Can first home buyers avoid LMI?

Yes. Eligible buyers may avoid Lenders Mortgage Insurance through the federal First Home Guarantee Scheme, or by using a family guarantor or a 20% deposit.

How much deposit do I need to buy a home in Australia?

Most lenders require a 20% deposit to avoid Lenders Mortgage Insurance (LMI). First home buyers can often purchase with as little as 5% through the First Home Guarantee scheme, or 10 to 15% with LMI included in the loan.

What government grants are available for first home buyers?

Depending on your state and property type, you may be eligible for the First Home Owner Grant, stamp duty concessions, and federal schemes like the First Home Guarantee. Eligibility usually depends on price caps, income, and whether the property is new or established.

Can I buy a home with a guarantor?

Yes. A family guarantor (typically a parent) can use equity in their own property as additional security, allowing you to borrow up to 100% of the purchase price and often avoid LMI.

Journal

First Home Buyers · October 2026 · 5 min read

Lenders Mortgage Insurance Protects the Bank. You Are the One Paying for It

It sounds like insurance that protects you. It protects the lender, you pay the premium, and it can run into the tens of thousands. Here is what it is and the legitimate ways around it.

Photo: Pancakedrawer, CC BY-SA 4.0 via Wikimedia Commons

There is a line in plenty of first home buyer loan approvals that runs into the thousands, sometimes the tens of thousands. Lenders mortgage insurance. LMI.

The name does a lot of quiet work. It sounds like insurance that protects you, the borrower, if something goes wrong. It does not. It protects the lender. You just pay the premium.

What LMI actually is

When you borrow more than 80 percent of a property's value, the lender is exposed. If you stop paying and the home has to be sold, the sale might not cover the loan. LMI is an insurance policy the lender takes out against that shortfall, and the cost of the policy is passed to you.

If the worst happens and the insurer pays out the lender, the insurer can then come after you for the money. You are paying for insurance that can still chase you. That surprises nearly everyone the first time they hear it.

LMI does not protect you. It protects the lender from you, and you pay for it.

What it costs

There is no flat rate. The premium depends on the loan size, the deposit percentage, the lender and the insurer behind them, and it climbs steeply as the deposit shrinks.

As a rough shape, and these are illustrative figures only, a buyer with a 10 percent deposit on a $600,000 home might see a premium in the low tens of thousands. At 5 percent it is higher again. Every lender's table is different, which is why the number has to be quoted on your file, not guessed from an article.

Most people do not pay it out of pocket. It is usually added to the loan, which softens the sting on day one and then quietly charges you interest on it for years.

Australian home bought with a smaller deposit — Photo: Alex Proimos from Sydney, Australia, CC BY 2.0 via Wikimedia Commons

The ways around it

A 20 percent depositThe clean exit. LMI generally disappears once you borrow 80 percent of the value or less.
A family guaranteeA relative's equity covers the gap instead. Our guarantor guide walks through how that works and what it asks of them.
A government guaranteeThe current scheme lets eligible buyers purchase with a 5 percent deposit and no LMI. Our grants guide covers it.
Certain professionsSome lenders waive LMI for some occupations, and the lists differ from lender to lender.

None of these is automatically the right answer. A guarantee puts someone else's property on the line. Waiting for 20 percent can take years while prices move. The scheme has its own rules. It is a comparison, not a loophole.

Is paying it ever worth it

Sometimes. The arithmetic is whether buying now with LMI beats saving for another three years in a market that may not wait for you. If prices rise faster than your savings, the premium can end up cheaper than the delay. If prices are flat, waiting usually wins.

What we would push back on is paying it without seeing the number first. Ask what the premium is in dollars, ask what it adds to the loan, and ask what the repayment difference looks like. Then decide.

The 80 percent line is the loan to value ratio doing its work, and our LVR guide explains that piece of it. If you are still building the deposit, the deposit guide is the right starting point.

The short versionLMI protects the lender, not you, and you pay the premium when you borrow more than 80 percent. It varies by lender, it is usually added to your loan, and there are three legitimate ways around it: a bigger deposit, a family guarantee, or a government guarantee. Get the dollar figure before you agree to it.

Do you have a quote with LMI sitting in it and no idea whether it is fair? Book a call and we will read it with you.

The information in this article is general in nature and does not take into account your personal circumstances. Speak with a qualified mortgage broker before making lending decisions.

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