How does LMI work in Australia?

The direct answer

LMI (Lenders Mortgage Insurance) is an insurance premium paid by the borrower when the deposit is less than 20% of the property's value. It protects the lender — not you — if you default on the loan. LMI can cost between 0.5% and 4% of the loan amount depending on the LVR and loan size, and can typically be added to the loan rather than paid upfront.

Who pays LMI and who does it protect?

Despite being paid by the borrower, LMI protects the lender. If a borrower defaults and the property is sold for less than the outstanding loan balance, LMI covers the lender's loss. The borrower remains liable for any remaining shortfall.

LMI is provided by two insurers in Australia: Helia (formerly Genworth) and QBE. Different lenders use different insurers, which is why LMI costs vary between lenders for the same loan amount and LVR.

How much does LMI cost?

LMI premiums are calculated based on the loan amount and the LVR (loan-to-value ratio). As a rough guide: a borrower with a 10% deposit on a $600,000 property might pay approximately $12,000 to $18,000 in LMI. A borrower with a 15% deposit on the same property might pay $6,000 to $10,000.

LMI can typically be capitalised — added to the loan balance — rather than paid as an upfront cash cost. This means you pay it off gradually as part of your regular repayments, but you do pay interest on it over the life of the loan.

How to avoid paying LMI

There are four main ways to avoid LMI: save a 20% deposit; access the federal First Home Guarantee (allows eligible first home buyers to purchase with 5% deposit and no LMI); access the Family Home Guarantee (eligible single parents with 2% deposit and no LMI); or qualify for a professional LMI waiver (available from some lenders for doctors, lawyers, accountants and other specified occupations).

Lendology assesses all four pathways for every borrower with less than a 20% deposit and advises on the most appropriate approach for your specific situation.

Common questions

Frequently asked questions

Does LMI protect me as a borrower?

No. LMI protects the lender if you default on the loan and the property sells for less than the outstanding balance. As the borrower, you pay the premium but you are not the insured party.

Can I avoid LMI without a 20% deposit?

Yes — through the federal First Home Guarantee (5% deposit, no LMI for eligible first home buyers), the Family Home Guarantee (2% deposit for eligible single parents), or a professional LMI waiver from lenders who offer them for certain occupations. Lendology confirms which options apply to your situation.

Is LMI tax deductible?

LMI may be deductible over the life of the loan for investment properties. For owner-occupied properties it is generally not deductible. This is a tax question — confirm your specific situation with your accountant.

Can LMI be added to my loan?

Yes — most lenders allow LMI to be capitalised into the loan balance rather than paid upfront. This means you pay interest on the LMI amount over the life of the loan, which increases the total cost.

Sources: Helia (helia.com.au), QBE Lenders Mortgage Insurance, Housing Australia (housingaustralia.gov.au)

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The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.