The Property Finance Broker

What It Is, When It Applies, and Whether You Should Always Avoid It

By Joshua Beniston  •  April 2026

If you’ve been saving for a property deposit, you’ve probably heard that you need at least 20% to avoid LMI. But what exactly is LMI, who pays for it, and is it always worth going to the effort of avoiding it?

Let’s clear it up.

What Is LMI?

Lenders Mortgage Insurance is an insurance policy that protects the lender — not you — if you default on your loan and the sale of the property doesn’t cover the outstanding balance. It’s typically required when you borrow more than 80% of a property’s value, which means your deposit is less than 20%.

The key thing to understand: LMI is not for your benefit. It protects the bank. But you’re the one who pays for it.

The cost is usually added to your loan (capitalised), so you’re also paying interest on it for the life of the loan. It can range from a few thousand dollars to well over $20,000 depending on your loan size and LVR (Loan to Value Ratio).

When Does LMI Apply?

LMI generally kicks in when your LVR is above 80% — meaning you’re borrowing more than 80% of the property’s purchase price or valuation (whichever is lower).

Example: If you’re buying a $700,000 property with a $100,000 deposit (about 14.3%), your LVR is approximately 85.7% and LMI will apply. At that level you could be looking at an LMI premium of around $15,000–$18,000.

The higher your LVR, the more LMI costs. Most lenders have a tiered structure, so crossing from 85% to 90% LVR can mean a significant jump in the premium.

Is Avoiding LMI Always the Right Move?

Most people treat 20% as the magic number and delay purchasing until they get there. And while that’s often sensible, it’s not always the best financial decision. Here’s why.

The cost of waiting

While you’re saving that extra 5% or 10%, the property market doesn’t pause. If prices are rising, the gap between what you have and what you need keeps growing — sometimes faster than you can save. In some markets, the capital growth you miss out on by waiting can far outweigh the LMI cost.

Example: If you pay $15,000 in LMI today but buy into a market that grows 8% in the next 12 months, on a $700,000 property that’s $56,000 in growth. Waiting to avoid the LMI could cost you far more than it saves.

Of course, markets don’t always go up — so this isn’t a blanket argument for always paying LMI. It depends on your market, your timeline, and your personal circumstances.

When it does make sense to avoid LMI

• You’re close to 20% and can realistically save the gap within 6–12 months without the market running away.
• You’re buying in a flat or declining market where waiting doesn’t cost you as much in lost growth.
• The LMI premium is particularly high due to your loan size or LVR.

Are There Ways Around It?

Yes — a few worth knowing about:

Government schemes

The federal government’s Home Guarantee Scheme (including the First Home Guarantee and the Family Home Guarantee) allows eligible buyers to purchase with as little as 2–5% deposit without paying LMI. The government essentially acts as the guarantor for the difference. Places are limited each financial year and there are price caps and eligibility criteria, so it’s worth checking if you qualify.

Guarantor loans

A family member (usually a parent) can use equity in their own property to guarantee part of your loan, which can allow you to borrow without LMI even with a smaller deposit. This is a significant commitment for the guarantor and needs to be approached carefully.

Professional exemptions

Some lenders waive LMI for certain professions — most commonly doctors, dentists, lawyers, and other high-income professionals — even at higher LVRs. If you work in one of these fields, it’s absolutely worth asking.

The Bottom Line

LMI isn’t the enemy — it’s just a cost you need to factor in and weigh up against the alternatives. For some buyers, paying LMI and getting into the market sooner is the smarter financial move. For others, a short wait or a guarantee scheme is a better path.

The key is making an informed decision rather than just defaulting to ‘avoid LMI at all costs’ without running the actual numbers for your situation.

Not sure which side of the equation you’re on? Let’s work through it together.