What is LMI (Lenders Mortgage Insurance)?

Who LMI actually protects

The lender, full stop. If you default and your property sells for less than the outstanding loan, LMI covers the lender's shortfall. It offers you no protection at all, and the insurer can still pursue you personally for any gap it doesn't cover. That's a different product entirely from mortgage protection insurance, which covers your repayments if you lose your job or get sick.

When it applies

LMI is triggered once your loan-to-value ratio (LVR) goes above 80%, meaning your deposit is less than 20% of the purchase price. A 10% deposit (90% LVR) or a 5% deposit (95% LVR) will both generally attract LMI. It's usually a one-off premium that gets capitalised into your loan rather than paid upfront, so you end up paying interest on it too over the life of the loan. Australia's two main LMI insurers are Helia and QBE, your lender picks which one, not you.

How much it costs

LMI is priced by the insurer based on your LVR, loan size and lender, there's no single public formula, and premiums vary meaningfully as your deposit shrinks. Using the rate table behind our LMI Calculator, a $600,000 property with a 10% deposit (90% LVR, $540,000 loan) works out to roughly $8,100 in indicative LMI. Drop to a 5% deposit (95% LVR, $570,000 loan) and it jumps to around $19,950, more than double, for an extra 5% of borrowed funds. At 20% deposit or more, LMI isn't charged at all. These are indicative estimates only, run your own numbers on the calculator and get an exact figure from your lender before relying on it.

Is LMI tax deductible?

Depends what the property's for. For an owner-occupier, LMI isn't deductible, it's treated as a personal expense. For an investment property, it's deductible as a borrowing expense, spread over 5 years or the loan term, whichever is shorter. LMI is generally non-refundable if you sell or refinance early, don't factor a refund into your planning.

Ways to avoid it

Saving a full 20% deposit is the obvious route, though not always realistic in a rising market. The government's First Home Guarantee and Family Home Guarantee let some eligible buyers purchase with as little as a 5% deposit without paying LMI, the government guarantees part of the loan instead. Places and price caps for these schemes are reviewed periodically and have changed more than once in recent years, check current eligibility and caps for your state at housingaustralia.gov.au before assuming you qualify. A guarantor loan (a family member offering equity as extra security) can also bring your effective LVR under 80%, and some lenders waive LMI entirely for certain professions. Weigh the LMI cost against the cost of waiting and saving longer, in a market that's rising faster than you can save, paying LMI to buy sooner can work out cheaper overall.