What LMI actually is
Lenders Mortgage Insurance protects the lender, not you. When your deposit is under 20% (an LVR above 80%), the bank takes on more risk, so it makes you pay a one-off premium that insures it against loss if you default and the sale doesn't clear the debt. You pay for the cover but receive none of it — the trade-off is that LMI lets you buy years sooner than saving a full 20% would.
How the premium is worked out
Two things drive the cost: your LVR and your loan size. The premium is a percentage of the loan that rises sharply as LVR climbs — small near 81%, and several times larger by 95%. A bigger loan also attracts a higher rate. As a rough guide on a $600,000 loan, expect around $13,800 at 90% LVR and over $23,000 near 95%.
| LVR | Indicative premium (% of loan) |
|---|---|
| 80.01–85% | ~0.9% – 1.6% |
| 85–90% | ~1.6% – 2.9% |
| 90–95% | ~3.0% – 4.4% |
Representative mid-market figures for an owner-occupier, principal-and-interest loan. Actual premiums are set by the insurer and vary by lender, term and borrower type.
How to avoid or cut it
The clean way is a 20% deposit (80% LVR). Short of that, a guarantor — a family member pledging equity — can drop your effective LVR below 80% and remove LMI entirely. Eligible first home buyers can use the federal Home Guarantee Scheme, where the government covers the gap above 80% so no LMI is charged. It runs Australia-wide, but has property price caps that vary by location (for example $1,500,000 in Sydney and $850,000 in Perth for 2026) and other eligibility rules; our deposit guide sets out the current figures. Some lenders also waive LMI for certain professions such as doctors, accountants and lawyers.
Capitalising and refunds
Most lenders let you add the premium to the loan rather than pay it upfront — convenient, but it then accrues interest for the life of the loan. LMI is largely non-refundable: a partial refund may apply only if you repay within the first year or two, and the policy doesn't transfer if you refinance to a new lender, so switching early can mean paying LMI twice.