Lenders Mortgage Insurance, usually called LMI, may be charged when you borrow a high percentage of a property's value. It can help some first home buyers purchase with a smaller deposit, but it increases the cost of the loan. Understanding the trade-off is more useful than treating LMI as either automatically good or automatically bad.
What LMI does
LMI generally protects the lender if a borrower cannot meet the loan and the property sale does not cover the outstanding debt. It does not insure the borrower against job loss, rate rises or a fall in property value. Depending on the loan, the premium may be paid upfront or added to the loan balance.
The exact premium is not a simple percentage. It can vary with the lender, insurer, loan-to-value ratio, loan amount, purpose, borrower profile and product. That is why an estimate should be checked against the lender's actual loan documents.
When it may apply
A common benchmark is an 80% loan-to-value ratio, meaning a 20% deposit. Borrowing above that level may trigger LMI, though lender policies differ. A smaller deposit can also mean a larger loan, which affects both the premium and the regular repayment.
Use the Borrowing Power Calculator to compare property price and savings scenarios. It shows an indicative LVR and LMI estimate. Tick Capitalise LMI into the loan only when you want to see the effect of adding the estimate to the borrowed amount.
Compare the whole decision, not one line item
Run at least two versions of your plan:
- Buy sooner with your current deposit and an estimated LMI cost.
- Wait and save for a larger deposit, then re-run the loan and repayment.
For each version, compare the cash left after purchase costs, the repayment at your expected rate, the repayment at a higher rate and your emergency buffer. The first-home deposit guide explains how to keep duty and other costs inside that comparison.
Home guarantees and lender alternatives
Eligible buyers may have access to government-backed programs or lender products that change the usual LMI outcome. These programs are conditional and may have property-price caps, income limits, availability and participating-lender requirements. Do not assume that a scheme will apply until a participating lender confirms it.
Start with Housing Australia's current home-buying support information. For a broader explanation of the concept, read What Is LMI?.
Next steps
LMI is one item in a bigger first-home plan. Return to the First Home Buyer Hub to check duty, upfront costs and a realistic repayment before deciding how much deposit to target.