What Is LMI & Can You Avoid It With a Low Deposit
Tuesday 10 November 2026
For many first home buyers, the hardest part of buying is not finding the right home but saving the deposit. A traditional 20% deposit can take years to build, and if you buy with less, lenders mortgage insurance (LMI) usually comes into play.
Understanding what LMI is, what it costs and how to avoid it can make a real difference to how soon you can buy, and how much you pay upfront.
What Is LMI?
Lenders mortgage insurance is a one-off premium charged when you borrow more than a certain share of a property’s value, generally 80%. It protects the lender, not you, if you are unable to repay your loan and the sale of the property does not cover the amount owing.
Whether LMI applies is based on your loan to value ratio (LVR), which is the size of your loan compared with the value of the property. With a 20% deposit, your LVR is 80%, and LMI is generally not required. With a 10% deposit, your LVR is 90%, and LMI will usually apply.
LMI is often confused with mortgage protection insurance, but they are different products. Mortgage protection insurance is optional cover that can help you meet repayments if you become ill, injured or lose your job. LMI offers you no protection at all.
How Much Does LMI Cost?
There is no fixed LMI cost. The premium depends on your deposit size, the loan amount, your lender and the insurer it uses. The smaller your deposit and the larger your loan, the higher the premium is likely to be. The best way to understand your own figure is to get a quote from your lender or mortgage broker.
LMI is generally a one-off premium, and you can usually choose to pay it upfront at settlement or have it added to the loan. Adding it to the loan means you do not need the cash upfront, but you will pay interest on it over the life of the loan, increasing your total repayments. It also adds to the amount you borrow, which can affect your borrowing capacity.
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How to Avoid LMI With a Low Deposit
Saving a 20% deposit is not the only way to avoid LMI. Depending on your circumstances, these options may help.
Australian Government 5% Deposit Scheme
The Australian Government 5% Deposit Scheme, formerly the Home Guarantee Scheme, allows eligible first home buyers to purchase with a minimum 5% deposit and no LMI. Instead of LMI, the government provides a guarantee to your lender.
Since 1 October 2025, the scheme has no income caps and no waitlists. Applications are made through a Participating Lender as part of your home loan application, not directly with the government.
The property must be at or below the price cap for its location. In Victoria, the cap is $950,000 for Melbourne and Geelong and $650,000 for other areas.
There are also ongoing obligations, such as living in the home as an owner-occupier. If these are not met, the guarantee may no longer apply and your lender may require you to pay LMI.
Guarantor Home Loans
A guarantor home loan allows a family member, usually a parent, to use the equity in their own property as additional security for your loan. This can reduce or remove the need for LMI. It is a significant commitment, as the guarantor may become responsible if you cannot meet your repayments.
LMI Waivers for Eligible Professionals
Some lenders offer an LMI waiver for borrowers in certain occupations, often in medical, legal, accounting and engineering fields. Eligibility, income requirements and maximum LVRs vary between lenders, so a first home buyer LMI waiver is worth discussing with a broker if your profession may qualify.
Saving a 20% Deposit
If you are already close to 20%, waiting a little longer to save may be the simplest way to avoid LMI altogether.
Is Paying LMI Always a Bad Thing?
Not necessarily. While LMI adds to the cost of buying, it can allow you to enter the market years sooner than if you waited to save a full deposit. During that time, property prices may rise, increasing the deposit you need.
For some buyers, paying LMI and buying sooner makes more sense than waiting. The right choice depends on your finances, your timeframe and the market, so it is worth working through the numbers with a lender or broker.
Building Your First Home with Eight Homes
The 5% Deposit Scheme can be used for an eligible house and land package, or for land with a separate building contract. When building, the combined land price and build cost must stay at or below the price cap for the location.
Building new can also open the door to other first home buyer support, including the First Home Owner Grant and stamp duty exemptions or concessions for eligible buyers. Together, these can significantly reduce the upfront cost of getting into your first home.
To see what is possible within the price caps, explore our current house and land packages, learn more about how house and land packages work, or speak with our team.
What is lenders mortgage insurance (LMI)?
LMI is a one-off premium that protects the lender if a borrower cannot repay their home loan. It usually applies when you borrow more than 80% of the property’s value.
Do first home buyers have to pay LMI?
Most first home buyers with less than a 20% deposit will need to pay LMI. Eligible first home buyers using the 5% Deposit Scheme can buy with a minimum 5% deposit without paying LMI.
How much does LMI cost?
LMI cost depends on your deposit size, loan amount, lender and insurer. Your lender or broker can provide a quote based on your situation.
How can you avoid paying LMI with a low deposit?
Options include the 5% Deposit Scheme, a guarantor home loan or an LMI waiver for eligible professionals. The right option depends on your circumstances and lender.
Can LMI be added to your home loan?
Most lenders allow LMI to be added to the loan rather than paid upfront. This increases the amount you borrow and the interest you pay over time.
Who is eligible for an LMI waiver?
Some lenders offer LMI waivers to borrowers in certain professions, such as medical, legal and accounting fields. Eligibility criteria vary between lenders.
Does the 5% Deposit Scheme remove LMI?
For eligible buyers, the scheme replaces LMI with a government guarantee to the lender. LMI may apply if ongoing obligations, such as living in the home, are not met.
Is LMI a one-off cost?
LMI is generally a one-off premium paid at settlement or added to the loan. If you refinance with less than 20% equity, a new premium may apply.
This article is general information only and does not take into account your personal financial circumstances. Speak with a lender or mortgage broker before making any financial decisions. 5% Deposit Scheme details are current as published on firsthomebuyers.gov.au.