What is LMI, and do I actually have to pay it?

Bayley Clarke · Mortgage broker on the road · Last checked 12 November 2026 · 7 min read

The short answer

LMI is insurance you pay for that protects the bank, not you, when you borrow more than 80% of the property's value. You only have to pay it if none of the ways around it fit you.

It's a once-off cost, usually added to the loan, and it climbs as your deposit shrinks, into the tens of thousands on a 95% loan. Before anyone pays it, check the 5% Deposit Scheme, a family guarantee and a profession waiver. If none of those fit, it becomes a numbers call: pay it now, or keep saving while prices move.

What LMI is: it protects the bank, not you

If you can't keep up the repayments and the bank sells the property for less than you owe, LMI covers the bank's loss. You pay the premium, the bank gets the protection. It kicks in above 80% of the property's value because that's where the bank's cushion gets thin. Not every lender does it the same way either: most use an insurance premium, a few charge their own once-off fee instead, and a small number charge nothing up to 90% for the right borrower. Which door you walk through can matter more than the rate. More in How much does lenders mortgage insurance cost, and can I add it to my loan?

Want your LMI figure vs the wait-and-save figure side by side?

Half an hour. I check the scheme, guarantor and waiver exits first, and if LMI is still in play you'll see the real quoted cost next to how long saving 20% would take.

Book a 30 minute call Call 0437 189 939

No application, no credit check, nothing on your file. Just the numbers.

How much is LMI, and can you add it to the loan?

Nobody can quote you an exact figure off the bat, because the premium is set by the insurer per deal, off your loan size, your LVR and the type of borrower you are. That's why every online calculator gives a different answer. The shape is consistent though: just over 80% it may not be much, it creeps up towards 90%, and above that it climbs fast. At almost every lender it can be added to the loan rather than paid in cash, and most people do, because the deposit was tight to begin with. The trade-off is interest on the premium over the life of the loan, and the fine print matters: some lenders count the premium inside their maximum loan, others let it sit on top, which changes how much you can actually borrow from the same deposit.

Pay LMI or keep saving?

Twenty percent of a property isn't a fixed number. It's a share of a price that moves. In a rising market, every month you save, the target grows too, and you can end up chasing a train that's already left the station. In a flat market, saving often wins. So we put both columns on paper: the loan with LMI today, and how long 20% would take with prices doing whatever they do. Nobody can promise the market, including me: Should I pay LMI or keep saving for 20%?

Then there's choosing between lenders once LMI is in play. One might charge less insurance and a higher rate, another the reverse. Insurance is paid once and the rate is paid every month, so we compare the total over a realistic timeframe and a shorter one: Should I pick the lender with the cheapest mortgage insurance or the cheaper rate? How do I decide?

How to avoid LMI: the 5% scheme, a guarantor, a profession waiver, or 20%

The government 5% Deposit Scheme lets eligible first home buyers buy with a 5% deposit and no LMI, because the government guarantee stands in for it. The main catch is you have to live there, so no renting it out while the guarantee is on, and you stay in until the loan gets back to 80%: What is the catch with the 5% scheme?

A guarantor does the same job with family security instead of a government one, and you can't stack the two: every lender that documents both treats a guarantor loan as ineligible under the scheme. Which fits depends on your deposit and the property: Guarantor loan or the government 5% scheme: which one is best?

Then the profession waivers. Roughly a third of the lenders I work with waive LMI for certain occupations, typically to 90%, and the lists don't match. The same registered nurse is excluded at one big lender and waived at another: Do doctors, nurses and lawyers get LMI waived?. The full breakdown by job lives in the guide for doctors, nurses and lawyers, and if you're weighing up whether you really need 20% at all, start with you don't need a 20% deposit.

LMI when you refinance, and refunds

LMI doesn't follow you to a new lender. Refinance while you're still above 80% and the new loan may cop a fresh premium, which is why for plenty of people the right move is to wait until they're back under the line: Can I refinance if my value dropped or my LVR is over 80%?

Some lenders do refund part of the premium if the loan is paid out early, generally on a sliding scale inside the first year or two, and usually calculated on the premium without the stamp duty, which isn't refunded. Plenty refund nothing. So the real maths is any refund, minus any new LMI, minus switching costs, against what the new loan saves: Can I get a lender's mortgage insurance refund if I pay out the loan early or refinance?

What is 80% LVR, and why is it the line?

LVR is your loan divided by the property's value. Borrow $480k on a $600k place and you're at 80%, the standard home loan the whole market is built around. Borrow $570k and you're at 95%, a 5% deposit. At 80% or under you're generally not paying LMI or a higher rate for the risk. Paying the loan down and values rising both push your LVR lower over time: What is LVR, and why does everyone go on about 80% LVR?

Below 80% the steps keep going, and a revaluation can sometimes drop you into a better band. Getting from 90% to under 80% is the big one, because it takes you out of LMI territory altogether: What's an LVR tier, and can I get revalued to drop into a lower one?

The honest part

Twenty grand of insurance that protects the bank sounds outrageous, and for what it covers, it kind of is. But the comparison isn't LMI versus nothing. It's LMI now versus years more rent while the 20% target moves. I've seen it make sense and I've told people to wait. What I won't do is let anyone pay it before we've checked the scheme, the guarantor and the waiver lists, because that's where most of the avoidable LMI hides.

Want your LMI figure vs the wait-and-save figure side by side?

Tell me your deposit, your job and the price range. I'll check which ways around LMI fit you, and if none do, show you both columns on your numbers so you can choose.

Book a 30 minute call Call 0437 189 939

No application, no credit check, nothing on your file. Just the numbers.

Common questions about lenders mortgage insurance

How much is LMI?+

It depends on your loan size, your LVR and the insurer, and it's quoted per deal. Just over 80% it can be modest; on a 95% loan it can run into the tens of thousands.

Can I add LMI to my home loan?+

At almost every lender, yes. Most people do. You then pay interest on the premium, and some lenders count it inside their maximum loan while others let it sit on top.

How do I avoid paying LMI?+

Borrow 80% or less, or check the three exits: the government 5% Deposit Scheme if you're eligible, a family guarantor, or a profession waiver at a lender whose list includes your job.

Do I get LMI back if I refinance?+

Sometimes. Some lenders refund part of the premium on a sliding scale if the loan is paid out in the first year or two. Many refund nothing, and a new lender may charge fresh LMI if you're still over 80%.

Should I pay LMI or keep saving for 20%?+

It's a numbers call. Compare the loan with LMI today against how long saving 20% would take while prices move. In a rising market the insurance is often the cheaper option; in a flat one, saving can win.

Next question

You don't need a 20% deposit

Every way into the market with less than 20% down, and what each one costs.