LMI Explained: What It Is and How to Avoid It
So, you’ve figured out you don’t need a 20% deposit to buy your first home — great start.
But now your lender drops a new acronym in your lap:
“You might have to pay LMI.”
Cue the confusion.
At Nude Home Loans, we’re here to demystify the finance stuff, and Lenders Mortgage Insurance (LMI) is one of the biggest head-scratchers for first home buyers.
Let’s break it down in plain English — what LMI is, when you have to pay it, and how to (maybe) avoid it altogether.
🤔 What Is Lenders Mortgage Insurance (LMI)?
LMI is insurance that protects the lender (not you) in case you default on your home loan.
If you’re borrowing more than 80% of the property’s value, the lender sees you as higher risk. So they take out LMI — and you pay for it.
It’s a one-off cost (usually added to your loan) that can add up fast.
💵 How Much Does LMI Cost?
It depends on:
The size of your loan
Your deposit percentage
The lender’s policy
Here are some real-world examples:
Property Price | Deposit | LMI Estimate |
|---|---|---|
$600,000 | 10% ($60k) | ~$13,000 |
$700,000 | 5% ($35k) | ~$27,000 |
$850,000 | 8% ($68k) | ~$22,000 |
Remember: LMI is usually added to your total loan amount, so you don’t pay it upfront — but you do pay interest on it over time.
❌ What LMI Is Not
Let’s clear this up:
It’s NOT income protection
It doesn’t protect your repayments
It doesn’t go to you or your property
It purely covers the bank if things go sideways.
That’s why a good broker (👋) will help you avoid it where possible.
🚀 How to Avoid or Reduce LMI
1. Save a 20% Deposit
The classic method. No LMI if your Loan-to-Value Ratio (LVR) is 80% or less.
2. Use the First Home Guarantee
Buy with 5% deposit and pay no LMI
Must be a first home buyer
Income + price caps apply
Limited places, so move fast
3. Get a Family Guarantor
A parent can guarantee part of your loan using their equity. That lowers your LVR and eliminates LMI (if done right).
4. Increase Your Deposit Slightly
Even moving from 5% to 8% can slash your LMI bill by thousands.
Pro tip: Ask us to model your LMI scenarios — sometimes a $5k deposit top-up = $15k saved in LMI.
🤝 When Paying LMI Might Be Worth It
Sometimes it makes sense to pay LMI and get in sooner.
Here’s why:
You stop paying rent
Property values rise while you save
You start building equity now
Let’s say LMI costs you $15k — but the property grows $25k in value while you’re saving an extra deposit? You’ve still come out ahead.
The key is to run the numbers. And we’ll help you do that.
🏡 Real Example: Avoiding LMI in Sunshine
Nude client Daniel had $38k saved for a $610k property (just over 6%).
We:
Checked his eligibility for the First Home Guarantee
Matched him with a lender that participated
Secured his loan with 5.5% deposit and no LMI
Total savings? $22,000 in upfront costs.
✅ Let’s See If You Can Skip LMI Too
We’ll check:
Your deposit % and borrowing power
Whether you qualify for a scheme or guarantor loan
What each lender would charge you in LMI
And if you do need to pay it, we’ll help you weigh up whether it’s worth it.
👉 [Book a free LMI strategy session with Nude Home Loans]
Smart choices. No surprises. Just the support you need to move forward.
