Buying a home with less than a 20% deposit is common, but it can come with an extra cost: lenders mortgage insurance (LMI). Depending on your deposit and the price of the property, it can add anywhere from a few thousand dollars to tens of thousands to the cost of getting in. Whether you’ll pay it, how much it’ll cost and if there’s a way around it all depend on your situation.
What is LMI and how does it work?
Lenders mortgage insurance is a one-off insurance premium that lenders charge when you borrow more than 80% of a property’s value. It protects your lender if you can’t repay your loan and selling the property doesn’t cover what you owe. Having more of its money in the property means your lender stands to lose more in this situation.
Whether you pay LMI usually comes down to your loan to value ratio (LVR), which is the size of your loan as a percentage of the property’s value. A 15% deposit means you’re borrowing 85% of the value, so your LVR is 85%. Most lenders charge LMI once your LVR goes above 80%.
How much is LMI?
LMI can cost anywhere from a few thousand dollars to tens of thousands. You’ll find that the cost of your LMI premium rises as your deposit shrinks. On a $750,000 property, for example, it costs about 1% of the price with a 15% deposit, 2% with a 10% deposit and 3% with a 5% deposit.
What affects the cost of LMI
Your premium is set by the lender’s insurer and depends on:
- The size of your loan: a bigger loan means a bigger premium.
- Your LVR: the less you put down, the higher the premium rate.
- Whether you’re buying to live in or to invest: investment loans are seen as riskier, so they usually cost more.
- Whether you’re a first home buyer: some lenders offer a discount if you’re buying for the first time, but it varies.
- Your lender and its insurer: two lenders can quote different premiums for the same loan.
- The property’s value: the lender’s valuation, not your purchase price, is used in the calculation.
LMI estimates by deposit size
| Property value | 5% deposit (95% LVR) | 10% deposit (90% LVR) | 15% deposit (85% LVR) |
|---|---|---|---|
| $500,000 | $12,614 | $7,380 | $4,000 |
| $750,000 | $25,428 | $14,089 | $6,831 |
| $1,000,000 | $33,904 | $18,785 | $9,109 |
| Estimates from Helia’s LMI fee estimator for a 30-year owner-occupier loan for a first home buyer, correct as of November 2026. Premiums include GST and exclude stamp duty. These are for illustrative purposes only and may differ from what your lender charges. | |||
A bigger deposit reduces the premium quickly. Moving from a 5% to a 10% deposit on any of the above home values cuts the estimated LMI by over 40%.
How do I pay for LMI on my home loan?
There are two ways to pay LMI: upfront in cash or by adding it to your loan. If you pay upfront, your loan stays the same size, so your repayments and the interest you pay are unchanged. The catch is needing the extra cash at the same time as stamp duty and your other buying costs.
Adding the premium to your loan balance keeps more cash in your pocket on settlement day. However, you may end up paying significantly more in interest as a result. You can see the difference between the two on a 30-year loan at 6.50% p.a. for a $750,000 property in the table below:
Who can receive an LMI waiver in Australia?
There are four main ways to avoid paying LMI on a deposit below 20%. These are:
Work in an eligible profession
Some lenders waive LMI for borrowers in professions they see as lower risk. These are the groups that most commonly qualify:
- Medical professionals: doctors, surgeons, dentists and other medical practitioners
- Nurses, midwives and paramedics: at some lenders
- Legal professionals: solicitors, barristers and conveyancers
- Accounting and finance professionals: accountants, actuaries and financial planners
- Other professions: engineers and veterinarians through some lenders
Each lender sets its own list and not all offer waivers. You’re usually required to be currently working in the profession, hold the relevant registration or membership (such as AHPRA for health professionals), and earn above a minimum income.
Westpac, for example, offers a waiver to eligible registered nurses and midwives with a 10% deposit and an income over $90,000. Policies change, so check the current terms with the lender or a broker.
Australian Government 5% Deposit Scheme
Formerly known as the First Home Guarantee, the 5% Deposit Scheme lets eligible buyers purchase with a small deposit and no LMI. The government guarantees up to 15% of the loan, or up to 18% for single parents, which takes the lender’s exposure down to the equivalent of a 20% deposit.
To be eligible, you must:
- Be at least 18 and an Australian citizen or permanent resident
- Buy a home to live in
- Have a deposit of at least 5% as a first home buyer, or at least 2% as a single parent or legal guardian of a dependent child
- Not have owned property in Australia in the past 10 years (first home buyers) or not currently own property (single parents)
Income caps were abolished in 2025 and places are unlimited. Property price caps still apply, based on the value your lender assesses rather than the price you pay:
| State/territory | Capital city and regional centres* | Other areas |
|---|---|---|
| Australian Capital Territory | $1,000,000 | $1,000,000 |
| New South Wales | $1,500,000 | $800,000 |
| Northern Territory | $750,000 | $600,000 |
| Queensland | $1,000,000 | $700,000 |
| South Australia | $900,000 | $500,000 |
| Tasmania | $700,000 | $550,000 |
| Victoria | $950,000 | $650,000 |
| Western Australia | $850,000 | $600,000 |
| *Regional centres are: New South Wales: Central Coast, Coffs Harbour – Grafton, Illawarra, Mid North Coast, Richmond-Tweed, Newcastle and Lake Macquarie; Victoria: Geelong; Queensland: Gold Coast and Sunshine Coast | ||
Only participating lenders offer the scheme, so check that your lender is on the list before you apply.
Apply with a guarantor
A guarantor uses the equity in their own property as extra security for your loan, which brings your effective deposit up to 20%. For example, if you buy a $500,000 property with a 5% deposit ($25,000), your guarantor could provide the remaining 15% ($75,000) in equity, rather than cash.
Guarantors are usually a close family member such as a parent or partner, though some lenders accept siblings or grandparents, and the lender assesses their income and credit history as well.
If you default, they can be asked to repay part or all of the loan, which could put their savings and home at risk. It can also limit how much they can borrow themselves. When the guarantee covers only part of the loan, the guarantor can be released once that portion is repaid.
Choose a lender with a higher LMI threshold
Most lenders charge LMI above 80% LVR, but some don’t. ubank, for example, offers home loans with no LMI up to 90% LVR for owner-occupiers and investors on principal and interest loans of up to $2 million. That means a 10% deposit can be enough, with no waiver or guarantee needed. A broker can compare which lenders have this kind of policy.
Pros and cons of LMI
Pros
-
Buy with a smaller deposit
Paying LMI lets you borrow with a 5% or 10% deposit instead of waiting to save 20%, even if you aren’t a first-time buyer.
-
You keep more of your savings
A smaller deposit leaves cash for stamp duty, moving costs and an emergency buffer.
-
You have more choice
A smaller deposit target can put a bigger home or a different suburb within reach.
-
You can choose how to pay
You can pay the premium upfront or add it to your loan.
Cons
-
Adds thousands to your cost
On a $750,000 property, the estimated premium is $14,089 with a 10% deposit and $25,428 with a 5% deposit.
-
More interest payable if bundled in
Adding LMI to a 30-year loan at 6.50% p.a. with a 10% deposit adds about $89 a month and about $17,970 in extra interest.
-
Rates may be higher
Lenders will often charge higher interest rates for loans with an LVR above 80%.
-
Protects your lender, not you
LMI doesn’t cover your repayments if you lose your income, and the insurer can still pursue you for what you owe after paying the lender.
Case study: is LMI worth paying?
Emma rents for $2,600 a month and has found an $800,000 home she wants to buy. She has saved an $80,000 deposit (10%) and can put away another $1,500 a month. The property is above the 5% Deposit Scheme price cap for her area, so she can’t use the scheme to avoid LMI, and she doesn’t have anyone able to serve as guarantor. She has two main options:
Option 1: Buy now with LMI
Emma borrows $720,000 and adds the $15,028 premium to her loan, taking it to $735,028. At 6.75% p.a. over 30 years, her repayments are $4,767 a month.
That’s $95 a month more than the same loan without LMI. Over 30 years, she pays about $20,060 in extra interest on top of the premium itself, so LMI costs her roughly $35,000 in total. However, this gets her on the property ladder now and allows her to start building equity.
Option 2: Save a 20% deposit first
Emma needs another $80,000 to avoid LMI. If prices stay flat, that’ll take her four and a half years, paying $140,400 in rent along the way. She borrows $640,000 in this situation, with repayments of $4,045.24 a month.
Prices rarely stay flat, though. If the home rises 3% a year, the 20% deposit she needs grows as fast as she saves. It’d take her six years and three months to catch up in this situation. By then, the home costs $962,327, so she has to borrow $769,862 and her repayments are $4,866 per month. Her rent over that period is $195,000.
| Buy now with LMI | Save to 20%, prices flat | Save to 20%, prices up 3% a year | |
|---|---|---|---|
| Time to buy | Now | 54 months | 75 months |
| Property price | $800,000 | $800,000 | $962,327 |
| Deposit | $80,000 | $160,000 | $192,465 |
| LMI | $15,028 | $0 | $0 |
| Interest rate | 6.75% p.a. | 6.50% p.a. | 6.50% p.a. |
| Loan amount | $735,028 | $640,000 | $769,862 |
| Monthly repayment | $4,767 | $4,045 | $4,866 |
| Total interest paid | $981,228 | $816,285 | $981,917 |
| Rent paid while saving | $0 | $140,400 | $195,000 |
| Figures are illustrative only. They assume 30-year principal and interest loans at 6.75% p.a. for the loan with LMI and 6.50% p.a. for loans with a 20% deposit, a 3% annual price rise in the final column and savings that earn no interest. Total interest excludes the LMI premium, which is shown separately. They exclude stamp duty and other buying costs. LMI estimate based on Helia’s LMI fee estimator for a first home buyer, correct as of November 2026. Rates and property value growth aren’t guaranteed. | |||
Running the numbers, Emma sees that even with a higher interest rate, smaller deposit and modest growth rate, waiting until she has a 20% deposit leaves her far worse off when rent payments are taken into account. Even without them, the cost of buying a home now with LMI ends up being almost identical to waiting until she has enough to avoid it.
In this situation, Emma decides to bite the bullet and get on the property ladder sooner, rather than waiting more than six years to do so.
LMI might be the tool you need to get on the property ladder
"If you aren’t a first-time buyer or meet any of the other requirements to have LMI waived, it’s more helpful to view it as your ticket to home ownership. It can be an expensive ticket, sure, but many prospective buyers simply can’t keep up with the rate of growth in the housing market today. Paying LMI is becoming the new norm for families moving into their forever home."
