What is Lenders Mortgage Insurance?
Lender mortgage insurance (LMI) is an insurance policy some home loan borrowers with deposits of less than 20% need to pay for. LMI protects your lender from loss if you default on your home loan repayments and it can’t recoup all it’s owed from repossessing and selling the property. It generally only applies if your loan to value ratio (LVR) is above 80%.
Why do lenders charge LMI?
LMI exists to cover lenders from loss if you default on the loan with negative equity. That means you owe more than what the property is worth.
Say, you borrow $950,000 to buy a house worth $1,000,000, but after a year the property market crashes. You might find you now owe $940,000 on a house that’s only worth $900,000. If you default on that loan, the lender could stand to make a $40,000 loss if they repossess and sell your home.
LMI protects your lender from such losses. If this actually happens, the LMI provider may pay the lender to cover its loss, but that doesn’t mean you’re off the hook.
The LMI provider then has the right to chase you up for what you still owe. It may accept a lower settlement, payment plan, or deferral if you have limited assets or are in financial hardship.
How does Lenders Mortgage Insurance work?
As the name implies, LMI is an insurance policy. It doesn’t offer any protection to a borrower, even though they’re the one who normally pays for it.
As a borrower, you don’t have to worry about taking out a Lenders Mortgage Insurance policy yourself. Your lender will handle all the paperwork and pass the cost of the policy onto you.
How much LMI costs will vary based on factors including the LMI provider your lender chooses, the size of your deposit, and how large a loan you’re taking out.
Do I have to pay LMI?
If your home loan is more than 80% of the value of the property you’re buying, you may be charged for LMI.
Even if you’re refinancing to another lender having already paid for LMI once, you might get charged by your new lender if your LVR is still above 80%.
Though, there are some exceptions to this rule. For instance, if you buy a home using the 5% Deposit Scheme or the Help to Buy Scheme, you might be able to dodge the cost, despite having a smaller deposit.
Additionally, some lenders offer LMI waivers to people working in certain professions, typically those in the medical field.
Can I get an LMI refund?
If you refinance or fully pay your home loan off within two years, you may be able to get a partial LMI refund.
For example, at Westpac, if your mortgage is discharged within 12 months, you may be entitled to a 40% LMI refund, while if it’s been less than two years you could still get up to a 20% refund. However, many other lenders have phased out LMI refunds.
Can you roll LMI into your home loan?
Lenders Mortgage Insurance can typically be paid upfront or capitalised into (added to) your home loan.
Capitalising a cost such as LMI into a mortgage means you’ll be charged interest on the expense by your lender, along with the rest of your loan. Since home loans tend to have long lifespans, this extra interest can add up, so be sure to do the math before rolling LMI into your home loan.
Calculate your LMI premiums
LMI is typically calculated based on the following factors:
- The size of your home loan: The more you’re borrowing, the higher your premium may be.
- Your deposit amount: As you’ll see in the below table, higher LVR loans usually have higher premiums.
- Your loan purpose: Some lenders and insurers charge higher LMI premiums on investment properties compared to owner occupied homes.
- Which insurer: There are several LMI providers in Australia (Helia and QBE are the two major ones) and your premiums may be slightly different depending which one your lender uses.
In some states or territories, you might also pay stamp duty on your LMI premiums.
How much is Lenders Mortgage Insurance?
Here’s a rough guide for how much you can expect to pay (if you choose to pay upfront) in LMI for various property values
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Property value | 5% Deposit | 10% Deposit | 15% Deposit |
|---|---|---|---|
$250,000 | $5,577 | $3,229 | $1,723 |
$500,000 | $14,031 | $8,219 | $4,435 |
$750,000 | $28,283 | $15,662 | $7,604 |
$1,000,000 | $37,711 | $20,882 | $10,138 |
$2,000,000 | $82,857 | $45,957 | $22,336 |
Figures courtesy of Helia’s LMI fee estimator, correct as of 14 August 2026. Premiums are for non-first home buyers and a 30 year loan term. GST included, stamp duty excluded.
How to avoid paying LMI
In some circumstances, you may be able to reduce the cost of LMI or even avoid it entirely.
Save a bigger deposit
If your LVR is below 80%, you probably won’t be charged LMI. Saving up a bigger deposit might take longer, but it could mean avoiding LMI premiums.
Add a guarantor
A guarantor is someone who guarantees part or all of your loan. In the event you can’t meet your repayments, the responsibility falls to them. This eliminates much of the risk for a lender, but can place a great deal of risk on your guarantor. Look for an LMI waiver or discount
Some lenders offer LMI discounts or waivers for select customers. Some of the big four banks, for example, waive LMI for borrowers who work in certain fields like medicine or law.
Use the 5% Deposit Scheme
The Australian Government’s 5% Deposit Scheme means eligible first home buyers can buy with a deposit as small as 5% and avoid paying LMI. The Government essentially acts as a guarantor for the additional amount needed to reach a 20% deposit, removing much of the risk for the lender.
If you’re looking to buy your first home with a deposit smaller than 20%, there are now unlimited places available under the 5% Deposit Scheme. Property price caps apply and only some lenders participate, but buying through the scheme could save you thousands of dollars in LMI premiums.
