How to Avoid LMI: 11 Strategies to Consider

If you are unable to save up the traditional 20% deposit, a lender may require you to pay lenders mortgage insurance (LMI), a one-off, non-refundable payment that allows you to take on a mortgage with a smaller deposit.

It’s important to understand that LMI protects the lender in the event you default on mortgage repayments, and not you as the borrower.

LMI can cost thousands of dollars depending on the size of the loan and the deposit you have saved. But paying LMI isn’t inevitable, even if you lack a 20% deposit.

When buying a house, investigate waivers, discounts, government schemes and other options that may help you avoid this extra cost.

How much deposit do you need to avoid LMI?

Generally, your deposit needs to be at least 20% of the property’s value to avoid LMI — otherwise you’ll need to qualify for a scheme, discount or waiver as described below. → Show me ways to avoid LMI

How to pay less LMI

If you just want to pay as little LMI as possible, the amount of deposit you need to save depends on the property you plan to buy, and your lender. That’s because LMI costs will vary between lenders as some offer their own products while others use independent insurance providers such as Helia or QBE.

The following tables show how LMI costs increase as deposit size decreases based on data from the HELIA LMI Fee Estimator.

Example 1: $500,000 property, purchased by an owner-occupier, first home buyer with a 30-year loan.

Deposit amount	Loan amount	LVR	Total LMI Cost
$80,000	$420,000	84%	$3,522.27
$50,000	$450,000	90%	$8,679.89
$40,000	$460,000	92%	$11,530.32
$25,000	$475,000	95%	$14,871.82

Source: HELIA LMI Fee Estimator

Example 2: $1 million property purchased by an owner-occupier, first-home buyer with a 30-year home loan.

Deposit amount	Loan amount	LVR	Total LMI Cost
$180,000	$820,000	82%	$7,258.86
$150,000	$850,000	85%	$10,771.82
$100,000	$900,000	90%	$22,140.00
$50,000	$950,000	95%	$39,923.75

Source: HELIA LMI Fee Estimator

11 ways to avoid paying LMI

Save a larger deposit: The first step to consider when trying to avoid LMI is to simply continue saving until you have a 20% deposit. Alternatively, you could consider buying a cheaper property.
Qualify for a professional LMI waiver or discount: Some lenders offer LMI waivers for certain professionals. Lawyers, doctors and accountants may be eligible based on their income and stability (lenders may consider these as safer borrowers to repay their mortgage).
Use government schemes: State and federal governments offer grants to first home buyers to assist them in getting a foot on the property ladder such as the Home Guarantee Scheme — and the First Home Owners Grant. If eligible, this could save you thousands on your deposit, potentially helping you avoid LMI. Specific lenders may also have offers to reduce LMI such as NAB’s sustainable improvements scheme.
Apply with a combined income: Another option to avoid LMI is to combine a deposit or income with someone else. Lenders offer specialised home loan products so both parties repay their portion of the loan separately which may mitigate some risk.
Get a guarantor: Guarantor home loans occur when someone (often a family member) uses the equity in their current property as security against your mortgage. This can boost your borrowing power and negate the need for LMI.
Use a gifted deposit: Inheritance, bonuses or the ‘bank of mum and dad’ may also increase your deposit enough to avoid paying LMI.
Build up equity before refinancing: If you already own a property, building up and using the equity in your existing property may allow you to avoid paying LMI on your next.
Negotiate with your lender: Ultimately, lenders make money from mortgages through long-term interest repayments over the life of a loan. Meeting with a lending specialist from your financial institution may help find a mortgage catered to your specific needs.
Find a different lender: Not all lenders use the same LMI provider, which means the cost of LMI may vary depending on the institution you borrow money from. If you have only spoken to the Big Four banks, consider a non-bank lender or private lender for different mortgage products.
Work with a broker (or another property professional): Buyers agents and mortgage brokers may also be able to provide professional advice to reduce or prevent you from paying LMI by assessing your financial position and finding you a property within your budget.
Pay a low-deposit premium instead: Another fee associated with low-deposit home loans is a low-deposit premium. This fee may replace LMI but is essentially for the same purpose. It is a one-off fee charged to the borrower to mitigate the risk of a low deposit.