Lenders Mortgage Insurance (LMI) is a one-off premium that protects the lender — not you — if you default and the property sale doesn't cover the debt. It generally applies when your deposit is below 20% of the property value. You can avoid it with a 20% deposit, or through government schemes like the First Home Guarantee (5% deposit) or Family Home Guarantee (2% deposit for eligible single parents).
When Does LMI Apply?
Lenders generally require LMI when your loan-to-value ratio (LVR) is above 80% — in other words, your deposit is below 20% of the purchase price. The higher your LVR (the smaller your deposit), the higher the LMI premium as a percentage of your loan, since the lender is taking on proportionally more risk.
How Much Does LMI Cost?
LMI cost depends on your loan amount and LVR — it can range from under 1% to several percent of the loan amount, and can add anywhere from a few thousand to tens of thousands of dollars to your upfront costs on a typical Sydney property purchase. Most lenders allow you to capitalise the premium into your loan rather than pay it upfront, though this means you pay interest on the LMI premium as well over the life of the loan.
Ways to Avoid or Reduce LMI
- A 20% deposit — the standard way to avoid LMI entirely.
- First Home Guarantee (HGS) — eligible first home buyers can purchase with as little as a 5% deposit with no LMI, subject to place availability and price caps.
- Family Home Guarantee — eligible single parents can purchase with as little as a 2% deposit without LMI.
- Professional waivers — some lenders waive or discount LMI for certain professions (e.g. select medical practitioners) even with a smaller deposit, subject to lender policy.
- Guarantor loans — a family member's property equity can sometimes be used as additional security to avoid LMI, subject to lender policy and legal advice for the guarantor.
Is LMI Ever Worth Paying?
Sometimes. If waiting to save a full 20% deposit means missing years of potential property value growth, paying LMI to enter the market sooner can be a reasonable trade-off for some buyers — it depends on your specific numbers and the property market at the time. This is a decision worth modelling properly rather than assuming either path is automatically better.
Frequently Asked Questions
Related reading: First Home Buyer Loans · First Home Buyer Guide 2026 · Borrowing Power Explained