Lenders Mortgage Insurance (LMI): When It Applies

Lenders mortgage insurance, usually shortened to LMI, is one of the biggest costs for buyers with a small deposit. It's also one of the least understood, partly because it protects the lender while you pay for it. This guide explains when LMI applies, how to work out your loan-to-value ratio, and which official schemes let some buyers skip it. It was checked against official sources on 29 October 2026.

HomeLoansCalculator.au is a general information site run by Dominet BV. This page is general information only and is not financial advice. It does not consider your objectives, financial situation or needs. We are not a lender or a mortgage broker and we don't recommend any loan or insurer. Check with a licensed professional or the lender before you act. Figures were checked on 29 October 2026. Read our general information notice. We don't publish LMI premiums because they are set by lenders and insurers and there's no official premium table.

What LMI is

Moneysmart's glossary describes LMI as insurance that protects a credit provider if the borrower can't repay the loan. It's usually a one-off cost, payable when the amount borrowed is more than 80% of the property's value. Moneysmart is blunt about who it's for: LMI does not benefit the borrower, it only protects the lender.

That last point matters. If you can't repay and the home is sold for less than you owe, LMI pays the lender. It doesn't cover your repayments and doesn't protect you from losing the home.

The 80% line and your LVR

The loan-to-value ratio (LVR) is the size of your loan compared with the value of the property, as a percentage.

LVR = loan amount ÷ property value × 100

Moneysmart's deposit page gives an example: borrowing $450,000 to buy a $600,000 home is an LVR of 75%. It says the lower your LVR, the lower your costs and the better your chance of approval. If your LVR is above 80%, you may need to pay LMI.

The "property value" is usually the lender's valuation, which can be lower than the price you pay. If the valuation comes in low, your LVR goes up even though your deposit hasn't changed.

Worked example 1 (example figures). You're buying a $700,000 home with a $70,000 deposit.

• Loan: $700,000 − $70,000 = $630,000
• LVR: $630,000 ÷ $700,000 = 90%
• To get to 80%, the loan can be at most $700,000 × 80% = $560,000
• Deposit needed for 80%: $700,000 − $560,000 = $140,000

Worked example 2, deposit needed for an 80% LVR (example figures).

These deposits don't include stamp duty, legal fees and other buying costs. Moneysmart suggests a savings goal of 20% of the price plus enough for those costs. See stamp duty by state.

How LMI is paid

Moneysmart's deposit page says you pay LMI at settlement, or your lender adds it to your loan. Adding it to the loan means you don't need the cash upfront, but you then pay interest on it for the life of the loan, and it raises your LVR further.

Worked example 3, the cost of adding LMI to the loan (example figures). At 6.5% over 30 years, each $1,000 added to the loan raises the monthly repayment by about $6.32. Over the full term you repay about $2,275 for each $1,000 borrowed, so about $1,275 of interest. Whatever premium your lender gives you, multiply it by these figures to see what capitalising it costs at that rate. A different rate or term gives different results.

What affects the premium

There's no official LMI premium table. Lenders arrange LMI through an insurer or their own scheme, and the premium is worked out for your loan. In general terms, it depends on how much you borrow and how far above 80% your LVR is. Ask the lender for the LMI cost in writing before you commit, and include it in your total buying costs.

APRA's April 2026 submission to a Senate committee notes that APRA hasn't set formal limits on high-LVR lending, but under its capital framework higher-LVR loans attract higher capital requirements because they carry more risk. That's one reason lenders treat small-deposit loans differently.

Ways buyers avoid or reduce LMI

These are the routes described on official sites. Whether any applies to you depends on your circumstances and the lender.

Save a 20% deposit

Moneysmart's buying a house page says a 20% deposit can help you avoid mortgage insurance.

The Australian Government 5% Deposit Scheme

Under this scheme the government guarantees part of the loan, so eligible buyers can borrow up to 95% of the property value without LMI. Since 1 October 2025 it has no income caps or waitlists. Single parents and legal guardians may buy with a 2% deposit. Price caps apply by area. Our first home buyer schemes guide has the caps and eligibility rules.

Worked example 4 (example figures). A $600,000 home with a 5% deposit of $30,000 means a $570,000 loan, an LVR of 95%. Under the scheme, there's no LMI. At 6.5% over 30 years the repayment would be about $3,602.79 a month.

The scheme's Information Guide says the guarantee ends in some situations, including when your loan balance drops to 80% or less of the property value based on scheduled repayments. In this example, with scheduled repayments only, that would take about 124 months, or roughly 10 years and 4 months. The guide also says that if the guarantee ends while your LVR is still above 80%, for example because you rent out the home or move out without an exemption, your lender may charge LMI or other costs.

A family guarantee

Moneysmart's ways to buy a home sooner page says a guarantor uses part of their own property as security for your loan, sometimes only for part of it, such as the deposit. This can help you buy sooner with a smaller deposit. Moneysmart also warns that the guarantor takes on financial risk and that everyone should get independent legal advice first.

LMI when you refinance

LVR matters again when you switch loans. Moneysmart's switching page says that if you have less than 20% equity, you may have to pay LMI on the new loan, which can outweigh the saving from a lower rate. It suggests asking for a partial refund of LMI on your current loan if you switch.

Worked example 5 (example figures). Your home is now valued at $750,000.

• You owe $630,000: LVR = $630,000 ÷ $750,000 = 84%, above 80%, so LMI may apply to a new loan
• You owe $600,000: LVR = $600,000 ÷ $750,000 = 80%, at the line

See refinancing costs for how to include LMI in a break-even check.

What this means for you

• Work out your LVR using a realistic valuation, not just the price you hope to pay.
• If you're above 80%, ask the lender for the LMI cost and add it to your buying costs.
• If you add LMI to the loan, you'll pay interest on it for years. Use the figures above to see the cost.
• Check if you're eligible for the 5% Deposit Scheme before you pay LMI.
• When refinancing, check your LVR on the new valuation before you apply.

Use the LMI calculator to work out your LVR and the deposit you need, or check what you can borrow with the borrowing power guide. You can also go back to the calculators hub.

Frequently asked questions

When do I have to pay LMI?

Moneysmart says LMI usually applies when you borrow more than 80% of the property's value. The government's 5% Deposit Scheme removes LMI for eligible buyers.

Does LMI protect me if I can't make my repayments?

No. Moneysmart says LMI only protects the lender. If you're struggling with repayments, contact your lender early and look at Moneysmart's help on problems paying your mortgage.

How much does LMI cost?

It depends on the lender, the insurer, your loan amount and your LVR. There's no official premium table, so we don't publish estimates. Ask your lender for the amount in writing.

Can I add LMI to my home loan?

Moneysmart says you can pay it at settlement or your lender can add it to the loan. If it's added, you pay interest on it. At 6.5% over 30 years, each $1,000 added costs about $6.32 a month.

How do I work out my LVR?

Divide the loan amount by the property value and multiply by 100. A $630,000 loan on a $700,000 home is 90%. The lender usually uses its own valuation.

Can I avoid LMI without a 20% deposit?

Possibly. Official options include the Australian Government 5% Deposit Scheme for eligible buyers, which allows a 5% deposit (or 2% for single parents) with no LMI, and a family guarantee, which Moneysmart describes along with its risks.