Home loan deposit and lenders mortgage insurance

Deposit and loan-to-value ratio

The loan-to-value ratio (LVR) is, in APRA’s words, “the ratio of the amount of the loan outstanding to the value of the property securing the loan”. As a formula:

LVR = loan amount ÷ property value

A deposit of 20% of the value means a loan of 80% of the value, or an LVR of 80%. A deposit of 5% means a loan of 95% of the value, or an LVR of 95%. The lower the deposit, the higher the LVR and the more likely LMI becomes. The value used is the lender’s valuation, which can differ from the price you agree to pay.

What lenders mortgage insurance is

LMI is an insurance policy that “protects the mortgage lender in the event that a borrower cannot repay their loan” (RBA, 2013). Four points follow from the RBA’s description:

• It covers the lender. You get no cover from it.
• You usually pay for it. The insurer charges the lender an upfront premium, and lenders usually pass the cost on to borrowers.
• The threshold is around 80%. The RBA wrote in 2013 that lenders generally use mortgage insurance for loans with an LVR of 80 per cent or greater. A 2022 RBA article states that borrowers with an LVR above 80 are required to pay LMI.
• It does not replace lender checks. APRA’s guidance says LMI “is not an alternative to loan origination due diligence”.

The premium depends on the lender, the loan and your LVR. No official figure is published, so ask each lender for a written quote of the LMI for your loan, and how and when it is charged.

Ways to buy with a smaller deposit (federal)

These are national schemes, so the rule is the same in every state and territory.

Australian Government 5% Deposit Scheme. Housing Australia’s scheme (formerly the Home Guarantee Scheme) gives a government guarantee to a Participating Lender so it can lend up to 95% or 98% of the home’s value. The official fact sheet dated 1 July 2026 and the scheme pages say:

• minimum deposit 5% for first home buyers, 2% for single parents or legal guardians;
• no income caps, unlimited places and no LMI;
• the purchase price and the lender’s valuation must be at or below a location-based price cap;
• you apply through a Participating Lender, not directly.

LMI can still apply if you do not move in on time or move out before the guarantee ends. Full conditions are in the home guarantee scheme guide.

First Home Super Saver Scheme. You make voluntary super contributions (up to $15,000 a year and $50,000 in total) and later ask to release them with associated earnings for your deposit. See the first home super saver guide.

State and territory grants and duty concessions are additional and differ by state: see first home buyer concessions and the first home owner grant.

Other upfront costs

The deposit is only part of the cash you need. Stamp duty is not covered by the 5% Deposit Scheme: buyers remain responsible for “stamp duty and legal fees”. The South Australian Government home-buyer site lists government charges such as stamp duty and transfer fees, solicitor and conveyancing fees, and lender’s fees such as loan application fees, legal fees and LMI. Estimate duty with the stamp duty calculator, and see the building and pest inspection guide for the inspections you may want before you buy.

Which professional to consult

A mortgage broker can compare how lenders treat low deposits and quote LMI (mortgage brokers). A conveyancer explains the costs due at settlement (conveyancers).