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Updated October 2026 · General information for Australian home buyers.

Imagine paying for an insurance policy where the bank gets the payout, and you get… a polite thank-you. Welcome to Lenders Mortgage Insurance, or LMI. It's confusing, it can be expensive, and it's often avoidable. Here's what it is, how much it costs, and seven ways to reduce or skip it.

What LMI is (and isn't)

LMI is a one-off insurance premium that you pay when you borrow more than 80% of a property's value (a deposit of less than 20%). It protects the lender: if you default and the sale of the property doesn't cover the loan, the lender claims on the policy. MoneySmart (ASIC's consumer website) is clear that it protects the lender, not you.

LMI is not mortgage protection insurance. That's a different product that helps you if you can't pay (for example, due to illness or job loss). Mixing them up is common, and a very expensive mix-up if you assumed you were covered.

Two main insurers provide LMI to Australian lenders, and the lender chooses the insurer. That's why you usually can't shop around for the LMI itself, only for the lender who packages it.

What affects the cost?

How much does it cost? Rough numbers

LMI can run from thousands to tens of thousands of dollars. As a rough guide from published industry examples (not quotes):

Use a lender's own LMI calculator, or the calculators published by comparison sites, for a figure that fits your situation. Premiums are tiered by LVR and loan size, so a single extra $1 can push you into a different pricing band.

Paying LMI: upfront or added to the loan

You can generally pay it at settlement or capitalise it (add it to the loan). Adding it avoids a big cash hit but means you pay interest on the premium for the life of the loan, so the real cost is higher. Run both options through a calculator before choosing.

Seven ways to avoid or reduce LMI

  1. Save 20%. The classic, and also the slowest.
  2. First Home Guarantee. Eligible first home buyers can buy with a 5% deposit and no LMI because the government guarantees part of the loan. Price caps apply ($950,000 in Melbourne, Geelong and Victorian regional centres; $650,000 elsewhere in Victoria).
  3. Guarantor loan. A family member uses equity in their own property as extra security. This can reduce or remove LMI, but they take on real risk, so independent legal advice for them is vital.
  4. Professional packages. Some lenders waive or discount LMI for doctors, lawyers, accountants and other professionals at higher LVRs. Eligibility rules apply.
  5. Compare lenders. Premiums and policies vary, and some offer promotional discounts or waivers.
  6. Buy a slightly cheaper property or save a bit longer to cross an LVR threshold (for example, from 90% LVR to 85%).
  7. Use equity in an existing property as security for an investment purchase (a broker or adviser can explain the risks).

Is paying LMI always a bad deal?

Not always. If property prices in your target area are rising faster than you can save, paying LMI to get in sooner can make sense for some buyers. But you're borrowing more, paying more interest, and starting with less equity. LMI is a sunk cost: you don't get it back if you sell or refinance, and you may pay it again if you move to a new loan above 80% LVR. That's a decision to run through with a broker or financial adviser who sees your numbers.

Checklist: before you accept a loan with LMI

A light-hearted summary

LMI is like paying for someone else's umbrella because you're standing a little too close to the rain. Annoying? Absolutely. Sometimes unavoidable? Also yes. Just make sure it's the only umbrella you're buying for someone else this year.

Official links

Disclosure and Disclaimer

This article is general information only and is not financial, credit, legal, tax or investment advice. It does not consider your objectives, financial situation or needs. LMI figures are rough industry examples, not quotes, and premiums vary by lender, insurer and borrower. Please do your own research and obtain independent advice from a licensed financial adviser, mortgage broker, accountant and conveyancer or solicitor before making any decision. Loan approvals are subject to lender criteria. To the maximum extent permitted by law, our business, its directors, employees and brokers accept no liability for any loss or damage arising from reliance on this article.

Disclaimer: The information in this article is general in nature and does not constitute personal financial or credit advice. Speak with Amber Finance so we can look at your own situation in detail.