Lenders mortgage insurance, or LMI, is a one-off insurance premium you pay when your deposit is less than 20% of the property value. The catch that surprises most people is who it protects.
Who does LMI actually protect?
The lender. Not you.
LMI covers the lender for their loss if you default and the property sells for less than what you owe. You pay the premium, but you are not the insured party. If the insurer pays out to your lender, the insurer can still come after you for the shortfall.
That is worth being clear about, because the name makes it sound like protection for the borrower. It is not income protection, and it is not mortgage protection insurance. Those are different products that cover you.
When do you have to pay it?
The trigger is your loan to value ratio. LVR is the size of your loan against the value of the property. Borrow $450,000 against a $500,000 property and your LVR is 90%.
Most lenders require LMI once your LVR goes above 80%, which is another way of saying once your deposit drops below 20%. Below that threshold, the lender either carries the risk themselves or quietly insures it and absorbs the cost. More on how LVR works.
The threshold is not universal. Some lenders set it lower for certain property types, locations or borrower situations. Others waive it entirely for particular professions.
How much does LMI cost?
It depends on three things: how much you are borrowing, your LVR, and which insurer your lender uses. There is no standard rate the way there is with stamp duty.
The premium climbs steeply as your LVR rises. The jump from 90% to 95% costs far more than the jump from 85% to 90%, because the insurer is taking on disproportionately more risk. On a typical loan it runs from a few thousand dollars into the tens of thousands.
This is why getting your deposit just over a threshold matters. Saving another few thousand to move from 90.5% LVR to 90% can save you considerably more than that in premium.
Can I add LMI to my loan?
Usually, yes. Most lenders let you capitalise the premium, which means adding it to the loan amount rather than paying it in cash at settlement. That keeps your upfront costs down at the point where money is tightest.
The trade off is that you then pay interest on it for the life of the loan. A premium of $12,000 capitalised into a 30 year mortgage costs considerably more than $12,000 by the time it is repaid. It also nudges your LVR up, which can affect the premium itself.
Paying it upfront is cheaper overall if you can. Capitalising it is often the difference between buying and not buying.
Who provides LMI in Australia?
Three insurers underwrite almost all residential LMI in Australia: Helia, QBE LMI and Arch LMI. Helia is the largest and longest established, and was called Genworth until it rebranded in 2023, so you will still see the old name in older loan documents.
You do not choose your insurer. Your lender does, and some large lenders self-insure instead of using an external provider. Because premiums differ between insurers, two lenders quoting the same interest rate can still land you with different LMI costs on the same loan.
How can I avoid paying LMI?
- Save a 20% deposit. The obvious route, and the slowest. Worth weighing against how fast prices are moving where you are buying.
- Use a guarantor. A family member puts up equity in their property as additional security, bringing your effective LVR under 80%. It is a serious commitment for the guarantor, so everyone needs to understand what is being guaranteed and how it gets released.
- Check if your profession qualifies for a waiver. Some lenders waive LMI entirely for certain occupations, most commonly in medicine, law and accounting. The criteria vary a lot between lenders.
- Look at government schemes. Federal and state programs exist that let eligible buyers, often first home buyers, purchase with a small deposit without paying LMI. Places are limited and eligibility rules change, so check what is current when you are ready to buy.
Is LMI ever worth paying?
Often, yes, and this is where the standard advice to always avoid it falls down.
If saving a full 20% deposit takes you three more years, the question is not whether LMI is expensive. It is whether the premium costs less than three more years of rent plus whatever the market does in that time. In a rising market, waiting can cost far more than the premium ever would.
In a flat or falling market, the sums point the other way, and there is a real risk of negative equity if you buy at a high LVR and values slip.
There is no general answer. It depends on your deposit, your savings rate, and what the market is doing where you want to buy. Run the numbers on your own situation rather than following a rule of thumb.
Common questions about LMI
Does LMI protect me if I cannot make my repayments?
No. LMI protects the lender against loss if you default. It gives you no cover at all. If the insurer pays your lender, it can then pursue you for the shortfall. Income protection and mortgage protection insurance are separate products that cover the borrower.
Do I get a refund if I repay or refinance early?
Some insurers offer a partial refund if the loan is repaid within the first year or two, but the rules are tight and the amount is small. Treat LMI as a sunk cost once it is paid.
Do I pay LMI again if I refinance to another lender?
Usually yes, if your LVR is still above 80% at the time you refinance. LMI is not portable between lenders. That is one reason refinancing at a high LVR is often not worth it.
Can I choose which LMI provider my lender uses?
No. The lender chooses, and some self-insure. Because premiums vary between the three providers, it is worth comparing the total cost between lenders rather than just the interest rate.