If you’re looking to buy your first home, you’ve probably seen the term LMI pop up — and it can seem confusing at first.
The good news? It’s actually pretty straightforward once you understand why it exists and when you have to pay it.
Here’s the simple breakdown.
1. What LMI actually is
Lenders Mortgage Insurance is a fee charged by the bank when your deposit is under 20%.
It protects the lender, not you, in case you can’t repay the loan.
It doesn’t cover your home, your repayments, or your belongings — it simply reduces the bank’s risk when they’re lending you a high percentage of the property price.
Most first-home buyers pay LMI unless they use a scheme that allows them to avoid it.
2. How much does LMI cost?
The cost depends on:
- The size of your deposit
- Your loan amount
- The lender you choose
But as a guide, LMI can commonly range from $8,000 to $20,000+ for first-home buyers with small deposits.
Most lenders allow you to add LMI to your loan, so you don’t have to pay it upfront. But it still increases your loan size — and that’s why many buyers try to avoid it if they can.
3. How to avoid paying LMI
There are a few ways first-home buyers can skip LMI completely:
✔️ Use the Home Guarantee Scheme — Buy with 5% deposit and no LMI because the government guarantees part of your loan.
✔️ Use a family guarantor — A parent can use a portion of their home’s equity to strengthen your security, allowing you to avoid LMI even with a small deposit.
✔️ Save a 20% deposit — This is the traditional way — but not the most realistic for most first-home buyers.
Avoiding LMI can save you tens of thousands and help you qualify sooner.
4. Why LMI exists (and why it’s not always bad)
LMI gets a bad reputation, but it actually encourages banks to lend to buyers with smaller deposits.
Without LMI, most first-home buyers would be forced to save 20% — which could take years.
So while it’s a fee no one loves, it does make it possible for more people to enter the market sooner. And when combined with government support and good planning, many buyers safely purchase with 5% or even 2% deposits.
