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Lenders mortgage insurance (LMI) is the cost that surprises more first home buyers than any other. It can add thousands of dollars to a low-deposit purchase, and the first thing to understand is the part the name hides in plain sight: it insures the lender, not you. Here is how LMI works, how it is priced, and the legitimate ways to reduce or avoid it.
LMI is a one-off insurance premium that lenders generally require when you borrow more than 80% of a property's value — that is, when your loan-to-value ratio (LVR) is above 80%. If you default and the property sells for less than the loan balance, the insurer covers the lender's shortfall.
You pay the premium, but you are not the one protected. If the insurer pays out the lender, it can still pursue you for the shortfall. LMI is not repayment protection and it is not optional add-on insurance — it is simply the price of the lender accepting a smaller deposit. What it buys you is access: without LMI, low-deposit lending would barely exist, and many buyers would spend years longer saving while prices moved away from them.
LMI premiums are not a flat percentage. Insurers price them in bands, and two things drive the premium most: your LVR band and your loan size.
The band structure creates a practical opportunity: a relatively small amount of extra deposit can drop you into a cheaper band and cut the premium disproportionately. Before you settle on a deposit figure, model a few scenarios with our LVR and LMI calculator — moving from, say, 90.5% LVR to just under 90% can matter far more than it looks.
Most borrowers capitalise the premium — add it to the loan — rather than paying cash at settlement. That preserves your savings but means you pay interest on the premium for the life of the loan, and lenders still cap the total loan including the capitalised premium.
Some lenders waive LMI entirely at up to 90% LVR — sometimes higher — for borrowers in professions they consider low-risk with strong income trajectories. Commonly waived professions include:
Policies differ widely between lenders and change without much publicity, which is exactly the kind of niche a broker tracks. If you work in one of these fields, ask before you assume you have to pay — a waiver at 90% LVR can be one of the most valuable policies available to you.
Free, instant, and no details required — see roughly what lenders could approve for you.
If a parent or close family member owns property, a guarantor arrangement can eliminate LMI altogether. The guarantor offers part of their own property's equity as additional security, which brings the lender's effective LVR to 80% or below — so no LMI applies, even with little or no deposit of your own.
It is a genuine alternative, but not a free one: the guarantor takes on real legal risk, limited to the guaranteed portion, and most lenders require them to get independent legal advice. The guarantee can usually be released once you have paid the loan down or the property has grown in value enough to stand on its own.
Beyond waivers and guarantors, the main paths are:
Our low deposit home loans guide compares these paths side by side.
Sometimes, yes. If saving the remaining deposit would take years and property prices or rents are rising, paying LMI to buy sooner can be a rational trade — you are paying a known cost to stop renting and start building equity earlier. It can also make sense when a cheaper band is within reach but a 20% deposit is not. The wrong reason to pay LMI is not knowing your alternatives: always check waivers, guarantees and the Home Guarantee Scheme first.
Whether LMI is a cost worth paying or one you can sidestep depends on your profession, your family situation and how the bands fall on your numbers. Get in touch and we will run your scenario across lenders that treat it most favourably.
No. LMI protects the lender against a shortfall if you default and the property sells for less than the loan balance. Even after the insurer pays the lender, it can pursue you to recover the shortfall. If you want protection for yourself, that is separate cover such as income protection insurance.
It depends mainly on your LVR band and loan size — premiums step up sharply at thresholds like 85%, 90% and 95% LVR, and larger loans attract higher premium rates. Because of the band structure, a modest extra deposit can cut the premium disproportionately. Use an LVR and LMI calculator to model your own scenarios rather than relying on rules of thumb.
Usually, yes — this is called capitalising the premium, and it is how most borrowers pay it. It preserves your cash at settlement, but you pay interest on the premium for the life of the loan, and the lender's maximum LVR cap applies to the total loan including the capitalised amount.
Several lenders waive LMI at up to 90% LVR or higher for medical practitioners, and some extend waivers to legal, accounting and other select professions, often with minimum income or professional membership conditions. Policies vary a lot between lenders and change over time, so check current policy before assuming you must pay.
Generally no, and this is an important trap: LMI is not transferable between lenders. If you refinance while your LVR is still above 80%, the new lender will usually charge a fresh premium. Some insurers offer partial refunds if a loan is closed very early, but do not count on it — check your specific policy terms.
This article is general information only and doesn't consider your personal objectives, financial situation or needs — it isn't personal credit advice, and lending criteria, rates, fees and government schemes change. Before acting, speak with a licensed MakeMyLoan broker or credit representative who will assess your circumstances and provide a credit guide before any credit assistance is given.
