What is LMI?
LMI stands for Lenders Mortgage Insurance. It's a one-off insurance premium charged when your deposit is under 20% of the property price. It protects the bank, not you, against losing money if you can't repay the loan. On an average SA purchase it typically adds $8,000 to $30,000 to your settlement bill.
The short version
Banks treat a small deposit as a higher-risk loan. To agree to the loan anyway, they make you pay a separate insurance policy that pays them out if you default. That policy is LMI. You pay the premium, the bank is the beneficiary.
It's usually added to your loan rather than paid upfront, which means you're also paying interest on it for the life of the mortgage.
When LMI applies
- Your deposit is under 20% of the purchase price (loan-to-value ratio above 80%)
- You're not using a government scheme that waives it (see below)
- You're not a professional (doctor, lawyer, etc.) under a lender's specialist program that waives it
Roughly what it costs in SA
| Purchase price | 5% deposit | 10% deposit | 15% deposit |
|---|---|---|---|
| $500,000 | ~$15,000 | ~$8,500 | ~$4,000 |
| $750,000 | ~$25,000 | ~$15,000 | ~$7,500 |
| $1,000,000 | ~$36,000 | ~$22,000 | ~$11,000 |
Exact premium depends on the lender and the insurer (Genworth or QBE typically). Treat these as ballpark.
How to avoid it
- Save a 20% deposit, the obvious one, often unrealistic in metro Adelaide
- First Home Guarantee, federal scheme, government acts as guarantor so eligible FHBs can buy with 5% deposit, no LMI. Capped places per year.
- Family Home Guarantee, similar scheme for eligible single parents, 2% deposit, no LMI
- Parental guarantor loan, parent uses equity in their property to cover the shortfall to 20%, no LMI
- Professional package, some lenders waive LMI for medical, legal, and accounting professionals up to 90% loan-to-value
Things that surprise buyers
- LMI is not transferable if you refinance to another lender, you pay a new premium
- It's not the same as mortgage protection insurance, that one would pay your mortgage if you got sick. LMI protects the bank.
- Capitalising it into the loan can push your loan-to-value ratio back above 80%, sometimes triggering a higher interest rate
How to see your LMI estimate
- Open the All-In SA Cost Calculator
- Enter the purchase price and deposit
- If the deposit is under 20%, the LMI line appears automatically, calculated at industry-standard 2.2% of the loan amount
Read more
Run the All-In SA Cost Calculator
Enter your deposit, the calculator includes LMI automatically when needed.
Open True Cost Calculator →