What is LMI? Lenders Mortgage Insurance Explained
Last updated: 6 May 2025
Lenders Mortgage Insurance (LMI) is one of the most misunderstood costs in Australian property buying. Despite the word "insurance," it protects the lender — not you. And yet the borrower pays for it. Here's what you need to know.
What is LMI?
LMI is an insurance policy that lenders take out when a borrower's deposit is less than 20% of the property value (LVR above 80%). If the borrower defaults and the property sells for less than the outstanding loan balance, LMI covers the lender's shortfall.
The two main LMI providers in Australia are Helia (formerly Genworth) and QBE. The lender chooses which insurer to use. The borrower pays the premium, either upfront at settlement or capitalised into the loan.
How much does LMI cost?
LMI premiums scale with the loan amount and LVR. The higher the LVR, the higher the premium as a percentage of the loan.
| LVR | LMI rate (approx.) | On $600,000 loan |
|---|---|---|
| ≤ 80% | None | $0 |
| 80–85% | 0.6–1.0% | $3,600–$6,000 |
| 85–90% | 1.5–2.2% | $9,000–$13,200 |
| 90–95% | 3.0–4.0% | $18,000–$24,000 |
| 95–97% | 4.5–6.0% | $27,000–$36,000 |
These are estimates based on published rate bands. Actual premiums vary by lender and insurer.
Can LMI be added to the loan?
Yes — in most cases LMI can be "capitalised" into the loan rather than paid as cash at settlement. This means your loan amount increases by the LMI premium. You pay no cash upfront, but you pay interest on the LMI amount for the life of the loan, increasing the total cost significantly.
Example: $18,000 LMI capitalised into a loan at 6.5% over 30 years costs approximately $41,000 in total (principal + interest). Paying it upfront saves $23,000 over the loan term.
How to avoid LMI
- Save a 20% deposit: The most straightforward route. LVR of 80% or below means no LMI.
- First Home Guarantee (FHBG): The federal government guarantees the LMI component for eligible first home buyers, allowing purchase at 5% deposit without paying LMI. Places are limited — see Housing Australia for current round details.
- Professional exemptions: Certain lenders waive LMI for medical professionals, lawyers, accountants, and engineers at LVRs up to 90%. Each lender has their own list of qualifying professions.
- Family guarantor: A parent can use their property as additional security, reducing the effective LVR below 80%. This has significant risk implications for the guarantor.
- Regional Australia: Some lenders offer LMI discounts or waivers in specific postcodes under government incentive schemes.
Is paying LMI ever worth it?
In rising property markets, buying earlier with LMI can outperform waiting to save a 20% deposit — if property values increase faster than you can save. The calculation depends on:
- Rate of local property price growth
- How quickly you can save the remaining deposit
- Opportunity cost of continuing to pay rent
In flat or declining markets, waiting and saving a full deposit is almost always better. In strong capital growth markets (like Sydney 2020–21), paying LMI to enter the market earlier proved advantageous for many buyers.