LMI Explained: Lenders Mortgage Insurance in Australia (2026)

What LMI protects, and who pays for it

Lenders Mortgage Insurance protects the bank if you default and the sale of the property does not cover the outstanding loan—it does not protect you as the borrower. Despite that, the cost is passed on to you, typically as a one-off premium either paid upfront or capitalised (added) onto the loan balance.

LMI generally applies when your loan-to-value ratio (LVR) is above 80%, meaning your deposit plus any genuine savings is below 20% of the property value. The higher your LVR climbs above that 80% line, the higher the premium percentage tends to be.

What drives the premium amount

LMI premiums scale with both the loan size and the LVR band—a $600,000 loan at 90% LVR will attract a meaningfully higher premium, in both dollar terms and as a percentage, than the same loan at 85% LVR. Some lenders also price LMI differently for owner-occupier versus investment purposes, and for principal-and-interest versus interest-only repayment structures.

Because premiums are not linear, even a small increase in your deposit—enough to move from one LVR band to a lower one—can produce a disproportionately large reduction in the LMI cost. It is worth checking whether saving a little longer crosses a pricing threshold before you apply.

Ways to reduce or avoid LMI

The most direct way to avoid LMI is a deposit of 20% or more. Some borrowers use a family guarantee, where a parent or relative offers equity in their own property as additional security, to bring the effective LVR on the borrower's portion below 80% without a full 20% cash deposit.

Certain professions (including some medical, legal, and accounting roles) are offered LMI waivers by select lenders at higher LVRs as a competitive offer—eligibility and thresholds vary and change over time, so confirm current policy with a broker rather than relying on general assumptions.

First home buyers may also qualify for government guarantee schemes that let eligible buyers purchase with a smaller deposit without paying LMI, subject to price caps, income tests, and available places—check current eligibility with your state or territory housing authority.

Worked example (illustrative numbers only)

Consider a $700,000 purchase with a 10% deposit ($70,000), producing a $630,000 loan at 90% LVR. An illustrative LMI premium in that band might run in the low tens of thousands of dollars, which is commonly capitalised onto the loan rather than paid in cash upfront—meaning you also pay interest on the premium over the loan term.

Compare that to the same purchase with a 20% deposit ($140,000), a $560,000 loan at 80% LVR, and no LMI at all. Use our Australia home loan calculator to model both loan amounts against the same rate and term to see the full repayment gap, not just the headline premium figure.