Put down less than 20% on an Australian home loan and Lenders Mortgage Insurance (LMI) usually applies — a cost that protects the lender if you default, not you. You pay the premium; the lender gets the coverage. It's a detail roughly a quarter of Australians say they find genuinely confusing, according to industry survey data.
How LMI is Priced
LMI is calculated as a percentage of the loan amount, rising steeply as your loan-to-value ratio (LVR) increases — roughly 0.5% of the loan around 81% LVR, climbing to 3.5% or more by 95% LVR. Investment property loans typically carry LMI premiums around 9-10% higher than equivalent owner-occupier loans for the same LVR.
| LVR (Deposit) | Approx. LMI Rate | On a $630,000 Loan |
|---|---|---|
| 81% LVR (19% Deposit) | ~0.5% | ~$3,150 |
| 90% LVR (10% Deposit) | ~1.8-2.2% | ~$12,600 |
| 95% LVR (5% Deposit) | ~3.5%+ | ~$22,000+ |
| 80% LVR (20%+ Deposit) | Not required | $0 |
Worked Example
A $700,000 home with a 10% deposit ($70,000):
| Item | Amount |
|---|---|
| Purchase price | $700,000 |
| Deposit (10%) | $70,000 |
| Loan amount (90% LVR) | $630,000 |
| Approx. LMI rate | ~2% |
| Approx. LMI Premium | ~$12,600 |
Most lenders allow this to be capitalised (added to the loan) rather than paid upfront — which means paying interest on the premium itself for up to 30 years, meaningfully increasing its true cost beyond the sticker figure.
Common Mistakes
Buyers frequently treat LMI as a fixed percentage regardless of LVR — the premium scales steeply, not linearly, meaning the jump from 90% to 95% LVR costs disproportionately more than the jump from 85% to 90%.
Buyers also assume LMI is refundable or transferable if they refinance or pay off the loan early — it's generally neither. Refinancing to a new lender while still above 80% LVR typically means paying LMI again from scratch, even if you already paid it once.
A third mistake: not checking professional waivers before assuming LMI is unavoidable. Certain professions — medicine, law, accounting, and some others — can access LVRs up to 90-95% with LMI waived entirely at some lenders, subject to income and professional body membership requirements.
Where This Calculator Has Limits
LMI is priced by the mortgage insurer (commonly Helia or QBE), not a fixed public schedule — actual premiums vary by lender, insurer, loan size, and property type, so figures here are indicative planning estimates, not quotes. It also doesn't model guarantor structures, which can eliminate LMI entirely by using a family member's property equity to bring effective LVR under 80%.
Frequently Asked Questions
Can I avoid LMI without a 20% deposit?
Yes, in several ways — the First Home Guarantee (5% deposit, no LMI, for eligible first home buyers), a family guarantor arrangement, or a professional LMI waiver if you qualify.
Is LMI ever worth paying deliberately?
Sometimes — if property prices are rising faster than you can save a full 20% deposit, entering the market sooner with LMI can outweigh the premium cost through earlier capital growth, depending on the specific market.
Does LMI protect me if I lose my job and can't pay?
No — it protects the lender's shortfall if the property sells for less than the outstanding loan after a default. You remain liable for any remaining debt even after LMI pays out to the lender.
Is LMI tax deductible?
For an investment property, it may be deductible over the loan term or five years (whichever is shorter). For an owner-occupied home, it generally isn't. Confirm with a tax adviser for your situation.
Does capitalising LMI cost more in the long run?
Yes — it becomes part of your loan balance and accrues interest for the life of the loan, which can add significantly to the total cost compared to paying the premium upfront if you have the cash available.
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Educational content, not financial advice. LMI premiums are set by mortgage insurers and vary by lender — confirm your specific premium and eligibility for waivers or guarantee schemes with a licensed Australian mortgage broker. Written by the MortgagePro Global team; First Home Guarantee details referenced against the scheme as expanded from 1 October 2025.