dsl-logo

Home Loans

Personal Loans

Car Loans

Business Loans

Credit Cards

Banking

dsl-logo
dsl-logo

Home Loans

Personal Loans

Car Loans

Business Loans

Credit Cards

Banking

Background

Lender's Mortgage Insurance (LMI) Guide & Cost Comparison

  • Lender’s mortgage insurance (LMI) is charged on some home loans with less than a 20% deposit
  • LMI protects the lender against the risk of default
  • You can add LMI to your home loan to spread the cost over the loan term

Enter loan amount

$

How to switch home loans

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 loans are considered a higher risk to the lender, so LMI is passed on to the borrower 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 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.

Keep in mind that LMI only covers the lender, not you (or any guarantor), although you’ll have to pay for it.

How and when do you pay LMI?

You can pay for LMI as a lump sum upfront at settlement, but 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. Remember that this will increase your loan amount and your total interest payable.

How do lenders calculate LMI?

Most lenders 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. LMI is generally higher on investment home loans compared to owner-occupied home loans, according to the Helia fee estimator. Lenders calculate LMI differently, so it’s best to get a quote directly from your 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 value20% 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

Note: LMI estimations based on Westpac’s calculator for a property in Queensland. Each lender may calculate LMI differently.

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. You could use an offset account linked to your home loan to deposit your savings and salary into and offset your interest.

Money’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 Editor Money.com.au

Sean Callery, Money'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's Editor

Cost compared: 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 $600,000 mortgage with a 6.00% interest rate over a 30-year loan term.

Home loan with 95% LVRLMI added to home loanLMI 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

*Note: LMI estimations based on Westpac’s calculator for a property in Queensland. Each lender may calculate LMI differently.

In this example, the borrower who added LMI into their home loan pays:

  • An extra $158 in monthly repayments
  • $56,776 to cover the cost of their LMI, including interest, compared to the $26,305 needed to pay for it upfront
  • That’s $30,471 extra based on the interest charged on the LMI amount over the life of the loan

How to get LMI waived

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.

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:

    circle-green-tick
  • First Home Guarantee (FHBG): For eligible first-home buyers to buy a home with a deposit starting from 5% with no LMI.
  • circle-green-tick
  • 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.
  • circle-green-tick
  • 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.

If you’re getting close to a 20% deposit, it may be worth saving the remaining amount over the next 12-18 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 you a few bucks. 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 property prices consistently rising in Australia, getting into the property market sooner with a lower deposit and paying LMI can be a good option. 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.

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, UNO) don’t charge LMI, but may tack on ‘risk fee’ on your loan instead. Some offer LMI discounts to eligible home buyers.

LMI offers (2023)

    circle-green-tick
  • 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 and Flex Home Loans. Conditions apply. Apply by 8 December 2023, and settle by 8 April 2024.
  • circle-green-tick
  • RAMS: First-home buyers with an LVR up to 95% only pay $1 for LMI on Essential Home Loan, Full Featured and Fixed Rate Home Loans if their LMI premium is below 30,000. For home loans where the LMI premium exceeds $30,000, RAMS will pay $30,000 towards the premium. Offer may be withdrawn at any time.
  • circle-green-tick
  • St. George Bank, Bank of Melbourne & BankSA: These Westpac brands have a $1 LMI offer for first-home buyers with a minimum deposit of 15% (min LVR of 85%) on loan amounts of up to $850,000. Offer available on Basic Home Loans and Advantage Package Home Loans. Owner-occupier home loans with principal & interest repayments only. Offer ends 18 November 2023.

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:

    circle-green-tick
  • Maximum LVR of 90-95% (depending on the profession)
  • circle-green-tick
  • Minimum annual income of $90,000 - $150,000 (depending on the profession)
  • circle-green-tick
  • The applicant must be a member of their industry's peak body or authority (e.g. Australian Medical Association)

Who’s eligible for an LMI waiver?

The following professions may be eligible for an LMI waiver depending on the lender:

  • Dentists, doctors and surgeons
  • Pharmacists
  • Lawyers, solicitors, barristers
  • Financial advisers
  • Other medical staff (e.g. nurses, optometrists)
  • Veterinarians
  • Accountants
  • Engineers
  • Construction surveyors

How to avoid LMI when refinancing

You need at least 20% equity in your home to refinance and avoid paying LMI. 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.

If you refinance 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.

Home loans guides & resources

What's the next step on your property journey? Our home loan guides will help you navigate the road ahead, whether you're buying, building or looking to save on an existing loan.

FAQS ABOUT LENDER's MORTGAGE INSURANCE

Yes, stamp duty and GST are payable on lender’s mortgage insurance (LMI) and included in the LMI quoted price. If you’re buying an investment property, a portion of your stamp duty and GST can be claimed as tax-deductible.

Your LMI cost and stamp duty will depend on your state or territory:

    circle-green-tick
  • NSW: 9% of the LMI premium
  • circle-green-tick
  • QLD: 9% of the LMI premium
  • circle-green-tick
  • VIC: 10% of the LMI premium
  • circle-green-tick
  • WA: 10% of the LMI premium
  • circle-green-tick
  • NT: 10% of the LMI premium
  • circle-green-tick
  • TAS: 10% of the LMI premium
  • circle-green-tick
  • SA: 11% of the LMI premium
  • circle-green-tick
  • ACT: no stamp duty on the LMI premium

Please note your LMI stamp duty is NOT the same as the stamp duty charged by your state government when you purchase a property.

No, lenders don’t charge more LMI on bad credit home loans, but may charge an additional ‘risk fee’, which could be up to 1% of your loan amount. A risk fee is similar to LMI and protects the lender against the risk of default. This is also the case with low doc home loans.

Yes, LMI is tax deductible as a ‘borrowing expense’ when taking out an investment home loan, according to the Australian Taxation Office (ATO). Stamp duty, some home loan fees, and legal costs are also tax deductible.

Lender’s mortgage insurance (LMI) is a required insurance premium lenders charge if you borrow more than 80% of a property’s value. It covers the lender against the risk of default.

On the other hand, Mortgage Protection Insurance (MPI) is a type of life insurance you can take out to cover yourself if you cannot repay your mortgage due to unemployment, sickness, disability or death. In short, MPI protects you, while LMI protects the lender.

Megan Birot Money.com.au writer

Written by

Megan Birot

Megan is a finance writer with more than 10 years of experience in the industry. She’s passionate about helping people make sense of financial topics and principles. She's certified in Finance & Mortgage Broking and is compliant to provide general advice in Tier 1 General Insurance.

Mansour Soltani home loan expert

Reviewed by

Mansour Soltani

Mansour Soltani is Money.com.au’s home loans expert. He’s a mortgage broker with more than 20 years of experience in the finance and real estate industry. Mansour is the Director of Soren Financial and has been featured in publications such as the ABC, Domain.com.au and Australian Broker.

logo

Our Money Promise

Money Pty Ltd (trading as Money) Australian Credit Licence 528698 provides information about credit products and is authorised to do so as the holder of Australian Credit Licence 528698. Money does not compare every Lender all products or issuers available in Australia. We are not a broker or credit provider and when we provide information via this website, we are not providing you with a recommendation or suggestion about a particular credit product.

This material has been prepared by Money Pty Limited (ABN 40 664 954 536) (Money, ‘us’ or ‘we’). Money is a corporate authorised representative (CAR 001307399) of 62 Consulting Pty Limited (ABN 88 664 809 303) (AFSL 548573) (62C). The material is for general information only and is not an offer for the purchase or sale of any financial product or service. The material is not intended to provide you with financial or tax advice and does not take into account your objectives, financial situation or needs. Although we believe that the material is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by 62C, Money, any of their related body corporates or any other person. To the maximum extent possible, 62C, Money, their related body corporates or any other person do not accept any liability for any statement in this material.

Money Pty Ltd trading as Money

ABN: 42 626 094 773 / ACL: 528698 / AFCA: 83955
Money is a corporate authorised representative (CAR 001307399) of 62 Consulting Pty Limited (ABN 88 664 809 303) (AFSL 548573) (62C)
aboriginal-and-torres-strait

Money acknowledges Aboriginal and Torres Strait Islanders as the traditional custodians of country throughout Australia and their continuing connection to land, waters and community.

© Copyright 2024 Money Pty Ltd.