23 Jun 2025 Lenders Mortgage Insurance: A Complete Guide for Homebuyers
Buying a home is a major milestone, and for many Australians, getting there means navigating Lenders Mortgage Insurance (LMI). If your deposit is under 20%, chances are you’ve heard of it. But what does it actually mean for your loan, your budget, and your options?
In this guide, we’ll break down what LMI is, when it applies, how much it costs, and how you might be able to avoid it altogether. Whether you’re buying your first home in Melbourne or upgrading with a small deposit, this guide will help you move forward with clarity and confidence.
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What is Lenders Mortgage Insurance?
Lenders Mortgage Insurance (LMI) is insurance that borrowers pay to protect the lender if they default on the home loan. It’s important to understand that this isn’t mortgage protection insurance, which safeguards the borrower. Instead, LMI covers the lender if the borrower defaults on their home loan.
Using LMI helps reduce a lender’s financial risk when approving loans with high loan-to-value ratios. It gives them more confidence to approve loans for borrowers with smaller deposits.
LMI is commonly required when the Loan to Value Ratio (LVR) exceeds 80%.
When do you need to pay lenders mortgage insurance?
You usually need to pay LMI if your LVR is above 80%. That means if your deposit is less than 20% of the property value, you’re likely to be charged LMI.
For example, if you’re buying a $700,000 home in Melbourne and your deposit is $70,000 (10%), your LVR is 90%.
Some lenders have different policies. In certain cases, they may require LMI for LVRs over 85% or waive it for specific professions.
LMI typically applies to:
- First home buyers
- Upgraders with limited equity
- Self-employed borrowers
How much does lenders mortgage insurance cost?
LMI premiums are calculated based on:
- Loan amount
- Deposit size
- Lender policy
- Property price and location
The higher the loan size and LVR, the higher your LMI premiums. For instance, borrowing 90% of a $700,000 home could result in LMI costs between $10,000 and $18,000.
Most lenders allow you to capitalise the upfront LMI premium into your home loan balance. This means you won’t need to pay it upfront at settlement, though you will incur interest over the loan term.
Some lenders offer monthly LMI premium structures, which might cost more over time.
How to avoid paying LMI in Australia?
Yes, you can avoid LMI through several strategies:
- Save a 20% deposit: The simplest way to avoid LMI is to keep your LVR at or below 80%.
- Use a guarantor: A family member can provide equity as security, helping you avoid LMI even with a small deposit.
- Profession-based LMI waivers: Many lenders offer LMI waivers to specific professions, such as doctors, lawyers, accountants, and engineers. These exemptions are subject to income thresholds and job verification.
- Government support schemes: Eligible buyers may qualify for the First Home Guarantee, which enables purchases with as little as a 5% deposit without paying LMI.
Is lenders mortgage insurance good or bad?
LMI isn’t always a negative. It depends on your property goals.
Pros:
- Get into the property market sooner
- Avoid years of renting or saving
- Potential interest savings if the property grows in value
Cons:
- Adds to your loan balance
- Increases your interest costs and total loan repayments
- Offers no borrower protection (unlike mortgage protection insurance)
Paying LMI may make sense if:
- Melbourne property values are rising quickly
- You’re eligible for stamp duty concessions
- You want to lock in a low interest rate before increases
Understanding your full borrowing costs is key. That includes your loan amount, LMI premiums, interest rate, and total loan repayments over time.
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Frequently Asked Questions (FAQs)
How much does LMI cost?
The cost of LMI varies based on the loan amount, deposit size, and lender. It can range from a few thousand dollars up to tens of thousands. Always check with a broker or use an online calculator for a more accurate estimate.
Is LMI tax-deductible?
For property investors, LMI may be tax-deductible over a five-year period. For owner-occupiers, it generally isn’t. Consult a tax advisor for advice based on your situation.
Does LMI protect me if I lose my job?
No, LMI protects the lender. If you’re looking for borrower protection, you may want to consider mortgage protection insurance.
What happens to LMI if I refinance?
If your new loan exceeds 80% LVR, you may need to pay LMI again when refinancing unless the lender offers a waiver or transfer.
How much is lenders’ mortgage insurance on $500,000?
LMI on a $500,000 loan can range from around $8,000 to $15,000, depending on your deposit size and lender policy. A 10% deposit would typically result in a higher premium.
What does lenders’ mortgage insurance do?
LMI protects the lender from financial loss if the borrower defaults on the loan. It enables lenders to approve loans with smaller deposits.
How much is an LMI on a 10% deposit?
LMI on a 10% deposit generally costs between 1.5% to 3% of the loan amount. For example, on a $700,000 loan, it may range from $10,000 to $18,000.
Conclusion: Know your LMI options before you commit
Lenders Mortgage Insurance (LMI) might feel like an unavoidable hurdle when you’re buying with less than a 20 % deposit. But when you understand your LVR, leverage available exemptions and partner with expert Melbourne mortgage brokers, it can actually become a strategic tool to fast-track your homeownership.
At EverLend, our brokers will guide you through assessing your LMI premiums, unlocking government support programs and exploring tailored loan structures, whether that’s a split loan or a guarantor option, to ensure you get the most cost-effective outcome.
Take the stress out of LMI process by calling us at (03) 7036 3356 or visit everlend.com.au to speak with trusted home loan brokers in Melbourne today.