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LMI: when you pay, when you don't, and how to avoid it

Lenders Mortgage Insurance (LMI) protects the lender, not you, against default when your LVR is above 80%. The borrower pays the premium - either upfront or added to the loan - and it’s usually the second-largest cost of a purchase after stamp duty.

Who charges what

LMI is provided by two main insurers: Helia (formerly Genworth) and QBE. Most big four lenders use Helia; others use QBE or an in-house LMI scheme. Premiums vary by lender, LVR and loan size.

Indicative premiums

On a $700,000 purchase (80% deposit would be $140,000):

  • 10% deposit (90% LVR): ~$17,000 LMI
  • 5% deposit (95% LVR): ~$28,000 LMI
  • 5% deposit on a $900,000 purchase: ~$36,000 LMI

These are indicative. Each lender runs their own schedule, and a borrower with strong servicing can sometimes negotiate 5-10% off the premium.

Three ways to waive LMI entirely

1. Family guarantee. A parent pledges equity in their property to cover the gap. You borrow the full purchase price at 80% LVR against combined security. LMI is avoided. The parent takes on guarantor risk; the amount guaranteed is usually 20% of the purchase price plus costs.

2. Professional LMI waiver. A handful of lenders waive LMI to 90% LVR for doctors, dentists, accountants, lawyers and a narrow list of other occupations. Westpac, ANZ, CBA, NAB, St George, Bank of Melbourne and Macquarie all have professional policies - terms vary.

3. First Home Guarantee. The federal government underwrites 15% of the purchase price for eligible first-home buyers, allowing 5% deposit without LMI. Income caps apply (currently $125k single / $200k couple) and there are 35,000 places per year.

The workaround: capitalise and save

If none of the three waivers apply, you can capitalise LMI into the loan (up to 95% LVR plus the LMI itself). This means you pay LMI out of future repayments rather than from your deposit savings. The interest cost over 30 years is real, but it gets you into the market now.

When LMI is actually good value

On a rising market, paying $28,000 of LMI to get in a year earlier at $700,000 (vs waiting to save 20% and paying $770,000 later) is mathematically a win. The break-even point is roughly 4% annual capital growth over the wait period.

When to avoid LMI at all costs

Flat or falling markets. If prices are stable, the LMI is a pure cost - you gain nothing from entering early. In these conditions, topping up savings to 20% or waiting for one of the three waivers is almost always the better move.