LMI Explained: A First Home Buyer’s Guide in Victoria
Buying with a smaller deposit? Lenders Mortgage Insurance, or LMI, is a one-off cost that may apply when you borrow more than 80% of a property’s value.
While it’s usually paid by the borrower, LMI protects the lender if you can’t repay your home loan and the property sale doesn’t cover the full amount owing.
For first home buyers in Victoria, LMI can feel like one more thing to factor into the budget. This guide breaks it down in plain English, including when LMI usually applies, how it can affect your upfront costs or repayments, and how eligible buyers may avoid it through options like the Australian Government 5% Deposit Scheme.
Why does Lenders Mortgage Insurance exist?
When assessing a home loan application, lenders consider a range of factors, including the size of your deposit. Lenders Mortgage Insurance forms part of the lending framework that supports home loans with lower deposits.
For many first home buyers, this means having more flexibility when purchasing a home, rather than waiting until a full 20% deposit has been saved. As a result, Lenders Mortgage Insurance has become a common part of the home buying journey for Australians entering the property market.
What does Lenders Mortgage Insurance cover?
Lenders Mortgage Insurance provides protection for the lender, not the borrower. While the premium is typically paid by the home buyer, the insurance itself is designed to support the lender as part of the home loan arrangement.
Understanding who Lenders Mortgage Insurance covers is important when comparing home loan options and calculating the overall cost of buying a home with a smaller deposit.
It’s also important not to confuse Lenders Mortgage Insurance with mortgage protection insurance.
Mortgage protection insurance is an optional product designed to assist borrowers in certain circumstances, whereas Lenders Mortgage Insurance is linked directly to the home loan and lender requirements.
Do first home buyers pay Lenders Mortgage Insurance in Victoria?
Often, yes. If you’re buying with less than a 20% deposit, Lenders Mortgage Insurance may form part of your home loan costs.
Many first home buyers purchase with a deposit between 5% and 19%, which means Lenders Mortgage Insurance is commonly required by lenders. While it can add to the upfront cost of buying a home, it may also help buyers enter the property market sooner rather than waiting to save a full 20% deposit.
However, not every buyer with a smaller deposit will need to pay Lenders Mortgage Insurance. Eligible buyers may be able to access the Australian Government 5% Deposit Scheme, which can allow you to buy with as little as a 5% deposit without paying Lenders Mortgage Insurance.
Some buyers may also be able to explore family support options, such as a guarantor arrangement, depending on their circumstances.
| Deposit position | Typical Lenders Mortgage Insurance outcome |
|---|---|
| 5–19% deposit | Lenders Mortgage Insurance may apply |
| 5% deposit + eligible for the Australian Government 5% Deposit Scheme | Lenders Mortgage Insurance is typically not required |
| 20%+ deposit | Lenders Mortgage Insurance is generally not required |
How much does Lenders Mortgage Insurance cost?
The cost of Lenders Mortgage Insurance varies depending on your loan amount, deposit size and lender. Generally, the smaller your deposit, the higher the premium is likely to be.
For example, a buyer purchasing a $600,000 property with a 5% deposit would typically pay more in Lenders Mortgage Insurance than a buyer purchasing the same property with a 15% deposit. The exact cost will vary based on your circumstances and lender.
This information is general in nature and does not consider your personal circumstances. Lenders Mortgage Insurance costs, eligibility requirements and government scheme criteria vary by lender, applicant and property. Eligibility criteria apply and are subject to state and/or federal government requirements. Visit www.sro.vic.gov.au and www.housingaustralia.gov.au for full details. Financial services are provided by Resolve Financial Solutions Pty Ltd trading as Resolve Finance (ABN 65 079 545 378, Australian Credit Licence 385487). Homebuyers Centre is a building practitioner (ABN Group (Vic) Pty Ltd, CDB-U 49215). Images are for illustrative purposes only.
How can I estimate my Lenders Mortgage Insurance costs?
If you’re planning to buy your first home, it helps to understand the full costs involved, including your deposit, stamp duty and any potential Lenders Mortgage Insurance costs.
With support from Homebuyers Centre and our trusted finance partner, Resolve Finance, you can get guidance on your deposit, borrowing options, government schemes and whether there may be ways to reduce or avoid Lenders Mortgage Insurance.
How can first home buyers avoid Lenders Mortgage Insurance?
There are a few ways eligible first home buyers may be able to reduce or avoid paying Lenders Mortgage Insurance. The right option will depend on your deposit, lender requirements and personal circumstances.
| Option | Who it’s suited to | How it may help |
|---|---|---|
| Australian Government 5% Deposit Scheme | First home buyers with a smaller deposit | Eligible buyers may be able to purchase with as little as a 5% deposit without paying Lenders Mortgage Insurance through a government-backed guarantee. |
| Save a 20% deposit | Buyers who have more time to save | A deposit of 20% or more generally means Lenders Mortgage Insurance is not required and may reduce the amount you need to borrow. |
| Family support options | Buyers with family support available | Some lenders allow a family member to provide additional security, which may help eligible buyers avoid Lenders Mortgage Insurance. |
Every lender has different eligibility requirements and lending policies. With support from Homebuyers Centre and our trusted finance partner, Resolve Finance, you can understand which options may be available based on your deposit, income and home ownership goals.
You can also explore other first home buyer grants and schemes available in Victoria that may help make buying your first home more achievable.
Building with Homebuyers Centre Victoria
At Homebuyers Centre Victoria, we know finance can feel like one of the trickiest parts of buying your first home, especially when you’re working out your deposit, borrowing power and whether Lenders Mortgage Insurance may apply.
Our team, alongside our trusted finance partner Resolve Finance, can help you better understand:
- When Lenders Mortgage Insurance may apply
- Ways eligible buyers may be able to reduce or avoid Lenders Mortgage Insurance
- The Australian Government 5% Deposit Scheme
- Finance and deposit pathways for first home buyers
- How grants, concessions and upfront costs may fit into your budget
Once you have a clearer picture of your finance options, you can start exploring homes that suit your lifestyle, budget and first home goals.
Explore our home designs or view current house and land packages.
Other common Lenders Mortgage Insurance questions for first home buyers
Got questions about Lenders Mortgage Insurance? Here are some simple answers to help you feel more confident as you plan your first home journey in Victoria.
For guidance tailored to your situation, speak with Resolve Finance, Homebuyers Centre’s trusted finance partner specialising in first home buyer finance for new home construction.
Is Lenders Mortgage Insurance a one-off cost?
Yes, Lenders Mortgage Insurance is usually a one-off cost for a specific home loan. It does not need to be renewed each year like other types of insurance.
You may pay the premium upfront at settlement or have it added to your loan amount. If it’s added to your loan, your repayments may be slightly higher because you’ll pay interest on that amount over time.
How is Lenders Mortgage Insurance paid?
In most cases, the lender arranges Lenders Mortgage Insurance with its chosen insurer as part of your home loan approval process. You usually don’t need to apply to the insurer yourself.
Resolve Finance can explain whether the premium needs to be paid upfront or can be added to your loan, and how each option may affect your repayments.
Can you get a refund on Lenders Mortgage Insurance?
Some policies may offer a partial refund if you refinance or pay out your loan very early, but many do not. Refund rules depend on the lender, insurer and policy.
If you refinance with another lender while your equity is still below 20%, you may need to pay Lenders Mortgage Insurance again.
Does the 5% Deposit Scheme remove Lenders Mortgage Insurance?
For an approved guaranteed loan, participating lenders typically do not charge Lenders Mortgage Insurance because the Australian Government guarantee supports the loan.
This does not mean Lenders Mortgage Insurance no longer applies to everyone. Eligibility criteria, property price caps, owner occupier requirements and scheme settings still apply.
Is Lenders Mortgage Insurance tax deductible?
Tax rules can differ depending on whether the property is your home or an investment property. Investment loans may be treated differently from a home you live in.
Homebuyers Centre does not provide tax advice, so it’s best to keep your loan documents and speak with a registered tax agent about your circumstances.
Who can help me understand Lenders Mortgage Insurance?
Homebuyers Centre and our trusted finance partner, Resolve Finance, can help you understand how Lenders Mortgage Insurance may apply to your first home journey.
They can also talk you through deposit options, borrowing pathways and government schemes that may help reduce or avoid Lenders Mortgage Insurance.
Need help understanding your deposit options?
Lenders Mortgage Insurance can feel confusing, especially when you’re working out how much deposit you need and what your first home budget could look like. Homebuyers Centre can help you understand your options and connect you with finance support through Resolve Finance.
Frequently Asked Questions
LMI itself is separate from your interest rate. However, financial institutions may price loans differently depending on deposit size, loan amount, risk and product type.
The same basic LMI principles apply when building, but construction finance for first home buyers in Melbourne can involve progress payments and staged drawdowns. That can affect when the lender assesses the loan and any LMI amount.
A suitable guarantor arrangement can reduce or remove the need to pay LMI by giving the lender extra security. The risk does not disappear; it may shift to the guarantor, so it helps to talk through this as part of your first home finance and construction planning in Melbourne.
Paying LMI at the start does not stop you from refinancing. But if your equity is still under 20%, the new lender may charge a new premium, so compare the benefit against the cost before switching.
Some government schemes, such as the Home Guarantee Scheme, can waive LMI requirements for eligible first home buyers. Under eligible Australian Government Home Guarantee Scheme options, you may be able to buy with as little as 5% deposit without paying LMI because the Australian Government provides a guarantee to the lender. You can see if the 5% Deposit Scheme is right for you and compare this with other first home buyer pathways in Victoria and Melbourne.
Information on this page does not consider your personal needs and financial circumstances and you should consider whether it is appropriate for you. This article is general in nature and based on the 2026-27 Federal Budget announcements made on 12 May 2026. Budget measures are subject to parliamentary passage and may change. Please note this is a guide only, this information may be subject to change. All Financial services provided by Resolve Financial Solutions Pty Ltd trading as Resolve Finance ABN: 65 079 545 378 Australian Credit Licence No. 385487. The building practitioner is ABN Group (Vic) Pty Ltd. Trading as Homebuyers Centre. CDB-U 49215. Finance options are available through Resolve Finance Solutions PTY LTD trading as Resolve Finance ABN 65 079 545 378 (Australian Credit License 385487).