Finder makes money from featured partners, but editorial opinions are our own.
Lenders mortgage insurance (LMI)
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 $22,000 (based on Finder's LMI estimator).
You can avoid or reduce your LMI costs by saving a larger deposit or using a parental guarantor to cover part of your deposit. Eligible first home buyers can use the First Home Loan Deposit Scheme to avoid LMI completely. And you can also borrow the LMI premium by folding into your loan.
LMI is protection for your lender, not for you. LMI doesn't cover you if you miss repayments due to illness or job loss. Mortgage protection insurance covers you in these situations.
How much is lenders mortgage insurance?
The amount you pay for lenders mortgage insurance depends on the size of your loan and deposit. If you're getting a low deposit home loan, you'll need to estimate your potential LMI costs and factor them into your total home-buying expenses.
Here are some LMI premium estimates made using Finder's LMI calculator. These estimates can give you a quick idea of just how expensive lenders mortgage insurance can be.
Property value
Deposit ($)
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.
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 5.50% and your loan term is 30 years.
Your loan with your LMI premium included adds an extra $96 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?
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 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.
How to avoid LMI
There are ways to avoid paying LMI, or at least to minimise how much it costs you:
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.
Can I get a refund on my premiums?
If you're exiting your home loan and have repaid it 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, and it may no longer be possible.
However, it's always worth asking the question as your lender or mortgage insurer may have a unique policy that allows a partial refund.
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 between 2016 and 2018, many hopeful homebuyers watched as 20% deposits became bigger. 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.
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 1 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 536 Finder guides across topics including:
Please send me a Loan Mortgage Insurance amount for following situation
Purchase price 600,000.00
Bank Valuation 560,000.00
Stamp Duty & other Charges 18,500.00
Loan obtaining from Bank without LMI = 520,000.00
How much the Loan Mortgage insurance
BelindaMay 25, 2015
Hi Ranjith,
Thanks for your enquiry.
According to the Genworth LMI estimator, the LMI payable for this loan would be approximately $8 944.00 (excluding stamp duty).
I need to stress that this is an estimate and may not take into account many other factors that could determine your LMI premium.
It would be best for you to speak with your broker directly.
Thanks,
Belinda
MalcolmApril 25, 2015
I have recently paid out a loan after 8 months which had LMI am i entitled to a reimbursement on the insurance payed
JodieMay 8, 2015
Hi Malcolm,
Thank you for your question.
Generally speaking if you pay off your loan within the first few years you can apply for a refund of the LMI. I would recommend that you contact your lender and LMI insurer to discuss this with them.
Regards
Jodie
MarkFebruary 21, 2015
Hello guys,
Can you check my figures for me, my bank is confusing me.
I have a home valued at 720,000 and a mortgage on it of 500,000
So 220,000 equity.
I want to buy an investment property of 400,000 including the settlement costs.
The bank should lend 80% of the 400,000 which is 304,000 leaving me to come up with 96,000 .
With 80% of my homes equity I’ll have 175,000 to use . So no need for LMI and I should still have 79,000 in equity after the acquisition?
Any help would be great as my bank is saying I can’t borrow over 300,000 without LMI
cheers
Finder
ShirleyFebruary 23, 2015Finder
Hi Mark,
Thanks for your question.
Generally speaking, you can borrow up to up to $240,000 (from the $300,000) without incurring LMI.
Given that your equity is $200,000 and you would like to use 100% of that amount, you’ll need to provide $20,000 to make up for this gap.
If these numbers still seem strange to you, it’s best to ask your lender for a breakdown of their calculations, as by law they are required to disclosed all of these. They may also have different policies regarding how LMI is calculated, so it’s best to ask them to explain these to you.
Cheers,
Shirley
gabrielleFebruary 18, 2015
HI,
If I take out a loan at 90% and incur the mortgage Insurance and add the amount to the loan, say in 12 months i have incurred enough capital growth for my loan to fall into a 80% LVR. Can the lenders mortgage insurance be cancelled and reimbursed?
Finder
RichardFebruary 18, 2015Finder
Hi Gabrielle,
Thanks for your question. As it is a lump sum you won’t need to cancel it.
I hope this was helpful,
Richard
debbieAugust 26, 2013
I have had a broker to assist with my home loan .
The property is $420.000 and i have $45.000 deposit.
I have been told i will be required to pay $12.000 LMI . My loan will be with CBA . Would this LMI calculations be correct ?
Finder
MarcAugust 27, 2013Finder
Hello Debbie,
thanks for the question.
According to the Genworth LMI estimator, the LMI payable for this type of purchase would cost from $6,600 to $7,350. This is purely an estimator and doesn’t take into account many of the other factors which go into deciding how much LMI is payable, so if you feel this LMI premium is too high it may be a good idea to discuss it with your broker.
I hope this helps,
Marc.
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Please send me a Loan Mortgage Insurance amount for following situation
Purchase price 600,000.00
Bank Valuation 560,000.00
Stamp Duty & other Charges 18,500.00
Loan obtaining from Bank without LMI = 520,000.00
How much the Loan Mortgage insurance
Hi Ranjith,
Thanks for your enquiry.
According to the Genworth LMI estimator, the LMI payable for this loan would be approximately $8 944.00 (excluding stamp duty).
I need to stress that this is an estimate and may not take into account many other factors that could determine your LMI premium.
It would be best for you to speak with your broker directly.
Thanks,
Belinda
I have recently paid out a loan after 8 months which had LMI am i entitled to a reimbursement on the insurance payed
Hi Malcolm,
Thank you for your question.
Generally speaking if you pay off your loan within the first few years you can apply for a refund of the LMI. I would recommend that you contact your lender and LMI insurer to discuss this with them.
Regards
Jodie
Hello guys,
Can you check my figures for me, my bank is confusing me.
I have a home valued at 720,000 and a mortgage on it of 500,000
So 220,000 equity.
I want to buy an investment property of 400,000 including the settlement costs.
The bank should lend 80% of the 400,000 which is 304,000 leaving me to come up with 96,000 .
With 80% of my homes equity I’ll have 175,000 to use . So no need for LMI and I should still have 79,000 in equity after the acquisition?
Any help would be great as my bank is saying I can’t borrow over 300,000 without LMI
cheers
Hi Mark,
Thanks for your question.
Generally speaking, you can borrow up to up to $240,000 (from the $300,000) without incurring LMI.
Given that your equity is $200,000 and you would like to use 100% of that amount, you’ll need to provide $20,000 to make up for this gap.
If these numbers still seem strange to you, it’s best to ask your lender for a breakdown of their calculations, as by law they are required to disclosed all of these. They may also have different policies regarding how LMI is calculated, so it’s best to ask them to explain these to you.
Cheers,
Shirley
HI,
If I take out a loan at 90% and incur the mortgage Insurance and add the amount to the loan, say in 12 months i have incurred enough capital growth for my loan to fall into a 80% LVR. Can the lenders mortgage insurance be cancelled and reimbursed?
Hi Gabrielle,
Thanks for your question. As it is a lump sum you won’t need to cancel it.
I hope this was helpful,
Richard
I have had a broker to assist with my home loan .
The property is $420.000 and i have $45.000 deposit.
I have been told i will be required to pay $12.000 LMI . My loan will be with CBA . Would this LMI calculations be correct ?
Hello Debbie,
thanks for the question.
According to the Genworth LMI estimator, the LMI payable for this type of purchase would cost from $6,600 to $7,350. This is purely an estimator and doesn’t take into account many of the other factors which go into deciding how much LMI is payable, so if you feel this LMI premium is too high it may be a good idea to discuss it with your broker.
I hope this helps,
Marc.