What LMI is — and isn't
Lenders Mortgage Insurance is a one-off insurance premium that protects the lender, not you, if you default on the loan and the proceeds of the property's sale don't cover the outstanding debt. The bank is the beneficiary of the policy; you pay for it. If your home is foreclosed and sold at a loss, the LMI insurer compensates the bank — and then has the right (called subrogation) to pursue you for the shortfall. LMI doesn't protect you, your equity, or your credit file.
It's worth getting that distinction out of the way because the name is misleading. Two LMI providers dominate the Australian market: Helia (formerly Genworth Financial Mortgage Insurance) and QBE LMI. Their rate sheets differ slightly cell-by-cell but cover roughly the same risk-pricing principles.
When LMI applies
The trigger is your Loan-to-Value Ratio (LVR). LVR is loan amount divided by the lower of contract price and bank valuation. If LVR is 80% or below — meaning you're putting at least 20% down — no LMI applies. From 80.01% upward, LMI is required by APRA's prudential rules on every regulated lender's residential mortgage book unless an alternative credit-enhancement is in place (a guarantor, the First Home Guarantee, or a professional waiver — see below).
Note that LVR is calculated on the lower of contract and valuation. If you pay $1.0M for a property the bank values at $960,000, your LVR is loan ÷ $960,000, not loan ÷ $1,000,000. That can push LMI requirements into play even if your deposit looks like 20% on the contract.
How much LMI costs
Premiums are quoted as a percentage of the loan amount, scaled by LVR band and loan size. Rough Helia ranges for an owner-occupier P&I loan in 2026:
| LVR | Premium rate (rough) | Premium on $600K loan |
|---|---|---|
| 80.01–85% | 0.4–0.8% | $2,400–$4,800 |
| 85.01–90% | 1.0–1.8% | $6,000–$10,800 |
| 90.01–95% | 2.5–4.0% | $15,000–$24,000 |
| Investor / SMSF overlay | +15–25% on top | — (varies) |
Most states then levy a stamp-duty surcharge of 9–11% on the LMI premium itself (the ACT and NT don't). On a $15,000 premium that's another $1,350–$1,650, taking total LMI cost to about $16,500. Some lenders also charge an "LMI funder fee" of $200–$600 on top.
Why the premium curve isn't linear
LMI premiums rise non-linearly with LVR. The reason is the tail-loss exposure of the insurer. In a default-and-forced-sale scenario, realisable resale value can fall 10–25% below the original purchase price in a soft market — so a 95% LVR loan can leave the insurer covering a loss of 15–20% of the property value, while an 85% LVR loan leaves them covering essentially nothing.
The result is that the last 5% of LVR (90% → 95%) is the most expensive 5% you can borrow. On a $700,000 loan, the LMI gap between 90% LVR and 95% LVR is typically $13,000–$15,000 — roughly the same as saving an extra $35,000 of deposit would have produced in cash savings if held at typical mortgage offset interest savings over a few years.
Capitalising vs paying upfront
Most lenders allow you to capitalise the LMI premium onto the loan rather than paying it from cash at settlement. The trade-off:
- Pay upfront: more cash needed at settlement, no interest on the premium over the life of the loan. Better if you have spare cash.
- Capitalise: less cash needed at settlement, but you pay interest on the premium for the life of the loan. On a $25,000 LMI premium capitalised onto a 30-year, 6% loan, you'll end up paying about $54,000 over the life of the loan — more than double the upfront premium.
The capitalised LMI also slightly raises your LVR at settlement (because the loan is bigger). For high-LVR borrowers, the capitalisation can push the LVR over 95% — at which point some lenders won't approve at all without a guarantor or government scheme.
Five ways to avoid LMI
- Save a 20% deposit. The straightforward route. Plus stamp duty, legal fees, building & pest, and a buffer for moving costs.
- First Home Guarantee (FHG). Federal scheme administered by Housing Australia for eligible first home buyers. Allows a 5% deposit with no LMI; the government guarantees the slice of the loan from 80% to 95% LVR. Income caps ($125K single, $200K couple) and a location-specific property price cap apply. Place numbers are uncapped for 2024–25 onward. Pairs with state FHB stamp-duty concessions.
- Family Home Guarantee (single parents). A separate scheme for single parents and single legal guardians with at least one dependent child, allowing a 2% deposit and no LMI. Income cap $125K. Property price caps similar to FHG.
- Guarantor loan. A close family member (usually a parent) pledges equity in their own home as security for the slice of your loan above 80% LVR. The effective LVR on your property is treated as 80% and the rest secured by the family equity. Result: no LMI. The guarantor is at risk if you default and a forced sale doesn't recover the full debt. Most lenders structure the guarantee to fall away once your LVR reaches 80% through repayments and growth.
- Professional LMI waiver. Some lenders waive LMI up to 85% or 90% LVR for borrowers in selected professions (medical specialists, dentists, vets, accountants, lawyers, some engineering disciplines). Income, qualification-period and current-employment verification required. Always compare the waiver-eligible lender's rate against the cheapest non-waiver alternative — sometimes the rate premium exceeds the LMI saving.
LMI and refinancing
LMI does not "follow you" if you refinance to a new lender. If your LVR is still above 80% when you refinance, the new lender will require a fresh LMI premium based on its provider's schedule at the refinance LVR. Some lenders offer "LMI portability" within their own brand for a small administrative fee, but it's rare across institutions.
A useful rule of thumb: don't refinance while your LVR is above 82% unless the rate savings clearly exceed the new LMI cost. If you must refinance, ask the new lender whether they can credit any unused portion of your original LMI premium (a small number do, most don't), and verify whether the new LMI provider is Helia or QBE — the cheaper of the two for your LVR band can save you several thousand.
Tax treatment
For owner-occupied property, LMI is not tax-deductible. The premium and its associated stamp duty are simply costs of borrowing.
For investment property, LMI is a "borrowing cost" under section 25-25 of the Income Tax Assessment Act 1997. It is deductible against your rental income, but amortised over the lesser of (a) five years from the date the loan is established, and (b) the loan term. So a $15,000 LMI premium on a 30-year investor loan is typically claimed at $3,000 per year for the first five years. If the loan is repaid or refinanced within five years, any unclaimed balance becomes deductible in the year of repayment. Always confirm with a registered tax agent — particularly if your loan changes structure during the deductible period.
The AussieCalc LMI calculator estimates premiums using composite Helia and QBE schedules plus your state's premium-stamp-duty surcharge.
Frequently asked questions
Is LMI a one-off or recurring cost?
One-off, paid at settlement (either from cash or capitalised onto the loan). There's no monthly LMI payment. If you sell, refinance to a different lender, or otherwise discharge the loan early, the LMI policy is also discharged — though there's no significant refund except in very limited early-discharge circumstances.
How much LMI is refundable if I sell within a year?
A small partial refund is sometimes available if you discharge the loan within the first one or two years — typically a small percentage of the original premium. After two years, no refund is typical. Don't budget around expecting a refund.
Do all lenders use the same LMI rates?
No. Lenders pick either Helia or QBE as their primary provider; rate sheets differ. The same $700K loan at 90% LVR might attract a premium that's a few hundred dollars different between Helia and QBE. Brokers can sometimes shop a deal between lenders that use different providers.
Does the bank's valuation set my LVR or the contract price?
LVR is loan divided by the lower of contract price and bank valuation. If the bank's valuation comes in below contract, your effective LVR rises and LMI may apply (or be higher) even if your cash deposit looked like 20% on the contract price.
Can I be charged LMI on top of a guarantor loan?
Not on the slice covered by the guarantor, no. The guarantor structure effectively caps your direct LVR at 80% with the rest secured by the guarantor's equity. Once your direct LVR falls to 80% through repayments and value growth, the guarantor's exposure can be released.
What's the difference between LMI and mortgage protection insurance?
Different products. LMI protects the lender if you default. Mortgage protection insurance (also called loan protection insurance) is optional cover that you buy to protect yourself — typically pays your mortgage repayments for a period if you lose your job, become disabled, or die. Only LMI is required by the lender at high-LVR.
Is LMI charged on commercial property?
LMI as discussed here applies to residential property loans. Commercial property loans typically have lower maximum LVRs (60–70%) and use different mortgage insurance products or self-insurance structures.
What's the cheapest way to avoid LMI if I'm not a first home buyer?
The guarantor structure if a family member is willing and has sufficient equity. Otherwise, build a 20% deposit. The professional waiver is the third option but only available in selected occupations. The First Home Guarantee is FHB-only.