How to Avoid LMI on Your Home Loan

If you’re trying to buy a property with less than a 20% deposit, you’ve probably heard about lenders mortgage insurance (LMI) and the price tag can be a shock. Depending on the property price and deposit size, LMI can add thousands or even tens of thousands of dollars to the cost of buying a home.

The good news is that LMI isn’t always unavoidable. Some lenders offer LMI waivers for certain borrowers, and government programs can allow eligible buyers to purchase property with a smaller deposit and no LMI.

If you’re planning to buy in the near future, here’s what you need to know about how LMI works and the legitimate ways Australian borrowers can reduce or avoid it.

What is lenders mortgage insurance?

Lenders mortgage insurance (LMI) is a one-off insurance premium that protects the lender if a borrower defaults on their home loan and the sale of the property doesn’t cover the outstanding debt.

While the policy protects the lender, the cost is usually paid by the borrower.

LMI is generally charged when a borrower has:

• Less than a 20% deposit, or

• A loan-to-value ratio (LVR) above 80%

Because the lender is taking on more risk when the deposit is smaller, LMI helps offset that risk.

The cost varies depending on factors such as:

• Loan amount

• Deposit size

• Property value

• The lender and insurer used

Many borrowers choose to capitalise LMI into the loan, meaning it’s added to the mortgage balance and paid off over time. While this reduces upfront costs, it also means paying interest on the insurance.

The good news is there are a few ways borrowers may be able to reduce or avoid LMI entirely.

Lenders that offer low or no LMI

Australia’s home loan market is highly competitive, and some lenders offer discounted or waived LMI policies for certain borrowers.

These offers can change frequently, but the most common examples include:

Ubank

Ubank has promoted home loan options where LMI may be waived for borrowers with a 15% deposit (85% LVR) on eligible owner-occupied loans.

This can significantly reduce upfront costs for buyers who can’t quite reach a 20% deposit.

However, borrowers should always compare the overall loan cost, as interest rates for higher-LVR loans can sometimes be slightly higher.

Westpac Group lenders

Some lenders within the Westpac group, including St.George, BankSA and Bank of Melbourne, offer LMI waivers for certain professions, particularly healthcare workers and emergency services professionals.

Eligible occupations can include:

• Doctors and medical specialists

• Dentists

• Nurses and allied health professionals

• Emergency service workers

Depending on the lender policy, some of these borrowers may be able to purchase with deposits as low as 5–10% without paying LMI.

Professional LMI waivers at major banks

Several major banks offer LMI waivers for specific professions they consider lower risk.

These commonly include:

• Medical professionals

• Lawyers

• Accountants

• Some finance professionals

Banks, including NAB, ANZ and Commonwealth Bank, have policies that may waive LMI for eligible borrowers depending on:

• Occupation

• Income

• Loan-to-value ratio

• Property type

Because each lender’s policy is slightly different, it’s worth checking eligibility carefully before assuming a waiver applies.

Government schemes that help avoid LMI

For many first home buyers, the biggest opportunity to avoid LMI comes from federal government support programs.

Home Guarantee Scheme

The Australian Government’s Home Guarantee Scheme, administered by Housing Australia, allows eligible buyers to purchase property with a smaller deposit without paying LMI.

Instead of the borrower paying LMI, the government provides a guarantee to the lender covering part of the loan.

The program includes three main guarantees.

First Home Guarantee

Eligible first home buyers can purchase a property with a 5% deposit and no LMI.

https://www.housingaustralia.gov.au/support-buy-home/first-home-guarantee

Regional First Home Buyer Guarantee

Supports buyers purchasing in regional areas with a 5% deposit and no LMI.

https://www.housingaustralia.gov.au/support-buy-home/regional-first-home-buyer

Family Home Guarantee

Designed for single parents or single legal guardians, allowing them to buy a home with as little as a 2% deposit without paying LMI.

https://www.housingaustralia.gov.au/support-buy-home/family-home-guarantee

Each program has eligibility criteria and annual places available through participating lenders.

First home buyer grants and stamp duty support across Australia

In addition to federal schemes, each state and territory offers its own first home buyer incentives, which can help boost a deposit or reduce upfront costs.

Most states offer a First Home Owner Grant (FHOG) for eligible buyers purchasing or building a new home, along with stamp duty concessions.

Here’s a simplified overview.

Official government information can be found here:

https://www.firsthome.gov.au/

These incentives can sometimes be combined with the Home Guarantee Scheme, allowing eligible borrowers to purchase with a smaller deposit and still avoid paying LMI.

Why comparing lenders still matters

While avoiding LMI can save a significant amount upfront, it’s important to look at the entire loan structure, not just whether LMI applies.

For example, some loans with waived LMI may have:

• Higher interest rates

• Different eligibility requirements

• Property restrictions

• Fewer loan features

Comparing the total cost of the loan — including interest, fees and features — is the best way to determine which option works best for your situation.

If you’re unsure whether you qualify for a low-deposit home loan or one of the available LMI waivers, talk to us. As your local mortgage broker, we can help assess your borrowing capacity, check eligibility for government schemes and compare lenders that may offer reduced or waived LMI.

The right strategy could help you buy sooner and potentially save thousands along the way.