How to Avoid Lenders Mortgage Insurance (LMI) in 2025: A Guide for First Home Buyers in Australia

First Home Buyers | Mortgage Explainers | January 2025

As a first home buyer in Australia, you may come across the term Lenders Mortgage Insurance (LMI) while applying for a home loan. LMI is a type of insurance that protects the lender – not you – if you default on your loan.

Key points to remember about LMI:

• LMI premiums are passed on to the borrower (you).
• It is only required if your deposit is less than 20% of the property’s value.

While LMI allows buyers to purchase homes with a smaller deposit, it adds to the overall cost of homeownership. The cost can range from thousands to tens of thousands of dollars, depending on factors like:

• Loan amount: higher loans attract higher LMI.
• Loan-to-Value Ratio (LVR): the closer you are to 80% LVR, the lower the premium.
• Lender and insurer: rates vary depending on who provides the LMI.

For example, on a $600,000 loan with a 90% LVR, LMI could cost around $12,000–$15,000. However, this varies between lenders and insurers.

LMI is a one-off, non-refundable fee paid at the start of the loan. You can’t remove or cancel it once you reach 20% equity.

If you’d rather avoid paying LMI in 2025, here are some practical strategies to consider:

1. Save for a 20% deposit

Saving a 20% deposit remains the simplest and most common way to avoid LMI. Most lenders require at least 20% of the property value as a deposit to waive the need for LMI.

For example, if you’re purchasing a property worth $600,000, a 20% deposit would mean saving $120,000. While this can feel like a big ask, it might save you tens of thousands in LMI premiums.

2. Apply for government schemes and grants

The Australian Government offers several schemes in 2025 to help first home buyers purchase property with a smaller deposit – without the need to pay LMI. These include:

• First Home Guarantee (previously the First Home Loan Deposit Scheme): this allows eligible first home buyers to purchase a property with as little as a 5% deposit. The government acts as a guarantor for the remaining 15% of the deposit, eliminating the need for LMI.
• Family Home Guarantee: aimed at single parents, this scheme allows eligible buyers to purchase a home with as little as a 2% deposit.

Both schemes have limited allocations, so it’s important to apply early in the year. Check your eligibility and apply through a participating lender.

Source: Australian Government Treasury – www.treasury.gov.au

3. Leverage a guarantor loan

If you can’t save a 20% deposit, a guarantor loan is another way to bypass LMI. A guarantor – usually a family member –uses the equity in their property as security for your loan.

While this can help you secure a loan and avoid LMI, it’s important to understand the risks involved. If you default on your repayments, your guarantor may be held responsible for covering the loan. Ensure your guarantor is financially stable, and always seek legal advice before proceeding.

4. Look for professional discounts
Certain professions are considered ‘low risk’ by lenders, and as a result, some lenders may waive LMI for borrowers in these fields. In 2025, eligible professions include:

• Medical professionals: doctors, dentists, veterinarians, and optometrists.
• Legal professionals: lawyers and barristers.
• Accountants and finance professionals.

Depending on your occupation, you may be able to borrow up to 90–100% of the property value without paying LMI. Speak to a mortgage broker to check if you qualify for this type of waiver.

5. Consider shared-equity schemes

Shared equity schemes have gained popularity in Australia as a way to help first-home buyers afford property without a large deposit. In a shared-equity arrangement, an equity partner (such as a government body, private investor, or family member) funds part of your property purchase in exchange for a share in its ownership, which can help you avoid LMI and reduce the size of your loan.

For example, the Victorian Government’s Homebuyer Fund enables eligible buyers to purchase a property with a deposit as low as 5%, with the government contributing up to 25% of the purchase price.

Source: Victorian State Government – www.vic.gov.au

6. Choose a more affordable property

If none of the above options work for you, it might be worth considering a less expensive property. A smaller or more affordable home may require a deposit that you’re able to meet without needing to pay LMI. While it might not be your dream home, it could be a smart step onto the property ladder.

7. Work with a Nectar Mortgage Broker

Navigating LMI and understanding your options can be overwhelming, especially for first-home buyers. At Nectar, we can guide you through the process, compare lenders, and find solutions tailored to your situation.

Our expert brokers stay up to date with the latest grants, schemes, and lender policies, helping you secure a loan that works for your financial goals.

Avoiding LMI can save you thousands of dollars and make home ownership more affordable. By planning ahead, exploring government schemes, or considering alternative loan options like guarantor loans, you can take the next step toward buying your first home with confidence.

Find a Nectar Mortgages broker near you let’s explore your options and avoid unnecessary costs like LMI.