How to avoid LMI on your home loan
Explore five ways to avoid Lenders Mortgage Insurance, including saving a 20% deposit, government schemes and home loans with no LMI.
Table of Contents
You can avoid Lenders Mortgage Insurance (LMI) by keeping your loan-to-value ratio (LVR) at 80% or below. Some lenders like Unloan may also allow you to borrow up to 90% LVR with a higher interest rate and no LMI. Other options include using a government guarantee scheme, family guarantor or qualifying for a professional waiver. Each path has its own rules and pros and cons. Knowing your choices helps you pick the one that fits your needs.
What is LMI and why do lenders charge it?
LMI is an insurance premium that protects the lender, not you, if you default on your home loan. It applies when the property sale doesn't cover the outstanding debt. You pay the premium, but the lender receives the payout.
LMI is typically required when your deposit is less than 20% of your property's value. At that point, your LVR exceeds 80%, and the lender considers you a higher-risk borrower.
The larger your loan size, the more LMI you'll pay. The LVR threshold works like this:
| LVR | LMI premium |
|---|---|
| 80% or below | No LMI applies |
| 81%–85% | LMI applies at a lower rate |
| 86%–90% | LMI applies at a moderate rate |
| 91%–95% | LMI applies at the highest rate |
LMI is a one-off premium, usually paid at settlement. Many lenders let you add it to your loan balance, a process called capitalising. That reduces the cash you need upfront, but you then pay interest on the LMI amount for the life of the loan.
On a 30-year loan at 6.0% p.a., a $20,000 LMI premium capitalised onto the loan could cost you an extra $23,000 in interest. That makes the true cost closer to $43,000.
How much does LMI cost?
LMI generally ranges from 1% to 5% of your loan amount, depending on your LVR and the lender's specific policies.
On a $500,000 loan with a 10% deposit, LMI could cost over $10,000. The bigger the gap between your deposit and 20%, the higher the premium. The premium amount can be different depending on the insurer, so make sure you get a quote from the lender you're considering.
Five ways to avoid paying LMI in Australia
You can avoid LMI through five main paths:
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saving a 20% deposit
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using the Australian Government 5% Deposit Scheme
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applying a family guarantee
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choosing a lender that charges a higher interest rate instead of LMI
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depending on your job you may also qualify for a professional waiver.
Not every path suits every buyer, so the sections below walk through each one.
Save a 20% deposit
Saving a 20% deposit before you apply keeps your LVR at 80% or below, and most lenders will not charge LMI at that point.
On a $700,000 property, a 20% deposit means saving $140,000. That’s a significant goal, but it removes the insurance premium entirely and typically gets you access to more competitive interest rates.
Use the Australian Government 5% Deposit Scheme
The 5% Deposit Scheme is an Australian Government scheme for eligible first home buyers. It allows you to purchase with as little as a 5% deposit and pay no LMI. The government guarantees the remaining 15% of the purchase price, so the lender treats the loan as if it has an 80% LVR.
Key features of the 5% Deposit Scheme include:
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The scheme requires a minimum 5% deposit, or a minimum 2% deposit for eligible single parents and legal guardians.
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The government guarantees the remaining 15%, you still borrow 95% but pay no LMI.
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Income caps were removed as of 1 October 2025.
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Property price caps apply, for example, $950,000 for Melbourne and Geelong metropolitan areas.
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You must be an Australian citizen or permanent resident.
Please note that Unloan doesn't participate in the Australian Government 5% Deposit Scheme, shared equity or other government-supported home buyer assistance schemes.
Use a family guarantee
A family guarantee, sometimes called a guarantor loan, lets a close family member use the equity in their own property as extra security. That family member is usually a parent. This can bring your effective LVR below 80%, which removes the LMI trigger.
The guarantor does not need to hand over cash. Instead, they put up a portion of their property as security. The guarantee can often be released once you have built enough equity in your own home.
If you cannot meet your repayments, the guarantor's property is put at risk. Open talks with the guarantor and getting them independent legal advice are important steps to take before you go ahead.
Please note that Unloan doesn't support loans with a family guarantor.
Choose a lender that doesn't charge LMI above 80% LVR
Some lenders don't charge LMI at all above an 80% LVR. Instead of a one-off premium, they apply a higher interest rate to the loan. Unloan is one of these lenders, offering up to 90% LVR with no LMI and a higher rate.
This doesn't make the lender's extra risk disappear. It changes how you pay for it: an ongoing cost built into your rate, rather than a lump sum at settlement.
That difference matters more than it first appears, so it's worth understanding before you compare options.
Qualify for a professional LMI waiver
Some lenders offer LMI waivers to borrowers in set jobs, typically medical practitioners, lawyers, accountants, and some other high-income professionals.
Eligibility rules vary between lenders. Some require you to be a member of a relevant professional association. Others set a minimum income threshold. If you work in one of these fields, ask lenders directly whether a waiver applies to you.
LMI versus a higher interest rate: which costs less?
Neither is automatically cheaper. LMI is a one-off cost paid at the start. A rate loading is an ongoing cost paid over time. Which one works out cheaper depends mainly on the difference in interest rates and how long you think you'll hold the loan.
| Pay LMI | No LMI, Higher rate | |
|---|---|---|
| Cost at settlement | One-off premium, or capitalised onto the loan | None |
| Ongoing cost | If the premium was capitalised into the loan, interest on the premium otherwise none | Higher rate while your LVR is above 80% |
| If you refinance early | Premium is already spent or is part of the loan that you refinance | Interest rate changes when you leave |
| If you sell in a few years | Premium is already spent | You only paid the loading for the years you held the loan |
Three questions you could ask to decide which option is best for your needs are:
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How long will you hold the loan for?
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What is the difference between the interest rates for each option?
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What are the other upfront costs like stamp duty that you need to account for?
How to avoid LMI when refinancing
You can avoid LMI when refinancing by keeping your LVR at or below 80% at the time of your new application. If your property has grown in value since you first bought it, your LVR may have already fallen below that threshold. This can happen even without you making extra repayments.
Ask your lender to order a valuation as part of the refinancing process. If your LVR has dropped below 80%, you generally will not need to pay LMI on the new loan.
Switching lenders can trigger a fresh LMI assessment. Some lenders apply their own policies on how they treat LVR at refinance, including when you top up a loan or restructure it. Checking this before you apply saves surprises.
With Unloan you can also refinance your current loan if it's between 80.01% and 90% LVR and not pay LMI (a higher interest rate applies).
Can I get LMI waived?
LMI can be waived if you qualify for a professional exemption or use a government guarantee scheme like the 5% Deposit scheme. It is also waived when your LVR is at or below 80% at the time you apply. Outside these situations, most lenders will apply LMI as a standard condition.
If none of these options apply to you directly, a family guarantee can have the same practical effect. It removes the LMI trigger without requiring you to save a full 20% deposit yourself.
Please note that Unloan doesn't support loans with a family guarantor.
A worked example: the cost of LMI vs. saving longer
Say you want to buy a property worth $600,000 and you have saved $60,000, a 10% deposit, giving you an LVR of 90%.
At that LVR, LMI could add between $5,400 and $27,000 to your loan costs, based on the 1%–5% range. If you capitalise a $15,000 LMI premium onto a 30-year loan, the extra interest adds up significantly. The true cost ends up well above the face value of the premium.
Alternatively, you could keep saving until you reach $120,000, the 20% deposit threshold, and pay no LMI at all. The right choice can depend on property prices in your target area and how long it would take to save the extra amount. Consider seeking independent financial advice if you're unsure what the best option is for you.
How to avoid LMI as a first home buyer
First home buyers in Australia can access either the Australian Government 5% Deposit Scheme or the Help to Buy Scheme to avoid paying LMI. These schemes each have their own eligibility criteria and conditions. Find out more at https://firsthomebuyers.gov.au/
If these government schemes don't suit your situation, for example, because the property price goes over the cap in your area, there are other paths open to you. In that case, a family guarantee is the next option worth looking into. Saving toward 20% remains an option worth considering, even if it takes more time.
State-specific first home buyer grants and stamp duty concessions also exist in New South Wales, Queensland, Victoria, and other states. These do not directly avoid LMI, but they can cut the total upfront cost of buying, which may help you build a larger deposit sooner.
Frequently asked questions
Do all lenders charge LMI at 80% LVR?
Most major lenders apply LMI when your LVR exceeds 80%. Some lenders like Unloan also allow you to borrow up to 90% LVR with a higher interest rate and no LMI. Policies vary, so comparing lenders directly is worthwhile.
Can I add LMI to my loan instead of paying upfront?
Most lenders allow you to capitalise LMI onto your loan balance. Capitalising the LMI premium reduces the cash you need at settlement. However, you pay interest on that amount for the full loan term, which increases the total cost significantly.
Is the Australian Government 5% Deposit Scheme available in all Australian states?
The Australian Government 5% Deposit Scheme is a federal scheme open to eligible buyers across Australia. Property price caps vary by location, so check the cap for your target area before you apply.
What is the difference between LMI and a Low Deposit Premium?
Some lenders charge a Low Deposit Premium (LDP) instead of LMI. Like LMI, it applies when your deposit is below 20% and adds a cost to your loan. The specific conditions and amounts vary by lender, ask your lender which applies to your loan.
About Unloan
At Unloan, we offer variable-rate home loans for both purchasing and refinancing, with no application fees and no ongoing fees. Our loyalty discount means you'll get an additional 0.01% p.a. discount on your current rate each year up to a maximum of 30 years. Apply for conditional approval online in minutes.
