Lenders mortgage insurance is a premium that lenders often require when you borrow a high percentage of a property's value. ASIC's MoneySmart glossary says LMI is usually a one-off cost, payable when the amount borrowed exceeds 80% of the value of the property, and that it protects the credit provider if you cannot repay the loan. It does not benefit you. It only protects the lender.

MoneySmart's deposit guide puts the same idea in loan-to-value terms: if your loan-to-value ratio (LVR) is above 80%, you may need to pay LMI. You pay it at settlement, or the lender adds it to your loan, in which case you pay interest on it as well.

There is no official government premium table, and premiums are set by the insurer and the lender for each loan. That is why Never Lose Interest does not publish an LMI calculator. A figure from a website that is not your lender's quote can be misleading. Ask the lender for the actual premium on the loan it is offering.

This is general information only. It is not personal advice, and it is not a quote for insurance.

What is LVR, and why does 80% matter?

Loan-to-value ratio is the loan divided by the property's value. MoneySmart's example is a $450,000 loan on a $600,000 home, which is an LVR of 75%.

Value, for this purpose, is usually the lender's valuation, not simply the price you agreed to pay. If you agree to pay $700,000 and the lender values the home at $680,000, the LVR is calculated on $680,000. That can be enough to push a loan over the 80% line, or over a scheme price cap that also looks at the assessed value.

An 80% LVR implies a 20% deposit if the price and the valuation are the same, before other buying costs. A 10% deposit implies a 90% LVR. A 5% deposit implies a 95% LVR. Those percentages are why a slightly smaller deposit can create a much larger premium, or why a shortfall in the valuation can change the cost at the last minute.

The 80% threshold is the usual trigger described by MoneySmart. It is not a law that every lender must charge LMI at 80% plus one dollar, and it is not a promise that every loan under 80% is free of extra credit-risk pricing. Some lenders apply their own cut-offs or waivers. You only know the position when the lender states it.

Who does LMI protect?

If you default, and the lender sells the property and still makes a loss, the insurer may pay the lender. The insurer can then seek to recover that money from you. LMI is not income protection, it is not unemployment cover, and it is not a safety net that clears your debt.

MoneySmart also notes that LMI does not protect a guarantor, if you have one. A guarantee is a separate promise.

How is the premium paid, and what drives the cost?

The premium is usually a one-off amount. Two common ways to pay it are:

  • you pay it as a lump sum at settlement, from your own funds
  • the lender capitalises it, meaning the premium is added to the loan balance

Capitalising the premium can be convenient if you are already stretched on cash, but it increases the loan, the interest, and sometimes the LVR itself. Over a long term, that extra interest can exceed the original premium.

Insurers generally price LMI using the LVR, the loan size, the loan type and the occupancy (owner-occupier or investor). A 95% LVR loan is typically much more expensive to insure than an 85% LVR loan of the same amount. Premiums are not a flat percentage that you can safely copy from a friend or from an older article.

Because there is no complete official or lender-published table that would make a public calculator defensible, any online LMI estimate should be treated as illustrative at best. Use your lender's quote.

How can you reduce or avoid LMI?

The usual paths are:

  • Save a larger deposit, so the LVR is at or below the lender's LMI threshold, often 80%. This is the straightforward method, and it also reduces interest on the loan itself. See how much deposit you need.
  • Use the 5% Deposit Scheme. The official scheme pages say there is no lenders mortgage insurance for eligible loans under the scheme, because the government guarantee stands in its place. You still need to meet eligibility, price caps and the lender's credit policy.
  • Use Help to Buy. The official page says the government's contribution can remove the need to pay LMI by lowering your LVR. Help to Buy has income caps and a places limit, and the government takes an equity share.
  • A family guarantor may allow the lender to treat the loan as better secured, which can reduce or remove LMI. The guarantor's home or savings is then at risk if you cannot pay. That is a heavy request, and everyone involved should understand the documents.
  • Some lenders have their own waiver policies for particular customers. Those policies are commercial, they change, and they are not a government entitlement. Ask the lender; do not assume you will qualify.

First home owner grants and stamp duty concessions can free up cash, which may help you toward a larger deposit, but a grant paid at settlement does not automatically cancel LMI. FHSS withdrawals can also add to a deposit, within the ATO's limits.

Avoiding LMI is not always the cheapest overall path. Waiting years for a 20% deposit has a cost if rents and prices move while you save. Paying LMI, or using a guarantee scheme and borrowing more, has a cost as well. Compare the cash now with the extra interest later, using the mortgage repayment calculator.

What happens if you refinance, sell or pay the loan down quickly?

Do not assume the premium will be refunded. Some policies allow a partial refund in limited cases, and many do not. If the premium was added to the loan, you still owe that part of the balance until you repay it. Check the policy wording and ask the lender before you treat LMI as a temporary expense.

If a government guarantee ends because you no longer meet the scheme rules, for example if you move out and rent the property, the official 5% Deposit Scheme guidance says the lender may then require you to pay LMI or other additional costs.

A worked illustration, not a quote

Suppose you buy a home for $700,000, the lender values it at $700,000, and you have a $70,000 deposit (10%). The loan is $630,000 and the LVR is 90%. LMI would often apply on a standard loan.

If instead you used an eligible 5% Deposit Scheme loan on the same price, a 5% deposit would be $35,000 and the loan would be $665,000. The official scheme pages say LMI would not apply, but you would be borrowing $35,000 more than in the 10% example, and $105,000 more than with a 20% deposit of $140,000. The extra interest on that larger loan is the trade-off. The illustration ignores duty, fees and any difference in the interest rate, all of which you should add back in before you decide.

Frequently asked questions

Is there an official LMI calculator?

No government calculator publishes a premium that your lender must charge. Some insurers offer indicative estimators, and they say the final premium is calculated at application. Never Lose Interest does not provide an LMI estimator for that reason. Ask the lender for a quote.

Does LMI protect me if I cannot make repayments?

No. It protects the lender. You still owe the debt, and the insurer may pursue you after it pays the lender.

Can I claim LMI as a tax deduction on my home?

For an owner-occupied home, generally no. The treatment of costs on an investment property is a different question, and you should rely on the ATO or a registered tax agent, not on a rule of thumb. This article is about the insurance itself, not a deduction guide.

General information warning

This article is general information only. It is not personal financial product advice, and it is not a quote or a recommendation to buy, avoid or capitalise lenders mortgage insurance. It does not take into account your objectives, financial situation or needs. Premiums, waivers and scheme rules vary. Ask your lender for the premium that applies to your loan, and consider speaking with a licensed adviser before you commit.

Sources

Last reviewed: November 2026.