Lenders Mortgage Insurance (LMI) is a hot topic in Australia’s property market, especially as more buyers look to get on the ladder with smaller deposits. With recent shifts in housing policy and surging property prices in 2025, understanding LMI is more important than ever. Whether you’re a first-time buyer or looking to upgrade, here’s the latest on LMI — and how it could shape your next move.
What is LMI and Why Does It Exist?
LMI is an insurance policy that protects lenders, not borrowers, when a homebuyer has less than a 20% deposit. If a borrower defaults, LMI covers the lender for any shortfall after the property is sold. The catch: the cost is paid by the borrower, often adding thousands to upfront costs or being capitalised onto the loan.
- Who pays LMI? Any borrower with a deposit below 20% of the property’s value (i.e., a loan-to-value ratio above 80%).
- Who benefits? The lender, not the borrower. LMI does not protect you if you can’t meet repayments.
- How much does it cost? In 2025, the average LMI premium ranges from $6,000 to $18,000 for a $600,000 property, depending on deposit size and lender.
For many, LMI is the price of entering the market sooner, rather than waiting years to save a larger deposit — especially as median property prices in Sydney and Melbourne continue to climb.
LMI in 2025: What’s Changed?
This year, several policy tweaks and market trends have put LMI back in the spotlight:
- Rising Property Prices: With CoreLogic reporting national dwelling values up 7% year-on-year, more buyers are stretching their deposits — and triggering LMI.
- APRA Guidance: The Australian Prudential Regulation Authority (APRA) updated its guidance on responsible lending, encouraging banks to more closely assess LMI risk and disclosure. Borrowers now receive clearer breakdowns of LMI costs in loan contracts.
- First Home Guarantee Expansion: In July 2025, the Federal Government expanded eligibility for the First Home Guarantee, allowing more singles and couples to buy with just a 5% deposit — and avoid LMI altogether, if approved under the scheme.
- Digital LMI Assessments: Leading insurers like Genworth and QBE have rolled out digital LMI assessments, speeding up approvals but also making it easier for lenders to pass on costs to borrowers at the point of sale.
In short: LMI is still a significant cost for many, but there are new avenues for avoiding or reducing the hit in 2025.
Smart Strategies: Minimising or Avoiding LMI
No one likes to pay more than they have to, especially on something that doesn’t protect you directly. Here are practical ways Australians are reducing or dodging LMI in 2025:
- First Home Guarantee (FHBG): Eligible first-home buyers can buy with a 5% deposit and pay no LMI. In 2025, the scheme’s expansion means more Australians qualify, including permanent residents and joint applicants.
- Family Guarantee Loans: Some lenders let parents guarantee part of the deposit using their home equity, pushing your effective deposit above 20% and wiping out LMI.
- Professional Packages: Certain professions (doctors, lawyers, accountants) can access special home loan offers with waived LMI up to 90% LVR through select lenders in 2025.
- Saving a Larger Deposit: Not always easy, but even a few thousand dollars extra can dramatically reduce your LMI bill. Use online calculators to see the impact.
- Negotiating with Lenders: As competition heats up, some banks are more willing to discount or waive LMI for strong borrowers, especially if you bring multiple accounts or refinance from a competitor.
Remember: LMI can be capitalised (added to your loan), but this increases your interest payments over time. Always weigh the long-term cost against the benefit of getting into the market sooner.
Real-World Example: LMI in Action
Consider Sophie, a 29-year-old teacher in Brisbane. In early 2025, she bought a $650,000 apartment with a 10% deposit ($65,000). Her lender quoted an LMI premium of $13,400, which she rolled into her mortgage. By using a teacher-specific home loan offer, Sophie managed to secure a partial LMI waiver, reducing her premium by $3,000. This saving, plus a government stamp duty concession, made her purchase possible months earlier than planned.
Conclusion: Is LMI Worth It?
Lenders Mortgage Insurance is a significant cost, but it’s also a tool that helps Australians buy property with less than a 20% deposit. In 2025, with new government schemes, digital innovations, and lender competition, it’s easier than ever to understand — and sometimes avoid — LMI. The key is to compare your options, crunch the numbers, and see how LMI fits into your overall property strategy.
