How to Avoid LMI: 7 Proven Strategies to Save Thousands | Broker360

Lenders Mortgage Insurance can add thousands to your home loan costs, but it is not always unavoidable. Many Australian borrowers qualify for LMI waivers, exemptions, or alternative pathways that eliminate this expense entirely. This guide brings together every legitimate strategy to avoid LMI, from government schemes to profession based waivers. Whether you are a first home buyer, medical professional, or looking to use a guarantor, you will find actionable steps here to reduce your upfront costs and secure a better loan outcome.

Why avoiding LMI matters

LMI is a one-off premium that can range from $5,000 to over $30,000 depending on your loan size and deposit. While it enables you to buy with less than a 20 per cent deposit, avoiding LMI altogether delivers immediate and long term financial benefits.

Immediate savings: Keeping LMI out of your loan means more cash available for stamp duty, moving costs, or building an emergency fund. For a $600,000 property with a 10 per cent deposit, avoiding LMI could save you $10,000 to $18,000 upfront.

Lower loan balance: If you capitalise LMI into your loan, you pay interest on that amount for the entire loan term. Over 30 years at 6 per cent interest, a $15,000 LMI premium could cost you close to $30,000 in total interest.

Better borrowing capacity: A lower starting loan balance improves your serviceability assessment, potentially allowing you to borrow more for the same income level or secure better interest rates from lenders.

For a complete understanding of what LMI is and how it works, read our foundational guide: What Is LMI? Lenders Mortgage Insurance Explained Australia.

Save a 20 per cent deposit

The most straightforward way to avoid LMI is saving a deposit of 20 per cent or more of the property’s value. With an LVR at or below 80 per cent, lenders view your loan as lower risk and LMI is not required.

Example: For a $500,000 home, a 20 per cent deposit equals $100,000. If you save only 10 per cent ($50,000), you could face an LMI cost of approximately $10,000 to $15,000 depending on the lender.

Strategies to reach 20 per cent faster:

• Set a dedicated savings account: Keep your deposit funds separate from everyday spending to avoid accidental withdrawals.
• Automate contributions: Schedule regular transfers from your pay into your savings account immediately after each payday.
• Reduce discretionary spending: Track expenses for three months to identify areas where you can cut back and redirect funds to savings.
• Consider a longer timeline: Extending your savings period by 6 to 12 months could eliminate LMI entirely, often outweighing the cost of waiting.
• Use a high interest savings account: While rates vary, earning 4 to 5 per cent on your savings accelerates deposit growth.

Reality check: While saving 20 per cent is ideal, it is not always feasible, especially for first home buyers in high demand markets where property prices grow faster than savings. If this timeline does not work for your situation, the strategies below offer alternative pathways.

First Home Guarantee scheme

The First Home Guarantee (part of the Home Guarantee Scheme administered by Housing Australia) allows eligible first home buyers to purchase with as little as a 5 per cent deposit without paying LMI. The federal government guarantees up to 15 per cent of your loan, reducing the lender’s risk.

Eligibility criteria:

• Must be an Australian citizen or permanent resident aged 18 or older
• Must be a first home buyer or not have owned a property in the past 10 years
• Individual taxable income must not exceed $125,000 per annum, or $200,000 for couples
• Property must meet regional price caps (vary by state and property type)
• Must intend to occupy the property as your principal place of residence

Example savings: On a $600,000 property, a 5 per cent deposit equals $30,000. Without the First Home Guarantee, you would likely pay $15,000 to $20,000 in LMI. With the scheme, you avoid this cost entirely while entering the market sooner.

Important notes:

• Places are limited and allocated on a first come first served basis each financial year
• Not all lenders participate in the scheme, so working with a broker helps identify participating lenders
• You still need to meet the lender’s standard serviceability criteria
• The scheme applies to both new and existing homes within price caps

Application process: You apply through a participating lender, not directly through Housing Australia. Your broker can submit your application and confirm your eligibility before you make an offer on a property.

Use a guarantor loan

A guarantor loan allows a family member, typically a parent, to use their property equity as security for part of your loan. This reduces your LVR below the LMI threshold, eliminating the need for LMI even if you have a small deposit.

How it works:

If you have a 10 per cent deposit but need 20 per cent to avoid LMI, a guarantor can provide security for the remaining 10 per cent. For example, on a $500,000 property, your $50,000 deposit covers 10 per cent, and the guarantor’s property equity secures another 10 per cent ($50,000). The lender views this as an 80 per cent LVR loan with no LMI required.

Benefits:

• Avoid LMI entirely without waiting to save a larger deposit
• Enter the property market sooner while property values may be growing
• Guarantor liability can often be released once your loan balance reduces or property value increases
• No government scheme limits or place restrictions

Risks to consider:

• The guarantor’s property is at risk if you cannot meet loan repayments
• Family relationships can be strained if financial difficulties arise
• The guarantor’s borrowing capacity may be reduced while the guarantee is in place
• Legal advice is recommended for both borrower and guarantor before proceeding

Releasing the guarantee: Most lenders allow you to remove the guarantor once your loan balance falls below 80 per cent LVR through repayments or property value growth. Some borrowers refinance to release the guarantee once sufficient equity is built.

Profession based LMI waivers

Certain professions qualify for LMI waivers or discounts because lenders view them as lower risk borrowers. These waivers are based on perceived financial stability, income security, and lower default rates within specific professional groups.

Commonly eligible professions:

• Medical professionals: Doctors, surgeons, specialists, dentists, nurses, and allied health workers
• Legal professionals: Lawyers, barristers, and solicitors
• Accounting professionals: Accountants, actuaries, and certified financial planners
• Engineering professionals: Engineers across various disciplines
• Other high income professions: Some lenders extend waivers to miners, pilots, and senior executives

Typical waiver criteria:

• Borrowing up to 90 per cent LVR without LMI (some lenders extend to 95 per cent for doctors)
• Proof of current employment in the eligible profession
• Registration with a recognised professional body (for example AHPRA for medical professionals)
• Minimum income thresholds may apply, often $150,000 or more annually

Medical professionals: Healthcare workers have the most extensive LMI waiver options available. Many major lenders including NAB, ANZ, Commonwealth Bank, and Westpac offer waivers for doctors, nurses, and allied health professionals. Some lenders extend waivers to medical interns and residents.

For detailed information on healthcare specific waivers, read our specialised guide: LMI Waivers for Medical Professionals.

Documentation required:

• Current employment contract or letter from employer
• Professional registration certificates
• Recent payslips showing income level
• Tax returns may be required for self-employed professionals

Shared equity and government schemes

Shared equity schemes allow eligible buyers to purchase a home with a lower deposit without paying LMI. These programs involve a government body or private entity co-owning a portion of the property, reducing your loan size and eliminating LMI requirements.

Keystart Loans (Western Australia):

Keystart offers low deposit home loans for WA residents without requiring LMI. Deposits as low as 2 per cent are accepted for eligible buyers, including first home buyers, key workers, and Aboriginal and Torres Strait Islander applicants.

Key features:

• No LMI required regardless of deposit size
• Flexible lending criteria compared to major banks
• Available for new and established homes
• Income and property price caps apply

Other state based programs:

• NSW: Shared Equity Home Buyer Helper for key workers and single parents
• Victoria: HomeBuyer Fund offers shared equity for eligible buyers
• Queensland: Queensland Home Grant and various affordable housing initiatives
• South Australia: HomeStart Finance provides low deposit options

How shared equity works:

If you purchase a $400,000 home with a 2 per cent deposit ($8,000) through a shared equity scheme, the government or scheme provider may contribute 25 per cent equity ($100,000). Your loan is then based on the remaining 73 per cent, well below the 80 per cent LMI threshold.

Considerations:

• You do not own 100 per cent of the property initially
• The scheme provider shares in capital growth when you sell or buy them out
• There may be restrictions on renovations or property modifications
• Buyout terms vary by scheme and should be understood before committing

High income borrower waivers

Some lenders offer LMI waivers to borrowers with exceptionally high incomes, even if they do not work in an eligible profession. This is based on the assessment that high income earners have greater capacity to service debt and lower default risk.

Typical criteria:

• Annual income above $150,000 for individuals or $250,000 for couples
• Stable employment history, typically 2 years or more in current role
• Strong credit history with no major defaults or late payments
• LVR up to 85 per cent may be eligible for waiver (varies by lender)

Who qualifies:

High income waivers often apply to senior executives, IT professionals, finance professionals, and successful business owners. Self-employed borrowers may need to provide additional documentation such as two years of tax returns and financial statements.

Important note: High income waivers are less common than profession based waivers and policies vary significantly between lenders. A mortgage broker can identify which lenders currently offer this option and assess your eligibility.

LMI exemptions checklist

Use this checklist to determine which LMI avoidance strategies may apply to your situation:

Frequently asked questions