Lenders Mortgage Insurance (LMI) is a common term you’ll hear when applying for a home loan or refinancing an existing mortgage. For many Australians, it represents an additional cost that can add thousands of dollars to the overall loan amount.
In this guide, we’ll break down what LMI is, why it’s charged, and when it applies. You’ll also learn practical strategies to minimise or avoid paying LMI — including through government-backed schemes, guarantor loans, and refinancing options as your property equity grows.
What is Lenders Mortgage Insurance (LMI)?
Lenders Mortgage Insurance (LMI) is an insurance policy that protects the bank or lender, not the borrower. It’s usually required when your deposit is less than 20% of the property’s purchase price.
In other words, if your Loan-to-Value Ratio (LVR) is above 80%, the lender sees your loan as higher risk and charges LMI to cover that risk.
Example:
- Property price: $600,000
- 20% deposit: $120,000
- Deposit available: $60,000 (10%)
- Likely LMI cost: around 1% to 3% of the loan amount, or roughly $6,000 to $18,000 depending on your lender, insurer, LVR, property, and loan amount.
Why Do Lenders Charge LMI?
Lenders charge LMI to protect themselves in case a borrower defaults on their home loan and the property is sold for less than the outstanding balance. The insurer compensates the lender for the shortfall, not the borrower.
While LMI doesn’t protect you as the borrower, it can still help you enter the property market sooner, especially for first-home buyers who haven’t yet saved a full 20% deposit.
A qualified mortgage broker can help you:
- Compare lenders’ LMI policies and premiums
- Explore government-backed low-deposit schemes and guarantor options
- Structure your loan strategically to reduce or avoid LMI costs
When Do You Need to Pay LMI?
You’ll generally need to pay LMI when your home loan deposit is less than 20% of the property’s value, meaning your Loan-to-Value Ratio (LVR) is above 80%.
Some lenders may offer no-LMI or reduced-LMI options for certain eligible professions such as doctors, accountants, lawyers, engineers, and nurses. These offers depend on each lender’s policy and may also be available through limited-time promotions.
Speaking with a qualified mortgage broker can help you find whether you qualify for such options and potentially save thousands.
How to Avoid or Reduce Lenders Mortgage Insurance (LMI)
There are several ways to avoid or reduce LMI with the right approach.
1. Save for a 20% Deposit
Traditionally, saving a 20% deposit is the most direct way to avoid paying LMI and keep your LVR at 80% or below.
However, with rising property prices, other pathways such as government deposit schemes, guarantor loans, or special lender offers may help you enter the market sooner.
2. Use the Australian Government 5% Deposit Scheme (No LMI)
Under the Home Guarantee Scheme (HGS), eligible buyers can purchase a home with a smaller deposit while avoiding the cost of LMI.
Programs include:
- First Home Guarantee (FHBG): Buy with as little as a 5% deposit and no LMI, with the government guaranteeing up to 15% of the loan.
- Family Home Guarantee (FHG): For single parents or guardians with at least one dependent, allowing purchase with just a 2% deposit and no LMI.
- Regional First Home Buyer Guarantee (RFHBG): Helps eligible regional buyers purchase with a 5% deposit and no LMI.
A mortgage broker in Mickleham can assess your eligibility and guide you through the process with participating lenders.
3. Explore Special No-LMI or Reduced-LMI Packages
Some lenders offer professional packages or promotions where LMI is waived or discounted for specific occupations such as doctors, engineers, lawyers, or nurses.
Depending on the policy, you may be able to borrow up to 90–95% of the property value without paying LMI.
4. Consider Refinancing as Your Equity Grows
As your property value increases or your loan balance decreases, your equity improves. You may be able to refinance to:
- Access lower interest rates
- Release equity for renovations or investments
- Avoid paying LMI on future loans
5. Use a Guarantor Loan
A guarantor loan allows a close family member to use equity from their property as additional security for your loan.
This helps you meet the 20% deposit requirement and avoid LMI completely.
However, your guarantor becomes legally responsible for the guaranteed portion if you can’t meet repayments, so professional advice is essential.
Conclusion
Lenders Mortgage Insurance (LMI) can add significant costs to your home loan, but it’s often avoidable.
By leveraging government deposit schemes, professional packages, or strategic refinancing, you can make your path to homeownership smoother and more affordable.
Partnering with an experienced Mortgage Broker in Mickleham ensures you receive expert guidance tailored to your situation, helping you avoid or minimise LMI and achieve your property goals sooner.
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