What is LMI and how much does it cost?

LMI lets you buy with a smaller deposit, but it can add tens of thousands of dollars to the cost of your home. Here is how it works, what it costs at different deposits, and what affects the price. Estimate your own premium with the LMI calculator.

What LMI is, and who it protects

If you stop paying your loan and the lender has to sell the property for less than you owe, LMI covers the lender’s loss. You pay the premium, but the lender is the insured party. If you default, the insurer can still recover the shortfall from you.

LMI usually applies when your loan-to-value ratio (LVR) is above 80%, which means a deposit under 20%. Most lenders cap lending at 95% of the property’s value, including any LMI added to the loan.

How much LMI costs

Property price	5% deposit	10% deposit	15% deposit
$500,000	$15,533	$7,848	$3,474
$750,000	$27,182	$13,979	$6,949
$1,000,000	$41,420	$22,073	$11,581

Two things push the price up quickly. The premium rate rises as your deposit shrinks, and it is charged on a bigger loan. In this example, dropping from a 10% to a 5% deposit roughly doubles the premium.

What affects your LMI premium

• LVR: the biggest factor. Premiums jump at each band, typically 85%, 90% and 95%.
• Loan size: larger loans attract higher premium rates as well as larger dollar amounts.
• Loan type: investment, interest-only and low-doc loans usually cost more.
• Insurer and lender: each lender uses an insurer and negotiates its own rates.
• State: stamp duty on insurance is added to the premium, for example 9% in NSW and Queensland, 10% in Victoria, 11% in South Australia, and nothing in the ACT.

Pay upfront or add it to the loan?

Most buyers add LMI to the loan. That keeps cash in hand, but you pay interest on it for the life of the loan. Adding $13,979 of LMI to a 30-year loan at 6.50% adds about $88 a month and around $17,800 of interest over the term, so the true cost is closer to $32,000.

Paying upfront avoids that interest, but reduces the cash you have for the deposit or a buffer.

Is LMI ever refunded?

Generally no. Some policies offer a small partial refund if the loan is repaid in the first year or two. LMI also does not transfer to a new lender, so if you refinance while still above 80% LVR you may pay it again. That is worth checking before you refinance.

Ways to reduce or avoid LMI

The main options are a 20% deposit, the 5% Deposit Scheme for first home buyers, a family guarantee, or a profession-based waiver. We cover each in how to avoid paying LMI. Then see your full cash needs, including stamp duty, in the LMI and upfront costs calculator.

Frequently asked questions