When borrowing over 80% of a property’s value, it’s typically a requirement of the lender for the borrower to pay Lender’s Mortgage Insurance (LMI) costs.
Explanation of Lenders Mortgage Insurance
This video answers some of the most commonly asked questions about Lenders’ Mortgage Insurance (LMI), providing a clear overview of its fundamental concepts.
What is Lenders’ Mortgage Insurance?
Lenders’ Mortgage Insurance, or LMI, is a form of insurance that safeguards the lender, not the borrower. Typically, it’s a one-time payment made by the borrower during loan settlement. Here are the key points about LMI:
🔐 Lenders’ Mortgage Insurance (LMI)
Purpose
Protects the lender, not the borrower.
When it applies
When the borrower has a deposit of less than 20%, most lenders will require LMI to reduce their risk.
Who pays for it
The borrower pays, but the lender is the one protected.
One-off cost
Usually paid upfront or added to the loan. It can cost thousands of dollars, depending on the loan size and deposit.
Example
If you buy a $700,000 property with a $50,000 deposit (7%), your lender might charge over $20,000 in LMI.
Important
If the borrower defaults and the property is sold at a loss, the LMI insurer can still pursue the borrower for the remaining debt
🛡️ Mortgage Protection Insurance (MPI)
Purpose
Protects the borrower.
When it applies
If the borrower loses their job, falls ill, gets injured, or passes away, MPI helps cover mortgage repayments.
Who benefits
The borrower or their family, not the lender.
Ongoing cost
Paid as a monthly premium, like life insurance or income protection.
Optional
Not required. It’s a personal choice for peace of mind.
Tip
MPI can overlap with other policies like income protection or life insurance, so compare before buying.
The price of Lenders’ Mortgage Insurance (LMI) depends on three main factors:
Loan amount
Deposit size (Loan-to-Value Ratio, or LVR)
Lender’s policy and insurer (Genworth or QBE, typically)
Here’s a general guide based on real-world estimates in Australia:
Estimated LMI Costs
Property Price: $600,000
Deposit: $60,000 (10%)
LVR: 90%
Estimated LMI Cost: $13,000–$16,000
Property Price: $800,000
Deposit: $80,000 (10%)
LVR: 90%
Estimated LMI Cost: $17,000–$23,000
Property Price: $1,000,000
Deposit: $100,000 (10%)
LVR: 90%
Estimated LMI Cost: $25,000–$30,000
If your deposit increases to 15%, LMI drops substantially — and disappears altogether at 80% LVR.
Key Notes:
LMI is a one-off fee and can often be added to your loan amount (capitalised).
It’s not refundable if you refinance or sell the property early.
Each lender uses slightly different pricing, so the exact premium may vary.
Save 20% Deposit
If your deposit is 20% or more, most lenders won’t charge LMI.
Use a Guarantor
A family member uses their property as security. No LMI needed.
Apply for Government Schemes
E.g. First Home Guarantee allows eligible buyers to buy with 5% deposit and no LMI.
Be in a Preferred Profession
Doctors, lawyers, and other low-risk professionals can get LMI waived up to 90–95% LVR.
Negotiate with Lender
Some lenders offer promotions or exceptions to waive LMI.
Buy with Someone Else
Shared equity or co-ownership can reduce your loan amount or increase effective deposit.
Should I pay Lenders’ Mortgage Insurance (LMI) or wait for a bigger deposit?
✅ Pay LMI now if:
Property prices are rising
You’re currently renting
You can afford the loan repayments
You want to start building wealth sooner
✅ Wait and save if:
The market is stable or falling
Your income is tight
You’re close to 20% deposit
You prefer a lower-risk financial position
It increases your loan amount
LMI is a one-off cost, but most lenders allow you to add it to your loan. This means you borrow more and pay interest on the LMI over the life of your loan.
Example : If your LMI is $15,000 and you add it to a $600,000 loan, your new loan becomes $615,000.
It increases your monthly repayments
Because you’re borrowing more, your repayments go up slightly. Over thirty years, even a few extra thousand dollars can add tens of thousands in interest.
It does not protect you
LMI only protects the lender, not you. If you default, the lender is covered — but the LMI insurer can still chase you for the shortfall.
It is not refundable
If you refinance, pay off the loan early, or sell the property soon after buying, you do not get the LMI back. That’s why it’s important to consider how long you plan to keep the property.
In summary:
You pay more upfront or through your loan, carry more debt, and get into the market sooner, but LMI is not a direct benefit to you — it is a cost for accessing a home loan with a low deposit.
Property price
The higher the property value, the more LMI you will likely pay.
Loan amount
The bigger your loan, the higher the risk for the lender and the more LMI will cost.
Deposit size
The smaller your deposit, the higher your loan-to-value ratio (LVR).
LMI usually applies when your deposit is less than twenty percent.
The closer you are to twenty percent, the cheaper the LMI.
Loan-to-Value Ratio (LVR)
This is your loan amount divided by the property value.
The higher the LVR, the more expensive the LMI.
For example, LMI is more expensive at ninety-five percent LVR than at eighty-five percent.
Type of borrower
Some professions, like doctors and lawyers, may get special waivers or discounts.
Loan type
Certain loan structures, like interest-only or low-documentation loans, may attract higher LMI costs.
Insurer used
Lenders usually work with one or two LMI providers, such as Genworth or QBE.
Each insurer may have slightly different pricing.
In short, the higher the risk to the lender, the more you’ll pay in LMI.
To reduce LMI, you can either increase your deposit, choose a lower-priced property, or qualify for a special waiver.
LMI itself is not a government tax, but it can include additional costs depending on your state or territory. Here’s what to know:
Stamp Duty on LMI
In some states, stamp duty is charged on the LMI premium. This increases the total cost you pay.
Where stamp duty applies
Stamp duty on LMI is currently charged in:
New South Wales
Victoria
Queensland
How it’s calculated
The stamp duty is based on the LMI premium amount, not the property price. It is usually between five and ten percent of the LMI cost.
Example:
If your LMI premium is two thousand dollars, stamp duty might add another one hundred to two hundred dollars, depending on your state.
Capitalisation
Most lenders allow you to add the LMI and the stamp duty into your loan, which means you pay interest on both over time.
Claiming as a tax deduction
For owner-occupiers, LMI and related duties are not tax deductible.
However, if the loan is for an investment property, you may be able to claim a portion of the LMI and stamp duty as a tax deduction over five years.
20% deposit or more
If you have at least a 20 percent deposit (loan-to-value ratio of 80 percent or less), most lenders will not charge LMI.
Professional exemption
Certain high-income, low-risk professions often qualify for LMI waivers, even with smaller deposits.
Examples include doctors, dentists, accountants, lawyers, engineers, and some IT professionals.
Guarantor loan (family pledge)
If a family member guarantees part of your loan using their own property, the lender may waive LMI because their risk is lower.
Government guarantee schemes
First Home Guarantee, Regional First Home Buyer Guarantee, and other government programs allow eligible buyers to purchase with as little as 5 percent deposit and no LMI.
Lender promotion
Some banks and lenders run limited-time offers or internal policies where they waive LMI on certain loans, especially for strong applicants.
Low LVR with strong financials
In rare cases, a lender may waive LMI at slightly above 80 percent LVR if you have strong income, excellent credit history, and a stable job.
1.Medical doctors (GPs, surgeons, specialists)
2.Dentists
3.Veterinarians
4.Pharmacists
5.Optometrists
6.Lawyers and solicitors
7.Barristers
8.Accountants (CPA, CA, or IPA qualified)
9.Actuaries
10.Engineers (civil, mechanical, electrical, etc.)
11.Architects
12.Mining professionals
13.IT professionals (in select cases)
Key conditions:
•Must be a member of a recognised industry body (e.g. AMA, CPA, Law Society)
•Must meet minimum income thresholds (e.g. often over $150,000 per year)
•LMI waiver may apply up to 90% or even 95% LVR
Note:
Each lender has different criteria. It’s best to check their approved professional list or work with a broker who knows how to access these deals.
What is a Risk Fee?
A Risk Fee is a one-time charge by the lender when your deposit is below 20 percent. It works like LMI but is charged directly by the lender.
Key points:
It protects the lender, not you
It replaces LMI in some cases
Charged by the lender, not an insurer
May be refunded if you repay early (depends on lender)
May be tax-deductible for investment properties
Often used by non-bank lenders or for low-doc loans
Why lenders use it:
Faster approval, simpler process, and more flexibility.
What do our customers think?
To determine your readiness for homeownership or investing in property, reach out to a JDL Finance broker today
