- For many Australians, Lenders Mortgage Insurance (LMI) is an unavoidable cost when buying a home with less than a 20% deposit. But here’s the good news: there are ways to avoid LMI altogether and significantly reduce your upfront costs.
Whether you’re a first-home buyer or a seasoned property investor, this guide will walk you through the most effective strategies to bypass LMI and save thousands on your borrowing journey.
What is LMI, and how you can avoid it
LMI is a one-time insurance premium that protects the lender if you default on your home loan.
While it enables borrowers to buy with smaller deposits, it’s an added cost that can range from thousands to tens of thousands of dollars, depending on your loan amount and deposit size.
Avoiding LMI doesn’t just save you money upfront—it can also reduce your loan balance, improve your borrowing power, and lower your overall interest costs.
1. Save for a 20% deposit
The most straightforward way to avoid LMI is to save a deposit of 20% or more of the property’s value. With a lower loan-to-value ratio (LVR), lenders consider your loan less risky, eliminating the need for LMI.
Example: For a $500,000 home, a 20% deposit would be $100,000. If you save less, say 10% ($50,000), you could face an LMI cost of around $10,000 to $15,000.
Challenges: While saving 20% is ideal, it’s not always feasible—especially for first-home buyers in high-demand markets. That’s where other strategies come in.
Continue reading: How much deposit do I need as a first-home buyer in WA?
2. Use a guarantor loan
If saving a 20% deposit isn’t realistic, a guarantor loan can help you avoid LMI.
A guarantor—typically a parent or close family member—uses their property as security for your loan, reducing the lender’s risk and eliminating the need for LMI.
Benefits:
- No need for a large deposit
- Avoid LMI entirely
- Enter the market sooner
Risks to consider: The guarantor’s property is at risk if you can’t meet your loan repayments, so it’s essential to have a solid repayment plan.
Also read: How a guarantor can help you buy property faster
3. Leverage the First Home Guarantee
The First Home Guarantee (part of the Home Guarantee Scheme) allows eligible first-home buyers to purchase a home with as little as a 5% deposit without paying LMI.
The federal government acts as a guarantor for up to 15% of your loan, helping you avoid LMI costs.
Eligibility criteria:
- Must be a first-home buyer
- Property must meet price caps
- Income limits apply
Example: On a $500,000 property, you can buy with a $25,000 deposit and no LMI, saving thousands upfront.
4. Check for profession-based LMI waivers
Some lenders offer LMI waivers for borrowers in specific professions, such as:
- Doctors
- Accountants
- Lawyers
- Engineers
These waivers often apply if you’re borrowing up to 90% LVR. It’s worth checking with your lender or mortgage broker to see if you qualify.
Also read: Understanding LMI exemptions and who qualifies
5. Consider shared equity schemes
Shared equity schemes, such as Keystart loans in WA, allow eligible buyers to purchase a home with a lower deposit without paying LMI. These programs often target specific groups, such as low-to-moderate-income earners.
How it works: The scheme co-owns a portion of the property, reducing your upfront costs and eliminating the need for LMI.
Example: If you purchase a $400,000 home with 2% deposit through a shared equity scheme, you avoid LMI entirely.
How we can help you avoid LMI
Navigating the options to avoid LMI can be overwhelming, but you don’t have to do it alone. As mortgage brokers, we can:
- Assess your eligibility for guarantor loans, government schemes, and other LMI waivers
- Compare over 40 lenders to find the best solutions tailored to your needs
- Guide you through shared equity programs or refinancing strategies to reduce costs
Ready to take the next step? Contact us today to get personalized advice and start saving on your home loan journey.
