams. Keep in mind that mortgage repayments are contributing towards paying down an asset that you will own, unlike rent, which helps pay someone else's mortgage.
If you're buying in a strong market and prices are rising. As prices in Sydney rose dramatically over the last few years, many hopeful homebuyers watched their dreams of owning a home get dashed. Those who jumped into the market with smaller deposits had to pay LMI, but given how fast prices rose, this was often the far more lucrative option.
You may be required to pay LMI more than once. This can happen if you wish to refinance your mortgage and the equity in your property is less than 20% of the property's value at the time. Your initial deposit was small (say 5%) and you haven't repaid enough to pass 20%.
In this situation, refinancing might become too expensive.
For instance, if you are refinancing a loan worth $600,000 and your property is valued at $700,000, then your LVR will be $600,000/$700,000 = 85.7%. You will be required to pay an LMI premium worth thousands of dollars.
If you are refinancing to a new, lower interest rate that saves you 0.5% per year, you stand to save $600,000 x 0.05% = $3,000 per year.
You will need to decide whether the money gained by refinancing makes the cost of LMI worth it. A mortgage broker may be able to help you run some calculations and work out the best path forward.
If you're exiting your home loan because you're selling your property or refinancing, and this means you have repaid your home loan fully within 2 years of settlement, it might be possible to get a partial refund, depending on your lender. This option was more common prior to LMI changes in 2012, but it's still possible today. Banks and lenders will rarely offer you the money back – instead you'll need to ask the question as to whether your lender allows a partial refund.
Yes, as a property investor, the majority of your borrowing expenses are tax-deductible, and this includes your LMI premiums.
You cannot claim your LMI premiums and other borrowing costs as one lump-sum tax deduction in the year they are incurred (unless the total value is under $100).
Instead, you can claim these costs over 5 years or the full term of the loan (if the full loan term is shorter than 5 years).
For example, if you take ownership of a property on 1 July (the first day of the financial year), you could claim a $15,000 LMI expense over 5 years at $3,000 per year. If you settle the purchase during the financial year, you will apportion the tax deduction according to the number of days that you've owned the property within that financial year. An accountant can help you work out the exact deductions that you may be entitled to.
When you apply for a home loan and you are required to pay LMI, you need to have your loan approved twice: once by the bank or lender, and a second time by the lenders mortgage insurer.
This is because the LMI insurer is taking the risk from the lender. It can be the case that mortgage insurers are just as conservative, if not more so, than banks and lenders.
There aren't many LMI insurers in Australia, which means that if your application for a home loan is rejected because of an LMI insurer's criteria, you might want to apply for another home loan with a lender that self-insures, or uses a different LMI insurer.
Mortgage brokers can help you apply with lenders that can help match you with the right lenders mortgage insurer for your situation.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 562 Finder guides across topics including:
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If I make a lump sum to my loan which will bring me under 80%, would I be able to have the LMI stopped? Will the bank keep the remaining amount owing in insurance or cancel the remaining, as it was put into the total amount of the loan?
JonathanJune 8, 2017
Hi Peter!
Thanks for the comment.
It would depend on how the LMI was agreed to be paid in your loan. If it was paid upfront and had been more than two years from settlement, you may not be able to recoup the said amount or at least the whole of it. But if it is included on your loan repayments, it may be recomputed by the LMI insurers.
You can contact your lender or mortgage insurer as this is reviewed on a case-to-case basis.
Hope this helps.
Cheers,
Jonathan
ianJune 16, 2016
I have had finance approved,my lender(suncorp) will not allow me to pay for the lmi up front is this correct
JodieJune 16, 2016
Hi Ian,
Thank you for contacting finder.com.au, a financial comparison website.
Each lender has their own restrictions on how they handle LMI, if you would prefer to pay the LMI upfront you will need to discuss this with Suncorp directly or you can look at another lender that will allow for upfront payment of LMI.
There has not been any regulation changes regarding LMI, you might be best to contact a mortgage broker who can offer you a range of lenders that can assist you with your specific needs.
Regards
Jodie
DavidMay 29, 2016
I am buying a house with my 2 children who are both employed, I will be selling my house for approx $720.000 and buying the new house for $1m.I will be putting in $500.000 and the other half will be equally shared by my two children $250.000 each.
We have been approved finance, but now they require us to pay LMI insurance, as I am paying half the loan up front, do we have to pay this cost ? or can I refuse to pay it ?
Regards
David
Finder
MarcMay 30, 2016Finder
Hi David,
thanks for the question.
LMI is required as a condition of finance with most lenders, so if a lender requires a borrower to pay LMI then they will have to in order to obtain a loan from them.
I hope this helps,
Marc.
JeshuaAugust 3, 2015
I recently enquired about a housing loan and was advised that as of last week LMI is no longer able to be capitalised onto the principal of the loan, meaning that I have to come up with the LMI and a deposit before I can get a loan.
I am not sure if this is for this particular lending organisation or if it is actually now a legal requirement. Everything I find on the internet advises that LMI can still be capitalised.
Can you please advise me on the current situation in Australia?
JodieAugust 4, 2015
Hi Jeshua,
Thank you for contacting finder.com.au, a financial comparison website.
Each lender has their own restrictions on how they handle LMI, there are still lenders who would allow LMI to be capitalised into the loan amount depending on your circumstances.
There has not been any regulation changes regarding LMI, you might be best to contact a mortgage broker who can offer you a range of lenders that can assist you with your specific needs.
Regards
Jodie
MohanMay 27, 2015
I have taken an LMI for a $216,000 loan for a property Purchased at $271,000, but the bank only valued at $235,000.
The cost of my LMI is $4,847.
Can you advise if I were to refinance after a period of 6 months and I do not need a LMI, how do I calculate the LMI reimbursement amount.
Finder
MarcMay 29, 2015Finder
Hi Mohan,
thanks for the question.
The amount you’re reimbursed for will be worked out by the insurer used by your lender. I would recommend contacting them to find out how much you could receive back.
Cheers,
Marc.
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If I make a lump sum to my loan which will bring me under 80%, would I be able to have the LMI stopped? Will the bank keep the remaining amount owing in insurance or cancel the remaining, as it was put into the total amount of the loan?
Hi Peter!
Thanks for the comment.
It would depend on how the LMI was agreed to be paid in your loan. If it was paid upfront and had been more than two years from settlement, you may not be able to recoup the said amount or at least the whole of it. But if it is included on your loan repayments, it may be recomputed by the LMI insurers.
You can contact your lender or mortgage insurer as this is reviewed on a case-to-case basis.
Hope this helps.
Cheers,
Jonathan
I have had finance approved,my lender(suncorp) will not allow me to pay for the lmi up front is this correct
Hi Ian,
Thank you for contacting finder.com.au, a financial comparison website.
Each lender has their own restrictions on how they handle LMI, if you would prefer to pay the LMI upfront you will need to discuss this with Suncorp directly or you can look at another lender that will allow for upfront payment of LMI.
There has not been any regulation changes regarding LMI, you might be best to contact a mortgage broker who can offer you a range of lenders that can assist you with your specific needs.
Regards
Jodie
I am buying a house with my 2 children who are both employed, I will be selling my house for approx $720.000 and buying the new house for $1m.I will be putting in $500.000 and the other half will be equally shared by my two children $250.000 each.
We have been approved finance, but now they require us to pay LMI insurance, as I am paying half the loan up front, do we have to pay this cost ? or can I refuse to pay it ?
Regards
David
Hi David,
thanks for the question.
LMI is required as a condition of finance with most lenders, so if a lender requires a borrower to pay LMI then they will have to in order to obtain a loan from them.
I hope this helps,
Marc.
I recently enquired about a housing loan and was advised that as of last week LMI is no longer able to be capitalised onto the principal of the loan, meaning that I have to come up with the LMI and a deposit before I can get a loan.
I am not sure if this is for this particular lending organisation or if it is actually now a legal requirement. Everything I find on the internet advises that LMI can still be capitalised.
Can you please advise me on the current situation in Australia?
Hi Jeshua,
Thank you for contacting finder.com.au, a financial comparison website.
Each lender has their own restrictions on how they handle LMI, there are still lenders who would allow LMI to be capitalised into the loan amount depending on your circumstances.
There has not been any regulation changes regarding LMI, you might be best to contact a mortgage broker who can offer you a range of lenders that can assist you with your specific needs.
Regards
Jodie
I have taken an LMI for a $216,000 loan for a property Purchased at $271,000, but the bank only valued at $235,000.
The cost of my LMI is $4,847.
Can you advise if I were to refinance after a period of 6 months and I do not need a LMI, how do I calculate the LMI reimbursement amount.
Hi Mohan,
thanks for the question.
The amount you’re reimbursed for will be worked out by the insurer used by your lender. I would recommend contacting them to find out how much you could receive back.
Cheers,
Marc.