Buying a home in Queensland has become more competitive, especially for first-home buyers trying to break into the market. 

In areas like Logan, where prices remain relatively affordable compared to Brisbane, demand is strong, and even modest deposits can feel out of reach. With rising property values and cost-of-living pressures, many buyers are turning to lenders with less than a 20% deposit. 

That’s when the question of what Lenders Mortgage Insurance is comes into play. LMI can add thousands to your home loan costs, yet many buyers don’t fully understand what it is or how it works. Knowing how LMI affects your loan, your repayments, and your long-term budget is crucial, especially in today’s home loan landscape.

Here’s a clear, no-jargon guide to help you understand LMI, when it applies, including its pros and cons. 

Confused about LMI and how it affects your loan? Our Logan mortgage brokers at Cube Loans can break it down clearly. Get help understanding your LMI premium, LVR, and how it impacts your loan structure. Call us at 1800 774 756 to get started today.

What Is Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) is a one-off insurance payment that covers the lender if you default on your home loan.

To be clear, it doesn’t cover you. It’s purely about reducing the lender's risk. If you stop making loan repayments and the bank sells your home for less than what you owe, LMI covers their shortfall.

LMI usually kicks in when your Loan-to-Value Ratio (LVR) is over 80%. LVR refers to the percentage of the property value you're borrowing. So if your deposit is less than 20%, your LVR is above 80%, and your lender may require LMI before approving the loan.

Here’s a quick example:

• Property price: $700,000
  
  
• Deposit: $70,000 (10%)
  
  
• LVR = 90% → LMI likely required

The higher the LVR, the higher the risk to the lender, and the more likely you’ll need to pay LMI.

How Much Does Lenders Mortgage Insurance Cost?

There’s no fixed rate for LMI. Your LMI premium depends on:

• The loan amount
  
  
• The size of your deposit
  
  
• Your LVR
  
  
• The insurance provider
  
  
• Your loan type (e.g. Principal and Interest vs Interest Only)
  
  
• Sometimes the loan term and even your job or profession
  
  

Typical Range:

For a $600,000 home loan with a 10% deposit, LMI might cost you around $10,000–$15,000. The higher your LVR, the steeper the cost.

Some lenders allow you to add the LMI premium to your loan, so you don’t pay upfront. But you’ll pay interest on it over time. Use an LMI calculator or speak with your mortgage broker to get a personalised estimate based on your situation.

Can You Avoid Paying Lenders Mortgage Insurance?

Yes, but it requires either a bigger deposit or some extra support. Here are some of the ways in which you can waive an LMI:

1. Save a 20% deposit

The most direct way to avoid LMI is to bring your Loan-to-Value Ratio down to 80% or less. That means saving at least 20% of the property’s value, plus extra for stamp duty, conveyancing fees, and building insurance.

This can take longer, but it avoids the added cost of LMI and can improve your comparison rate and interest rate options.

2. Use a guarantor

If a family member is willing to guarantee a portion of your loan (using equity in their own property as security), many lenders will waive the LMI. This is often called a family guarantee loan.

But there are risks. If you default, your guarantor is liable.

3. Government schemes

The Australian Government runs several Home Guarantee Scheme options through Housing Australia, including:

• First Home Guarantee (previously First Home Loan Deposit Scheme) – Buy with as little as 5% deposit and no LMI
  
  
• Family Home Guarantee – For single parents with 2% deposit
  
  
• Regional First Home Guarantee – Support for regional buyers

These schemes help first-time buyers enter the property market sooner without needing 20% upfront.

Is Lenders Mortgage Insurance Worth It?

LMI can actually be a useful tool if it helps you buy a home sooner. Especially in a rising property market, waiting years to save a full 20% could mean missing out or having to spend even more later.

Pros of paying LMI:

• Get into the market sooner
  
  
• Start building home equity earlier
  
  
• Benefit if prices rise
  
  
• Access property while interest rates are low
  
  
• Buy in a better location or closer to your property goals
  
  

Cons of paying LMI:

• It’s a significant added cost
  
  
• You’re paying for someone else’s insurance
  
  
• It’s not tax-deductible for owner-occupiers
  
  
• You’ll likely have higher loan repayments
  
  
• Could impact your loan servicing capacity

LMI might make sense if your savings timeline is long, or you’re in a fast-moving market. But for some, the added debt isn’t worth it. Always compare the terms and conditions of different lenders and speak with a financial advisor or a mortgage broker before deciding.

Not sure if you need to pay LMI or how much? Cube Loans’ Logan mortgage brokers can calculate your likely LMI cost and explore strategies to reduce or avoid it, all as part of your personalised home loan plan. Call 1800 774 756 today for a free consultation. 

FAQs

How much is an LMI on a $500,000 loan?

If you have a 10% deposit on a $500,000 loan, your LMI could cost between $8,000 and $11,000, depending on the lender and other factors like your loan type. It’s best to use an online LMI calculator for a more accurate estimate.

How to avoid LMI without 20% deposit?

You can avoid LMI with less than 20% deposit by:

• Using a guarantor, usually a family member
  
  
• Applying through government schemes like the First Home Guarantee
  
  
• Qualifying for special lender offers or professional packages

Is lenders' mortgage insurance junk insurance in Australia?

No. While it doesn't protect you directly, it’s not considered “junk insurance.” LMI protects the lender’s risk and helps borrowers access the property market sooner with a smaller deposit.

How much is an LMI on a 10% deposit?

With a 10% deposit, your LVR is 90%, which means LMI will likely apply. On a $600,000 property, LMI could cost anywhere from $10,000 to $16,000, depending on the lender and loan terms.

What is the purpose of Lenders Mortgage Insurance?

LMI protects the lender, not the borrower. If you default on your loan and the sale of the home doesn’t cover what’s owed, LMI covers the lender’s loss. It allows buyers to purchase with a smaller deposit, but at an extra cost.

Is LMI refundable if I refinance or sell the property?

No. LMI is a one-off payment and generally non-refundable if you switch lenders or pay off the loan early.

Is Lenders Mortgage Insurance tax-deductible?

For owner-occupiers, LMI is not tax-deductible. However, if the property is an investment, you may be able to claim it over five years. Check with the Australian Tax Office or your accountant.

Can I choose my own LMI provider?

No. The lender chooses the LMI provider, not the borrower. It's part of the loan conditions.

Can LMI be paid in instalments?

Usually, no. But many lenders let you capitalise the LMI into the loan, meaning you borrow more and repay it over time.

Conclusion

Understanding Lenders Mortgage Insurance is essential for any home buyer planning to enter the property market with less than a 20% deposit. Whether you're weighing up your deposit options or trying to access government schemes, knowing how LMI works puts you in a stronger position.

If you’re planning to purchase a house or a property in Logan, reach out to our expert mortgage brokers at Cube Loans for free, personalised advice. Call us today at 1800 774 756. We’ll help you understand LMI and find the right loan options so you can move forward with confidence.