Lenders mortgage insurance (LMI) explained

What is lenders mortgage insurance?

Lenders mortgage insurance is a one-off premium a lender charges when your loan is more than 80% of the property's value. It insures the lender against loss if the loan is not repaid and the property sells for less than the debt. You pay it, but you are not the one covered.

It is not mortgage protection insurance. Mortgage protection is a separate product a borrower buys to cover their own repayments if they cannot work. LMI covers the lender only, which is why it can be charged to you and still leave you owing money after a forced sale.

How much does LMI cost?

The premium is set by the insurer as a rate per $1,000 of the loan, read off a grid with two axes: how much you are borrowing, and your loan to value ratio. Both push the number up and they compound, so the premium climbs far faster than the loan does. Duty on the premium is added on top in most states.

The figures below are indicative only. They are produced by the Ratesniffers LMI calculator, which applies a blended owner-occupier premium grid plus an allowance for duty on the premium. They are not a quote from any insurer. Your own lender's grid, your employment type, and whether the loan is owner-occupied or an investment all move the number, and investor and self-employed lending carries a loading at most insurers.

Two patterns matter more than the exact dollars. Lifting a 10% deposit to 15% cuts the indicative premium by roughly 40% to 50% at every price in the table, and the step from 90% to 95% roughly doubles it.

• The premium is calculated on the whole loan and your LVR, not on the slice above 80%. CommBank puts it as calculated on the size of your deposit and how much you borrow.
• Duty on the premium is a state charge and is not part of the insurer's rate.
• Run your own price and deposit through the LMI calculator before deciding which side of a band to aim at.

Who does LMI protect?

The lender, and only the lender. The Insurance Council of Australia states that LMI covers the lender, not you or any guarantor, even though the lender will usually pass on the cost to you, and that you cannot make a claim under the policy: only the lender can.

That matters most in the worst case. If repayments stop and the property sells for less than the loan balance, you still owe the shortfall. The insurer pays the lender, then has the right to seek that amount from you directly rather than the lender doing so. LMI insurers have hardship policies and can arrange a deferral or a payment plan, so contacting the insurer early is what changes the outcome.

LMI exists because a lender carries more risk on a loan above 80% LVR. Transferring part of that risk to an insurer is what makes a high LVR loan available at all, which is the trade the premium buys.

How can I avoid paying LMI?

There are four routes. Only the first is open to everyone.

• A 20% deposit. At 80% LVR or below, mainstream lenders do not charge LMI and you reach the widest range of products. ASIC MoneySmart puts the trigger plainly: if your LVR is above 80%, you may need to pay lenders mortgage insurance.
• The Australian Government 5% Deposit Scheme. From 1 October 2025 the scheme has no income caps, no waitlists and no lenders mortgage insurance. Eligible first home buyers can settle with a minimum 5% deposit and eligible single parents or single legal guardians with a minimum 2%, because the government guarantees the portion of the loan above 80%. Property price caps apply by location, the property has to be lived in as an owner occupier, and applications go through a participating lender rather than direct to Housing Australia.
• A family guarantee. A relative offers equity in their own property as extra security so the bank loan sits at or under 80% of the combined security. No premium is charged, but the guarantor takes on legal liability for the portion their security covers.
• A profession based waiver. A small number of lenders waive LMI for named occupations. Every one of them carries gates, set out below.

Which lenders waive LMI for certain professions?

A waiver is a policy of the individual lender, not an industry rule, and each one is narrower than the headline suggests. These are the published terms as at 3 September 2026. Confirm your own position with the lender before relying on any of them.

A waiver removes the premium, not the pricing. Bank First states that its loans above 80% LVR carry a higher interest rate than its sub-80% tier, so weigh the premium removed against the tier you land in over the years you expect to hold the loan.

Is LMI refundable?

Generally no. CommBank describes LMI as a one-off, non-refundable, non-transferrable premium added to your home loan, and that is the standard treatment across the market. Paying down the loan below 80% LVR later does not trigger a refund, because the premium was a single charge at settlement rather than an ongoing fee.

The consequence borrowers miss is what happens on a switch. The premium buys cover for that lender on that loan. Refinance to a different lender while still above 80% LVR and a fresh premium is charged from the start; nothing carries across. If you are close to the 80% line, getting under it before you switch can be worth more than the rate gap you are switching for. Compare current refinance rows against your own loan before deciding.

Whether any partial refund applies very early in a loan is a term of the individual policy rather than a market rule, so ask the lender in writing rather than assuming one exists.

Can I capitalise LMI into the loan?

Usually yes, and at many lenders it is the default. The Insurance Council of Australia notes the cost can be included as part of the loan, and CommBank describes the premium as added to your home loan. That keeps cash in your pocket at settlement.

It is not free. Capitalising means the premium is borrowed too, so it attracts interest for as long as it sits in the balance, and the true cost is more than the premium alone. It also lifts your LVR at the moment the loan starts, which can push you into a higher premium band or past a lender's LVR ceiling before you have made a single repayment.

Two things worth confirming with the lender: whether capitalising the premium is allowed to take the loan above their maximum LVR, and whether paying it in cash at settlement is an option if you have the funds. Where the premium is capitalised, extra repayments early in the loan are what cut its interest cost. Model the difference with the repayment calculator.

LMI versus a family guarantee

These are the two mainstream ways to buy above 80% LVR without a government scheme, and they solve the same problem from opposite directions. One insures the lender against the risk; the other removes the risk by adding security.

A guarantee is not the soft option. It is a legal liability attached to someone else's home, and releasing it depends on the property value and your loan balance both moving the right way.

LMI questions people ask

The answers below are general information about how LMI is normally treated in Australia. The premium, the waiver terms and the scheme settings all vary by lender and by your own circumstances, so confirm your position with the lender before acting on any of it.

Do I pay LMI again when I refinance?

Yes, if the new loan is above 80% LVR at the new lender. The premium is not transferrable, so a switch above the line means a fresh premium calculated from scratch on the new loan and the new LVR. Below 80% LVR no premium applies, which is why the value of your property at the time you switch matters as much as the rate you are switching to.

Does LMI protect me if I lose my job?

No. LMI covers the lender against a shortfall after a forced sale. It pays the lender nothing towards your repayments and gives you no cover at all. Insurance that covers your own repayments is a separate product you buy for yourself, and it is not what the LMI premium is paying for.

Can I get a home loan with a 5% deposit and pay LMI?

For most mainstream lenders, yes. A 95% LVR loan is the usual floor and LMI applies at its steepest band, with some lenders adding a higher rate tier and some requiring the premium in cash rather than capitalised. Eligible first home buyers can avoid the premium entirely through the Australian Government 5% Deposit Scheme instead. The deposit guide sets out what each deposit size actually costs.

Does LMI stop once my LVR drops below 80%?

There is nothing to stop. LMI is charged once at settlement, not monthly, so repaying the loan down or a rise in the property's value does not reduce or refund it. What crossing back under 80% does change is your position on a future refinance, where no new premium would be charged.

Does every lender charge LMI above 80% LVR?

Most do, but not all in the same form. CommBank, for example, charges either LMI or its own Low Deposit Premium depending on the circumstances of the loan, including when the loan is restructured, topped up or refinanced. Others waive the premium for named professions, and the Australian Government 5% Deposit Scheme removes it for eligible first home buyers. Which applies is a question for the specific lender.

Is LMI worth paying?

It depends on what waiting costs. The premium is real money and it is not recoverable, but so is another year or two of rent while prices and your target deposit both move. The comparison that answers it is the premium at your deposit size, plus any higher rate tier above 80% LVR, against the cost of waiting to reach 20%. Work the first half of that with the LMI calculator and the borrowing power calculator; the second half depends on assumptions no calculator can settle for you.

This information is general only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you before acting on it.