Lenders Mortgage Insurance (LMI) Explained: Is It Worth Paying?

What is Lenders Mortgage Insurance?

We often see clients wince when they first see the cost of Lenders Mortgage Insurance (LMI) on a loan estimate. It is, admittedly, a grudge purchase—insurance that you pay for, but which protects the lender (like the bank) if you default on your home loan.

In Australia, the market is dominated by two main providers, Helia (formerly Genworth) and QBE. These insurers cover the bank’s risk when they lend you more than 80% of a property’s value. Despite being called insurance, we prefer to frame LMI as an “access fee.” It allows you to enter the property market with a smaller deposit, potentially years before you could save the full 20%.

When is LMI Required?

Lenders generally trigger the LMI requirement when your Loan-to-Value Ratio (LVR) exceeds 80%. This 80% mark is the industry standard “safety line.”

Here is how the deposit size impacts the requirement:

Deposit Size	LVR	LMI Required?
20% or more	80% or less	No
15%	85%	Yes
10%	90%	Yes
5%	95%	Yes

Certain lenders may have different risk appetites. For instance, some non-bank lenders might charge a “Risk Fee” instead of LMI, which operates similarly but is managed internally rather than through an external insurer like QBE.

How Much Does LMI Cost? (2026 Update)

We find that LMI premiums are not linear—they jump drastically once you cross certain LVR thresholds. A loan at 90% LVR is significantly more expensive than one at 88%.

The final cost depends on four main factors:

• Loan size: A $600,000 loan has a higher premium than a $300,000 loan, even at the same LVR.
• LVR Tier: The jump from 89.9% to 90.1% can sometimes cost thousands.
• Borrower Type: First home buyers sometimes get discounts that investors do not.
• Location (Stamp Duty): This is a hidden cost many overlook.

The “Hidden” LMI Tax

You should be aware that some state governments charge stamp duty on the LMI premium itself.

• Duty Payable: VIC (10%), QLD (9%), SA (11%), WA (10%), NT (10%), TAS (10%).
• No Duty: NSW and ACT.

Estimated LMI Costs

Below are estimated costs for a first home buyer in Queensland (including duty) as of early 2026.

Property Value	Deposit	Loan Amount	Est. LMI Cost
$500,000	10% ($50k)	$450,000	$8,800 - $10,500
$500,000	5% ($25k)	$475,000	$15,500 - $17,000
$750,000	10% ($75k)	$675,000	$16,800 - $18,500
$750,000	5% ($37.5k)	$712,500	$28,000 - $31,000

Note: These figures are indicative based on Helia and QBE rate tables. Your actual premium will vary by lender.

How is LMI Paid?

You generally have two options for settling this bill, though one is far more popular than the other.

1. Capitalised onto the Loan (Most Common)

Our clients almost exclusively choose this method. The lender adds the LMI premium to your total loan amount.

• Pro: You don’t need to find an extra $15,000 in cash upfront.
• Con: You pay interest on the insurance premium for the life of the loan. On a 30-year mortgage at 6%, a $15,000 LMI fee could cost you over $32,000 in total repayments.

2. Paid Upfront

You pay the premium at settlement from your own funds.

• Pro: It’s cheaper in the long run because you pay zero interest on it.
• Con: It eats into your deposit funds, which might push your LVR higher and increase the LMI cost anyway.

3. Included in Fees

A few specialist lenders bake the cost into a higher interest rate or application fee. This is less transparent, so we always recommend asking for a breakdown.

LMI is Not Transferable

We cannot stress this enough: LMI is a policy attached to a specific loan, not to you as a person.

If you refinance your mortgage 12 months later to a different bank, and your LVR is still above 80%, you will likely have to pay LMI again. The new lender cannot “use” the old insurance policy.

Insider Tip: Lenders Helia and QBE used to offer partial refunds if you refinanced within 1-2 years, but these provisions have largely been removed or are notoriously difficult to claim. Assume the money is gone once paid.

Ways to Avoid LMI

1. The Home Guarantee Scheme (Major 2025/2026 Changes)

The Federal Government significantly expanded this scheme in October 2025. It is now the most powerful tool for first home buyers to avoid LMI.

• The Benefit: You can buy with a 5% deposit, and the government guarantees the remaining 15%. You pay $0 LMI.
• New Rules: As of late 2025, the “number of places” cap was removed. If you meet the eligibility criteria (income and property price caps), you can access the scheme without worrying about a waitlist.
• Price Caps: Caps have increased (e.g., $950,000 for Melbourne/VIC capital, $1.5m for Sydney/NSW capital).

2. Professional LMI Waivers

Certain lenders aggressively target high-income professionals by waiving LMI up to 90% LVR (and sometimes 95%).

• Medical: Doctors, dentists, surgeons, and sometimes nurses/midwives (90-95% LVR).
• Legal: Solicitors, barristers, judges (90% LVR).
• Resources: Mining engineers, geologists, surveyors (90% LVR).
• Accounting: CA or CPA qualified accountants (90% LVR).

3. Family Security Guarantee

A family member (usually a parent) uses the equity in their own home to secure part of your loan. This reduces your LVR to 80% on paper, eliminating the need for LMI entirely.

4. Save a 20% Deposit

This remains the “gold standard.” It takes longer, but it guarantees you access to the lowest interest rates and avoids the insurance cost.

The Big Question: Pay LMI or Wait?

We help clients wrestle with this dilemma daily. The math has shifted recently due to higher property prices and interest rates sitting around 6.4%.

When Paying LMI Makes Sense

In a Rising Market: If property values in your target suburb are growing by 5-10% per year, saving a deposit is like chasing a moving finish line.

• Example: On a $600,000 home, a 10% price rise is $60,000.
• Result: If LMI costs $12,000, paying it is cheaper than absorbing a $60,000 price hike while you wait.

To Escape the Rental Trap: If your rent is $650+ per week ($33,800 per year), paying a one-off $15,000 LMI fee to stop renting might be a sound financial trade-off.

When Waiting Makes Sense

In a Flat or Falling Market: If prices are stagnant, you are not penalized for waiting. You can use that time to save the full 20% and avoid the fee.

If You Have “Genuine Savings” Issues: Some lenders require you to show you saved the 5-10% deposit yourself over 3 months. If your deposit is a gift or inheritance, you might need to wait anyway to build up a savings history.

The Maths: A Real 2026 Example

Let’s look at the numbers for a $600,000 property, which is closer to the current national median for units and regional homes.

Scenario A: Buy Now with 10% Deposit

• Purchase Price: $600,000
• Deposit: $60,000
• Loan: $540,000
• LMI Cost: ~$13,500 (Capitalised)
• Total Loan: $553,500
• Repayments (6.4%): ~$3,462/month

Scenario B: Wait 2 Years to Save 20%

• Assumption: Prices rise just 4% per year.
• Future Price: $648,960
• Deposit Needed (20%): $129,792
• Loan: $519,168
• LMI Cost: $0
• Repayments (6.4%): ~$3,248/month

The Verdict: Waiting saves you roughly $214 a month in repayments. However, you would need to save an extra $69,000 (the bigger deposit plus the price increase) over those two years just to get into the market. For most people, saving $35,000 a year on top of rent is impossible. In this case, Scenario A is often the pragmatic winner.

LMI Considerations for Gladstone Buyers

Our local experience in Central Queensland highlights some specific regional factors for 2026.

High Yields & Investment Appeal: Gladstone is currently seeing gross rental yields of around 5-6%, which is stronger than many capital cities.

• Why this matters: If you are buying an investment property here with a small deposit, the strong rental income can help offset the higher loan repayments caused by capitalising the LMI.

Market Stability: Vacancy rates in Gladstone are hovering around 2.9% as of early 2026. This is a balanced market. Unlike the volatile boom-bust cycles of the past, the current market is steadier, meaning there is less risk of “negative equity” (owing more than the home is worth) if you buy with a small deposit.

Government Concessions: Don’t forget that the Queensland government abolished stamp duty for first home buyers building new homes (effective May 2025). If you build in the Gladstone region, you might save enough on stamp duty to effectively “pay for” your LMI.

Our Advice Process

When we sit down with you to discuss LMI, we don’t just look at the fee. We look at the opportunity cost.

1. Check Eligibility: We first check if you qualify for the Home Guarantee Scheme (unlimited places now make this easier) or a professional waiver.
2. Run the Calculator: We pull exact quotes from Helia and QBE.
3. Future-Proof: We assess your exit strategy. If you plan to upgrade or refinance in 2 years, paying LMI now might be a waste.
4. Compare Lenders: We find lenders who might cap LMI or offer cheaper internal risk fees.

Get Personalised Advice

Lenders Mortgage Insurance is a significant expense, but it is often the only bridge between renting and owning. We can help you calculate the exact cost and determine if the long-term gains of buying now outweigh the upfront fee.

Book a free consultation to discuss your deposit, borrowing options, and whether LMI makes sense for your situation.