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⚖️ Pay LMI Now vs Save for 20% Deposit
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LMI in Australia: Should You Pay It or Wait for a 20% Deposit?
Lenders Mortgage Insurance (LMI) is a one-off insurance premium charged by Australian lenders when a borrower has a deposit of less than 20% of the property value (i.e. an LVR above 80%). It protects the lender — not you — if you default on the loan. Despite this, LMI is paid by the borrower and can add $5,000–$30,000 to the cost of a home loan.
How LMI is Calculated in Australia
LMI premiums are calculated as a percentage of the loan amount. The rate increases with the LVR:
| LVR | Approx LMI Rate | LMI on $560K loan |
|---|---|---|
| 80–85% | 0.5–1.0% | $2,800–$5,600 |
| 85–90% | 1.5–2.5% | $8,400–$14,000 |
| 90–95% | 2.5–4.0% | $14,000–$22,400 |
LMI break-even analysis: The key question is whether the property price growth you capture by buying now (instead of saving longer) exceeds the LMI cost. If property values in your area are growing at 5–7% p.a. and you'd need 12–18 months to save a 20% deposit, LMI is often worth paying — the capital gain you'd miss by waiting typically exceeds the LMI premium.
LMI Exceptions — When You Can Avoid It
- Family guarantee (guarantor loans): A parent uses equity in their home as security, eliminating LMI without a 20% deposit
- First Home Guarantee (FHBG): Federal government scheme allowing eligible first home buyers to purchase with 5% deposit and no LMI — 35,000 places per year
- Some professions: Doctors, lawyers, accountants and other professionals can access LMI waivers at 90–95% LVR with some lenders
- Lender LMI waivers: Some lenders waive LMI for specific jobs or higher deposit amounts — always ask
LMI estimates are indicative only. Actual premiums depend on the specific lender and LMI insurer (Genworth or QBE). Always get a formal quote. Not financial advice.