Lenders Mortgage Insurance is one of the most significant costs for Australian home buyers purchasing with less than a 20% deposit — and one of the most commonly misunderstood. Here is exactly what it is, what it costs, and how to think about whether paying it makes sense.
LMI is insurance that protects the lender — not you — if you default on your home loan and the property is sold for less than the outstanding debt. If the lender suffers a loss through your default, LMI covers that loss. You pay the premium; the lender receives the benefit.
This is an important distinction. LMI does not protect you from losing your home. It does not protect you from legal action by the lender. It protects the bank. You are simply paying a fee to allow the lender to take on the risk of lending above 80% LVR.
Two main LMI providers operate in Australia: Helia (formerly Genworth Mortgage Insurance) and QBE LMI. Lenders choose which provider they use — as a borrower you generally cannot influence this. Both providers have their own premium schedules which they update periodically.
LMI is required when your loan-to-value ratio (LVR) exceeds 80% — that is, when you borrow more than 80% of the property's value. Some lenders charge LMI from 85% LVR; a few apply it from 90%. The exact trigger point varies by lender.
LMI premiums are calculated as a percentage of the loan amount and vary by LVR, loan size, lender, and LMI provider. Approximate premiums for a $700,000 property:
| Deposit | LVR | Loan Amount | LMI (approx.) |
|---|---|---|---|
| $105,000 (15%) | 85% | $595,000 | $4,000–$7,000 |
| $70,000 (10%) | 90% | $630,000 | $10,000–$14,000 |
| $35,000 (5%) | 95% | $665,000 | $22,000–$28,000 |
Use the LMI Estimator for a specific calculation based on your property price and deposit.
LMI can be paid as a lump sum at settlement or capitalised (added to your loan balance). Most borrowers capitalise it — they are already stretched on the deposit, so adding the LMI to the loan is more manageable. However, capitalising LMI means you pay interest on the premium for the full loan term. A $20,000 LMI premium capitalised at 6.5% over 30 years costs approximately $46,000 in total (premium plus interest).
In markets with strong capital growth, buying earlier with LMI can produce a better financial outcome than waiting to save a full 20% deposit. If property values rise 5–8% annually while you are saving, the capital gain you miss by waiting can far exceed the LMI cost. The trade-off is always property price growth expectation vs the LMI cost vs the rent you pay while saving.
LMI as a cost of entry: Think of LMI not as wasted money but as the fee to enter the market sooner. In some market conditions, that entry fee is well worth paying. In flat or declining markets, waiting to save a larger deposit makes more sense.