Lenders mortgage insurance explained: what it is, what it costs and the legitimate ways around it

Lenders mortgage insurance is insurance that protects a lender from losses if a borrower defaults on a home loan. The Australian Prudential Regulation Authority (APRA) describes LMI in its residential mortgage lending guide as insurance under a policy that protects a lender from losses in the event of borrower default on a loan secured by a mortgage.

The borrower pays the premium, but the borrower is not the insured party. NAB's published LMI page, for example, states that LMI protects the lender and not the borrower or any guarantors, and that only the lender can make a claim under the policy. If a home is sold for less than the amount owed, the LMI provider pays the lender and may then seek to recover that shortfall from the borrower or guarantors, according to the same page.

LMI is also different from mortgage protection insurance. NAB's LMI page describes mortgage protection insurance (MPI) as cover for the borrower if they are unable to meet their mortgage repayments due to unemployment, death or disability, and sums up the difference as MPI protects you, whilst LMI protects the lender.

LMI usually applies when the loan is more than 80% of the property value, which means a deposit of less than 20%. ASIC's Moneysmart home loans factsheet suggests aiming to save 20% of the purchase price plus costs, and says borrowing more than 80% may mean paying LMI. Lenders express this as the loan-to-value ratio (LVR): the loan amount divided by the property value.

Lenders normally require LMI when the deposit is below about 20%. Common exceptions include the Australian Government 5% Deposit Scheme, a family guarantee that brings the effective LVR down, and profession-based waivers some lenders offer. Refinancing to another lender can mean paying LMI again if the new loan does not meet that lender's minimum deposit requirements.

The cost of LMI depends on how much is borrowed and how small the deposit is. NAB's published LMI page lists the factors as the home loan size, the deposit amount (or LVR), the value of the property, the type of loan and the lender.

The borrower pays the insurer's premium through the lender. NAB's page, for example, says the amount it charges the customer includes only the premium the LMI provider charges NAB, and no more. The same page states that the banker or broker provides the LMI amount to be paid when you apply for the home loan. That is why questions such as "how much is LMI on a 10% deposit" or "on a $500,000 loan" have no fixed answer: the figure depends on the lender, the LVR, the property value and the loan amount.

LMI is a one-off charge that is either paid upfront or added to the loan amount. NAB's page describes both options: a one-off upfront payment, or adding the premium to the loan. Adding it (often called capitalising) means no extra cash at settlement, but the premium is then repaid with interest over the life of the loan.

1. 1Start with a hypothetical $600,000 property and a $60,000 deposit (10%). The loan is $540,000, an LVR of 90%.
2. 2Assume a premium of $12,000. This is a hypothetical figure chosen only to show the arithmetic; it is not an estimate or a quote.
3. 3Add the premium to the loan: the balance becomes $552,000, and the LVR rises to 92%.
4. 4Every repayment calculation now runs on $552,000, not $540,000. The repayment calculators show how a higher balance changes repayments.

APRA counts the capitalised premium when it looks at lender risk: its guide notes that LVRs above 90 per cent, including capitalised LMI premium or other fees, clearly expose a lender to a higher risk of loss.

There are four common legitimate ways to buy without paying LMI, and each one suits a different buyer. None of them removes the lender's own assessment: APRA's guide says LMI is not an alternative to a lender's due diligence, including an independent assessment of the borrower's capacity to repay, and the same assessment applies on every route below.

A family guarantee works by the guarantor offering equity in their own home rather than cash, usually covering the gap to a 20% deposit. NAB's guarantor page notes the guarantor may be removed once the loan is at or below about 80% of the property value through a review or refinance. The no deposit home loan options guide covers guarantor loans in depth.

Profession waivers are lender products. NAB, for instance, publishes a waiver for medical, legal and financial professionals, subject to eligibility criteria that depend on profession, loan type and LVR. Other lenders set their own lists and limits.

The Australian Government 5% Deposit Scheme lets eligible first home buyers buy with a 5% deposit without paying LMI. According to the scheme's official site, from 1 October 2025 the scheme has no income caps, no waitlists and no LMI. Single parents or legal guardians can buy with a minimum 2% deposit. The government provides a guarantee to the lender, while the buyer still pays all costs and repayments.

Applications go through a Participating Lender as part of a home loan application, not to Housing Australia directly. Both the purchase price and the lender's valuation must be at or below the location's price cap. For Queensland the published caps are $1,000,000 in the capital city and regional centres (the Queensland regional centres listed are the Gold Coast and Sunshine Coast) and $700,000 in other areas, as at 4 October 2026. The scheme's postcode search tool confirms the cap for a specific suburb.

Whether to pay LMI now or keep saving depends on personal circumstances, and there is no general answer. The factors below are the ones that usually shape the decision; the right balance for any one household is a conversation to have with a broker.

• Time to save: how many more months or years it would take to reach 20% of the target price plus costs.
• Rent while saving: the rent paid during that extra saving period.
• Price movement: property prices in the target area can move while you save, in either direction.
• Scheme eligibility: whether the 5% Deposit Scheme or a family guarantee could remove LMI without waiting.
• The capitalised premium: if LMI is added to the loan, the higher balance and LVR described above.
• Buffer: NAB's LMI page notes that a smaller deposit leaves less buffer between the loan and the property value, which raises the possibility of a shortfall debt if the home has to be sold.

This is general information only and does not consider your objectives, finances or needs. A broker can set out the figures for your situation before you decide.

LMI is generally a sunk cost: it does not move with the loan, and refunds are limited. NAB's page states that LMI is not transferable to another lender. NAB also publishes its own partial refund terms: for its loans settled on or after 10 June 2024, 40% of the premium is refunded if the loan is repaid and closed within 12 months, and nothing after that. Other lenders and insurers set their own terms.

Refinancing to a new lender may mean paying LMI again if you do not meet the new lender's minimum deposit requirements. The refinancing page and the guide on how to refinance a home loan cover the process.

For tax, the ATO's rental properties guide lists lender's mortgage insurance that the lender takes out and bills to you as a borrowing expense on a loan for a rental property. If total borrowing expenses exceed $100, the deduction is spread over 5 years or the loan term, whichever is less, and the remaining balance can be claimed in the year the loan is repaid if that happens within 5 years. Borrowing expenses on any part of a loan used for a private purpose cannot be claimed. See investment loans for the lending side.

A broker can work out whether LMI is likely and which route around it may be open, but only with a few details in hand. This checklist covers the information that shapes the LMI answer.

• Your deposit amount and where it came from (savings, gift, sale of an asset).
• Your target purchase price and the suburb or postcode.
• Whether you, and anyone buying with you, have owned property before.
• Whether a family member is open to offering a guarantee.
• Your profession and any registration body you belong to.
• Whether the home will be lived in or rented out.

FundUp is a Cairns-based mortgage broker that works with borrowers Australia-wide and puts its panel at 40+ lenders. See home loans or the Cairns northern beaches home loan advisors page to start the conversation.