Lenders mortgage insurance (LMI) is a one-off premium you pay when you borrow more than 80% of a property's value, indicatively about $9,945 on a $650,000 purchase with a 10% deposit. It protects the lender, not you. But LMI isn't automatically the enemy. It's often the price of buying years sooner, and sometimes that price is worth paying.
LMI is the cost first-time investors most often discover late, usually right after working out that the 20% deposit benchmark is a very large number. This guide shows what LMI actually costs at different deposits and price points (computed, not guessed), when paying it makes sense, and the legitimate ways around it.
What LMI costs: indicative premiums by deposit size
The premium depends on two things: the loan size and how far your loan-to-value ratio (LVR) sits above 80%. Indicative mid-point estimates, computed from industry-style premium bands:
| Purchase price | 85% LVR (15% deposit) | 90% LVR (10% deposit) | 95% LVR (5% deposit) |
|---|---|---|---|
| $500,000 | $4,250 | $7,650 | $17,575 |
| $650,000 | $5,525 | $9,945 | $22,848 |
| $800,000 | $6,800 | $12,240 | $28,120 |
Indicative mid-point estimates only. Actual premiums vary by insurer, lender, state and borrower profile, and stamp duty on the premium can apply. Get a lender-specific quote before you rely on a number. Model your full purchase in the property purchase costs calculator.
Reading the table left to right, the jump from 90% to 95% LVR roughly doubles the premium rate. If you're anywhere near a band edge, a few thousand dollars more deposit can save several thousand in LMI, one of the few places in property where a small move creates an outsized saving.
What LMI is (and what it isn't)
LMI insures the lender against loss if you default and the sale doesn't cover the loan. You pay the premium; the lender gets the protection, and if the insurer pays out, it can still pursue you for the shortfall.
It is not mortgage protection insurance for you or your family. Its real function in your plan is simpler: it's the fee lenders charge to approve borrowing above 80% LVR, which is why it's better understood as a market-entry cost than as insurance you benefit from.
Pay LMI now, or save to 20%?
For a first-time investor this is the decision that matters, and it has honest arguments both ways:
- Paying LMI gets you in years earlier - if the market grows while you'd still be saving, the growth on the whole property can exceed the premium many times over.
- Saving to 20% avoids the premium and starts you with more equity and smaller repayments, and if the market is flat while you save, you've lost little.
- LMI is usually capitalised onto the loan, so you also pay interest on it for the life of the loan, which means the sticker price understates the true cost.
- Some lenders let you pay LMI monthly instead of capitalising it upfront, which eases the cash-flow hit (though it can cost more over time).
- On an investment loan, LMI is generally deductible as a borrowing cost over five years, which softens the blow; owner-occupiers get nothing (one for your accountant).
- A guarantor loan can beat both options: a family member's property used as extra security can cover the gap to 80% with no LMI and no years of saving (your own usable equity can do the same if you already own property).
There's no universal answer: it turns on your savings rate, the market you're buying into, and your buffer. The equity guide covers the equity path, and the borrowing capacity calculator shows what each deposit level means for your budget.
Legitimate ways to avoid (or reduce) LMI
- 20% deposit: the standard route, with no LMI at or below 80% LVR.
- Equity from an existing property: yours, or a family guarantee that secures part of the loan against a guarantor's home.
- Professional waivers: some lenders waive LMI at up to 90% LVR, and a few go to 95%, for certain low-risk professions (medical, legal, accounting among them); policies differ lender to lender.
- Lender specials: reduced or flat-fee LMI at 85% LVR appears and disappears by lender and season, exactly the policy detail a broker tracks.
- A cheaper property: the same deposit is a bigger percentage of a smaller price, so sometimes the right first move is the more modest one.
Whether LMI is worth it for your numbers is a 15-minute conversation: how Scott helps first-time investors, or book a free discovery call.
Frequently asked questions
How much does LMI cost on an investment property?
As an indicative estimate: on a $650,000 purchase with a 10% deposit (90% LVR), LMI is roughly $9,945, about 1.7% of the loan. The premium scales with both the loan size and how far your LVR sits above 80%: at 85% LVR it's closer to 1% of the loan, while at 95% it can approach 3.7%. Exact premiums vary by insurer, lender and your profile, so treat these as ballparks.
Is LMI tax deductible for an investment property?
Generally, LMI on an investment loan is treated as a borrowing cost, which is typically deducted over five years (or the loan term if shorter) rather than all at once, unlike an owner-occupier, who gets no deduction. Confirm the treatment for your circumstances with your accountant.
Is LMI paid upfront or added to the loan?
Most borrowers capitalise it: the premium is added to the loan balance rather than paid in cash at settlement. That preserves your cash but means you pay interest on the premium for the life of the loan, and the capitalised amount can push your effective LVR slightly higher. Paying upfront avoids that if you have the cash.
Last updated: July 2026
This article is general information only. It doesn't take into account your objectives, financial situation or needs, and it isn't credit, financial or tax advice. Figures are indicative estimates that vary by lender, state and property and can change, so we confirm your real numbers before you act. For tax questions, speak to a registered tax agent or accountant. Scott Lung, credit representative 567904 of Purple Circle Financial Services Pty Ltd (Australian Credit Licence 486112).
5 finance decisions to get right before buying your first investment property
- Build your first investment with a long-term property strategy.
- Understand the finance decisions that shape your borrowing power and future options.
- Make smarter decisions around your deposit, cash flow and loan structure before you sign a contract.
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