What is LMI, and what does it actually cost you?
Lenders Mortgage Insurance is an insurance premium you pay so that your lender is protected if you default. It is not insurance for you. If you stop paying and the property sells for less than the outstanding loan, the insurer covers the lender's shortfall and can then pursue you for it.
That sentence is the whole thing, and it surprises a lot of buyers who assumed the opposite.
LMI is charged when your loan is more than 80% of the property value. It is the single largest avoidable cost in a low-deposit purchase, and understanding what triggers it is what lets you structure around it.
What it costs
Premiums vary by lender, insurer, property value and deposit size, so there is no single figure. As an indicative benchmark, Canstar has published a premium of roughly $36,000 on a $700,000 purchase with a 5% deposit for a first home buyer owner-occupier, using quotes it states are correct as at 3 May 2024.
Two things make that number worse than it first looks.
It is usually capitalised. Rather than paying it at settlement, most buyers have it added onto the loan. So you borrow the premium, and then pay interest on it for the life of the loan. A $36,000 premium on a 30-year loan costs considerably more than $36,000.
It scales against you. The smaller your deposit, the higher the premium — precisely the buyers with the least cash pay the most. And because the premium tends to rise with the loan amount, buying in a more expensive market costs you twice.
Why it exists
Not as a scam, to be fair about it. Lenders write loans against property, and a loan above 80% of the property's value carries meaningfully more risk if prices move or a borrower's circumstances change. LMI is how that risk gets priced and transferred.
The regulator watches this closely. APRA's March 2026 quarterly figures show around 30.7% of new loans written above 80% LVR, and the share of new lending at six times debt-to-income or more climbing to 6.4%. From 1 February 2026, APRA has also capped how much high debt-to-income lending banks can write.
What that means for you as a buyer is simple enough: the high-LVR, LMI-backed application is not the one lenders are most eager to approve. If you can present at 80%, you are a more straightforward file.
The four ways to avoid it
Save a 20% deposit. The obvious route, and for many households an 11-year one on current figures. It works if your timeline allows it.
Use a guarantee. Under the Australian Government 5% Deposit Scheme, the government guarantees the portion above your 5% deposit, so no LMI is charged. Since 1 October 2025 there are no income caps and no place limits, though property price caps still apply by state and region. The Single Parent Stream needs a minimum of 2% and is not restricted to first home buyers. If you are eligible for either, this is the cheapest answer available.
Use a family guarantor. A family member secures part of your loan against their own property. It works, and it puts their home at risk. Worth understanding fully before anyone signs.
Structure the deposit to 20%. This is what SmartShare does. Your contribution of a minimum 2.5% plus purchase costs, and a 17.5% contribution from HAS, bring the deposit to 20%. Your primary home lender's loan sits at 80% LVR, and LMI does not apply.
What the trade actually is
Nothing here is free, and it would be dishonest to present it that way.
With LMI, you pay a premium — often capitalised, often five figures — and give up nothing else. You own the home outright and keep all of the growth.
With a government guarantee, you give up nothing at all, which is why you should check your eligibility before anything else.
With SmartShare, you avoid the premium and instead share a percentage of the growth in your home's value, settled when you sell, refinance out, or buy out the HAS position. The home's value is not shared. The title is in your name, and HAS holds a second mortgage as security, the same instrument your primary lender uses.
Which trade is better depends on how long you expect to hold the property, what you would otherwise pay in premium and interest on it, and whether you can reach 20% in a timeframe that makes sense for your life. It is a genuine calculation with a real answer, and it is different for different people.
The question to ask your broker or lender
Ask for the LMI premium as a dollar figure on your specific purchase, and then ask what it costs over the life of the loan once it is capitalised.
Most buyers are quoted the first number and make the decision on it. The second number is the one that matters.
Frequently asked questions
What is Lenders Mortgage Insurance?
It is an insurance premium charged when your home loan exceeds 80% of the property's value. It protects the lender against loss if you default. It does not protect you, and the insurer may pursue you for any amount it pays out.
How much does LMI cost in Australia?
It varies by lender, insurer, property value and deposit size. As an indicative benchmark, Canstar has published a premium of approximately $36,000 on a $700,000 purchase with a 5% deposit, using quotes stated as correct at 3 May 2024.
Is LMI added to my loan?
Usually, yes. Most buyers capitalise the premium onto the loan rather than paying it at settlement, which means paying interest on it for the life of the loan.
How can I avoid paying LMI?
By reaching an effective 20% deposit. That can be through saving it, a government guarantee under the Australian Government 5% Deposit Scheme, a family guarantor, or a structured deposit arrangement such as SmartShare.
Does a bigger deposit reduce LMI?
Yes. The premium falls as your deposit rises, and disappears entirely at 20%.
Is LMI refundable if I sell early?
Partial refunds are sometimes available if the loan is discharged within a short period after settlement, but the terms vary by insurer and are generally limited. Check the specific policy before relying on it.