HOME LOANS
First home buyer loan guide and rate comparison
By Megan Birot
What is lender’s mortgage insurance (LMI)?
Lender's mortgage insurance (LMI) is an insurance premium some borrowers need to pay for if their home deposit or equity is less than 20% of their property’s value. In other words, borrowers whose loan-to-value ratio (LVR) is above 80%.
These home loans are considered a higher risk to the lender, so the borrower needs to pay LMIr as a non-refundable fee.
LMI covers the lender against the risk of default. For example, if a borrower can’t repay their loan and the lender can’t recoup the total loan amount because the property is sold at a loss.
If you have a 20% deposit (or equity), you normally don’t have to pay for LMI because your LVR is below 80% and considered less risky. The lower your LVR, the lower the risk to the lender.
How much does LMI cost?
Based on Money.com.au's analysis, LMI can cost around 1-5% of your home loan amount, depending on your LVR. If you have more than a 20% deposit, your LMI is $0. Here is an estimation of lender's mortgage insurance (LMI) costs for different property values and deposit percentages.
Property value | $500,000 |
|---|---|
20% deposit (80% LVR) | $0 |
15% deposit (85% LVR) | $6,266 |
10% deposit (90% LVR) | $14,184 |
5% deposit (95% LVR) | $17,028 |
Property value | $600,000 |
20% deposit (80% LVR) | $0 |
15% deposit (85% LVR) | $12,850 |
10% deposit (90% LVR) | $22,835 |
5% deposit (95% LVR) | $26,305 |
Property value | $700,000 |
20% deposit (80% LVR) | $0 |
15% deposit (85% LVR) | $17,350 |
10% deposit (90% LVR) | $26,740 |
5% deposit (95% LVR) | $30,797 |
Property value | $800,000 |
20% deposit (80% LVR) | $0 |
15% deposit (85% LVR) | $21,850 |
10% deposit (90% LVR) | $31,900 |
5% deposit (95% LVR) | $35,554 |
Property value | $900,000 |
20% deposit (80% LVR) | $0 |
15% deposit (85% LVR) | $26,350 |
10% deposit (90% LVR) | $36,060 |
5% deposit (95% LVR) | $40,080 |
Property value | $1,000,000 |
20% deposit (80% LVR) | $0 |
15% deposit (85% LVR) | $30,850 |
10% deposit (90% LVR) | $40,135 |
5% deposit (95% LVR) | $44,607 |
| Property value | 20% deposit (80% LVR) | 15% deposit (85% LVR) | 10% deposit (90% LVR) | 5% deposit (95% LVR) |
|---|---|---|---|---|
$500,000 | $0 | $6,266 | $14,184 | $17,028 |
$600,000 | $0 | $12,850 | $22,835 | $26,305 |
$700,000 | $0 | $17,350 | $26,740 | $30,797 |
$800,000 | $0 | $21,850 | $31,900 | $35,554 |
$900,000 | $0 | $26,350 | $36,060 | $40,080 |
$1,000,000 | $0 | $30,850 | $40,135 | $44,607 |
If you’re buying a property, the amount you’ll pay in LMI can vary greatly based on the size of your deposit. It’s important to consider whether paying LMI could be a strategic move, particularly in a rising market where property prices may be increasing faster than you can save a 20% deposit. In some cases, entering the market sooner, even with LMI costs, could put you ahead in the long run.
Cost comparison of LMI added to home loan vs paid upfront
Here’s a cost comparison of LMI added to a home loan versus paid upfront on a $570,000 mortgage with a 6.00% interest rate over a 30-year loan term.
| Home loan with 95% LVR | LMI added to home loan | LMI paid upfront |
|---|---|---|
Interest rate | 6.00% p.a. | 6.00% p.a. |
Loan amount | $570,000 | $570,000 |
LMI cost* | $26,305 (added to loan) | $26,305 (paid upfront) |
Monthly repayments | $3,575.15 | $3,417.44 |
Total interest payable | $690,749 | $660,278 |
Total to repay | $1,287,054 | $1,230,278 |
Extra interest paid | +$56,776 |
How do insurers calculate LMI?
Most insurers calculate LMI on a tiered scale based on your LVR. They will take into account:
- Your property value (based on the lender's assessment)
- Your deposit (or equity) relative to the property value
- Your loan amount (what you borrow)
- Your loan product (e.g. owner-occupier, investor loan)
- The type of property you buy (e.g. established home, vacant land)
Generally, the higher your LVR, the higher your LMI will be. Lender’s mortgage insurance is generally higher on investment home loans compared to owner-occupied home loans, according to the Helia fee estimator. Lender’s mortgage insurance providers calculate LMI differently, so it’s best to get a quote directly from your provider.
How and when do you pay LMI?
There are two common ways lender’s mortgage insurance is paid:
Add it to your loan
The most common option is to add LMI to your home loan balance (known as capitalisation). The lender will take care of this for you, but remember that it will increase your loan amount and your total interest payable.
Upfront payment
You can pay the LMI as a lump sum upfront at settlement. This is less common, but you may choose to do this if you have the extra funds and want to avoid paying more in interest over the life of the loan.
Keep in mind that LMI only covers the lender, not you (or any guarantor), although you’ll have to pay for it.
Should you pay LMI upfront or add it to your home loan?
Paying for LMI upfront will be the cheapest option, but most borrowers add the LMI to their home loan amount to spread the cost over the life of the loan. The downside to doing this is you'll be charged interest on the cost of the LMI and your home loan.
Money.com.au’s Editor Sean Callery, who opted to add LMI to his home loan, said it was the right decision for his family at the time.
Sean Callery, Money.com.au's Editor
“We found a house we liked, and the time was right for us to stop renting and get a place of our own. We could have saved for another six months to avoid the LMI, but that would have meant needing to renew our rental lease for a year and then dealing with potentially breaking the lease in six months. We also knew we could comfortably afford the loan repayments even with the LMI added to our loan balance and could pay some extra to pay off the LMI amount quickly. We were also confident we’d be staying in the house we bought for a long time, and have the potential for our property to increase in value over the long term to offset the cost of the LMI we paid.”
Sean Callery, Money.com.au's Editor
How to get LMI waived
1. Get a guarantor
You can avoid paying LMI with a guarantor on your home loan. A guarantor is usually a family member who uses the available equity in their home to secure your mortgage. If your deposit is less than 20% of the property, a guarantor could cover the shortfall, so that LMI isn’t required.
Guarantor home loans are sometimes known as low deposit home loans or no deposit home loans.
Keep in mind that your guarantor will be partially responsible for your debt. A caveat may be placed on their property (a type of interest that prevents it from being sold or dealt with) until they’re released from the loan.
2. Apply through the Home Guarantee Scheme (HGS)
Lenders will waive your LMI if you apply for a home loan through the Australian government's Home Guarantee Scheme (HGS). It allows eligible home buyers to get on the property market with a deposit as little as 2-5%. Housing Australia guarantees the rest.
There are a few different avenues available to home buyers through HGS programs, including:
- First Home Guarantee (FHBG): For eligible first-home buyers to buy a home with a deposit starting from 5% with no LMI.
- Regional First Home Buyer Guarantee (RFHBG): For eligible first-home buyers to buy a home in a regional area with a deposit starting from 5% with no LMI.
- Family Home Guarantee (FHG): For eligible single parents or single legal guardians of at least one dependent to buy a home with a deposit starting from 2% with no LMI.
Most states and territories also have the First Home Owner Grant (FHOG), which provides a one-off, tax-free payment to first-home buyers to purchase a new home.
The re-elected Albanese government has also promised first home buyers there’ll be no LMI to pay so long as you have a 5% deposit and meet eligibility criteria. Here’s what you need to know about Labor’s re-election promise:
- All first home buyers can buy a property with just a 5% deposit.
- The government will guarantee part of your loan, removing the need for lender’s mortgage insurance.
- This expands access by lifting previous restrictions like income caps and property price limits.
- To give you more borrowing power, banks may also be able to exclude HECS/HELP debt from your mortgage application.
- The scheme is set to kick off in January 2026.
3. Save a 20% deposit
If you’re getting close to a 20% deposit, it may be worth saving the remaining amount over the next 6-12 months to avoid LMI. This could save you thousands of dollars upfront and even more in interest over the loan term if you capitalise your LMI.
Even going from a 5% to 10% deposit can save a lot of money. On the average home loan for first home buyers, going from a deposit of 5% to 10% would mean needing to save up roughly another $30,000.
But with average property prices generally rising in Australia over time, getting into the property market sooner with a lower deposit and paying LMI is at least worth considering. That’s because the 20% deposit lenders require to waive LMI is based on the current value of the property. If property prices go up, your 20% deposit would need to be bigger by the time you’re ready to buy.
4. Compare lenders offering LMI discount offers
Some lenders offer LMI discounts or even waive LMI on select loan products if you meet the eligibility criteria, including having an excellent credit score. For example, some lenders in Australia (e.g. Pepper Money) don’t charge LMI, but may tack on a ‘risk fee’ on your loan instead. Some offer LMI discounts to eligible home buyers.
Current offers:
- Ubank: No LMI on owner-occupied home loans with an LVR of up to 85% and principal and interest (P&I) repayments. Offer available on Neat Variable, Flex Variable and Flex Fixed Home Loans. Conditions apply.
Keep in mind that some lenders occasionally offer low or even no LMI home loans for borrowers with less than a 20% deposit. A mortgage broker can help you find these offers, as they're often across the latest deals available in the market.
5. Check if you’re eligible for an LMI waiver based on your profession
Some banks and lenders have an LMI waiver for professionals in certain secure or high-paying industries – commonly legal and medical practitioners, finance and accounting professionals, etc.
Banks that offer an LMI waiver for professionals include ANZ, NAB and Westpac. The eligibility criteria for LMI waivers vary between lenders but generally include:
- Maximum LVR of 90-95% (depending on the profession)
- Minimum annual income of $90,000 - $150,000 (depending on the profession)
- The applicant must be a member of their industry's peak body or authority (e.g. Australian Medical Association)
Which professions may be eligible for an LMI waiver?
- Dentists, doctors and surgeons
- Pharmacists
- Lawyers, solicitors, barristers
- Financial advisers
- Other medical staff (e.g. nurses, optometrists)
- Veterinarians
- Accountants
- Engineers
- Construction surveyors
Do you need to pay LMI again if you refinance?
If you refinance your home loan with less than 20% equity in your home, you may have to pay LMI again. This is because LMI is not transferable between home loan products or lenders. Refinancing without at least 20% equity in your home and paying another LMI premium could offset any savings you make from getting a lower rate.
You can increase equity in your property by making extra repayments on your mortgage (e.g. adding your tax return to your home loan each year) or making improvements to your home to increase its value.
If you have a mortgage broker, get them to ‘shop the valuation’ across 3-5 lenders to see who gives you the best valuation.
