Key Takeaways
Lenders mortgage insurance (LMI) usually applies when you borrow above 80% of a property's value, so a deposit below 20% can bring extra costs.
LMI protects the lender, not you. You pay the premium, but it won't cover your repayments if you can't pay the loan.
Your premium depends on the loan amount, deposit and insurer. Adding it to your loan can increase your interest costs over time.
A 20% deposit, the Australian Government 5% Deposit Scheme, a family guarantee or a professional waiver may help you avoid LMI, depending on eligibility.
A smaller deposit can help you buy sooner, but it may also come with extra costs. Lenders mortgage insurance (LMI) can add thousands to your home loan when you borrow more than 80% of a property's value.
If you're buying your first home in Albury-Wodonga, speaking with a first home loan broker can help you understand how LMI affects your upfront costs, loan repayments and overall budget.
What Does LMI Cover?
LMI is a one-off premium that protects the lender if you default and the property sells for less than you owe. It doesn't protect you, your income or your home.
Your loan-to-value ratio (LVR) is the share of the property's value you're borrowing. When it is above 80%, lenders usually require LMI. The lender arranges the cover and passes the cost on to you.
What Affects the Cost of LMI?
LMI doesn't have a set price. The premium depends on:
Loan size, with larger loans generally attracting higher premiums
LVR, with premiums typically rising as you approach 90% and 95%
Loan purpose, since investment loans may be priced differently
Lender and insurer, as each uses its own pricing rules
Increasing your deposit from 5% to 10% may reduce the premium, while reaching 20% usually removes it. A written quote based on your actual loan and deposit will show what the lender would charge.
How Can You Pay LMI?
Depending on your lender, you may be able to pay LMI in one of two ways:
Upfront Payment
You pay the premium from your savings at settlement. This avoids paying interest on LMI over the life of the loan, but leaves you with less cash for other buying costs, such as stamp duty, legal fees and moving expenses.
Capitalised Premium
The premium is added to your loan, so you repay it over time and pay interest on it too. As an illustration, a $10,000 premium financed over 30 years at a constant 6% rate would add about $60 a month and $11,600 in interest. Your actual cost will depend on the loan terms and interest rate.
Capitalising LMI also increases your LVR, and the total loan must still sit within the lender's limits.
How Can You Avoid LMI?
These options may help you reduce or avoid LMI, depending on your deposit, the lender and your circumstances:
20% Deposit
A 20% deposit, plus enough to cover other buying costs, usually removes the need for LMI. It also means borrowing less, which can reduce your monthly repayments and the total interest paid over the life of the loan. The trade-off is that saving a larger deposit may take longer.
5% Deposit Scheme
The Australian Government 5% Deposit Scheme may allow eligible first home buyers to purchase with a deposit as low as 5% without paying LMI. There are no income caps, but property price caps apply and a participating lender must still approve your loan. The published 2026 price caps are $800,000 for Lavington in New South Wales and $650,000 for Wodonga in Victoria. The official 5% Deposit Scheme rules explain the conditions, including how the property and location are assessed. Being eligible for the scheme doesn't guarantee loan approval.
Family Guarantee
A parent or close relative may use equity in their property as extra security for your loan, which could remove the need for LMI. A guarantor home loan broker can explain how the guarantee works, when it might be released and what your relative is agreeing to. Their property could be at risk if repayments aren't met, so independent legal advice is worth considering.
Professional Waivers
Some lenders waive or reduce LMI for eligible professionals, including doctors, lawyers and accountants, at higher LVRs. Rules vary by lender and loan type, so a mortgage broker for doctors can check which medical waivers are available and what conditions apply.
How LMI Affects Investors and Refinancers
LMI may also affect what you pay when you're investing in property or switching home loans:
For rental properties, the Australian Taxation Office (ATO) generally treats eligible LMI as a borrowing expense. Where total borrowing expenses exceed $100, they're usually claimed over five years or the loan term if shorter. Your accountant can check how this applies to your loan.
If you refinance while your LVR is above 80%, your new lender may charge LMI again because the old policy doesn't transfer. When comparing rates with a refinance home loan broker, include that possible premium in the total cost of switching.
LMI on a $500,000 Lavington Home
Josh and Ella are considering a $500,000 home in Lavington. They've saved $50,000 for a 10% deposit, which means a $450,000 loan before buying costs. Let's say a lender quotes $10,000 for LMI, although the actual premium may be different.
They could pay the premium, keep saving towards a 20% deposit or check whether the 5% Deposit Scheme might apply. The property's price is within the published local cap, but that doesn't automatically make them eligible. A participating lender still needs to assess their application.
This example is for illustrative purposes only. Actual LMI costs, scheme eligibility and loan approval depend on the lender and your individual circumstances.
Frequently Asked Questions (FAQs)
How much does LMI cost?
The amount depends on your loan, deposit, loan purpose and insurer. Even with a 10% deposit, the premium could reach several thousand dollars. A written quote for your specific loan will tell you what to budget for.
Is LMI refundable if I sell or refinance?
Sometimes. LMI doesn't transfer to a new lender, but a partial refund may be available if you repay your existing loan early. Refund rules differ between lenders and insurers, so check before switching. You may also face a new premium if your LVR is still above 80%.
Is LMI tax deductible?
For an owner-occupied home, LMI generally isn't deductible. For an income-producing rental property, it may count as a borrowing expense. The ATO generally requires eligible borrowing expenses over $100 to be claimed over five years or the loan term if shorter. Mixed-use loans may need apportionment, so check with your accountant.
Does paying LMI ever make sense?
It might. Buying sooner could mean less time paying rent, but you need to weigh the LMI premium and larger loan against the cost of waiting. Property prices can also fall, so compare both options using realistic repayments and enough savings for unexpected costs.
The Bottom Line
Start with a written LMI quote, then compare it with any deposit scheme, family guarantee or professional waiver that may be available to you. That way, you're looking at the full cost of each option, not just the deposit.
At Loan Street Finance, we can talk through those figures with you and compare lenders across Albury-Wodonga.
This article provides general information and does not consider your personal objectives, financial circumstances or needs. Consider seeking advice from a qualified professional before making any decisions.