Low Deposit Premium vs Lenders Mortgage Insurance (LMI)
Some lenders charge a low deposit premium instead of lenders mortgage insurance. How the two differ, refunds, and how to compare the real cost.
Charles Touma
4 min read
A low deposit premium is a one-off fee some lenders charge instead of lenders mortgage insurance when you borrow more than 80% of a property’s value. LMI is an insurance policy the lender takes out with an insurer; a low deposit premium is the lender charging you directly. Both protect the lender rather than you, and both can usually be added to the loan.
| Feature | Lenders mortgage insurance | Low deposit premium |
|---|---|---|
| Who sets it | An insurer, applied by the lender | The lender itself |
| Who it protects | The lender | The lender |
| When it applies | Usually above 80% of the value | Usually above 80% of the value |
| Can it be added to the loan? | Usually | Usually |
| Refund if you sell or refinance early | Sometimes partial, depending on the insurer | Generally not |
| Avoided by | A 20% deposit, the 5% Deposit Scheme, a guarantor or a waiver | The same |
Why do some lenders charge a premium instead of lenders mortgage insurance?
Some lenders choose to carry the risk on higher-LVR loans themselves rather than insure it. They charge a premium to cover that risk. To you, it works much like LMI: a cost that rises with the loan-to-value ratio, charged once at settlement.
Which costs less?
It depends on the lender, the loan size and the LVR. Some lenders’ premiums are lower than the LMI another lender would charge on the same loan, and some are higher. The only fair comparison is the total cost: the premium or LMI, plus the interest rate over the time you expect to keep the loan. A lower one-off charge with a higher rate can cost more within a few years. The LMI calculator estimates insurance on your numbers.
Can you get a refund?
A low deposit premium is generally not refundable once the loan settles, even if you refinance soon after. LMI is also mostly non-refundable, though some insurers give a partial refund if the loan is repaid early. The guide to lenders mortgage insurance explains when a refund may apply.
What happens if you refinance later?
Neither charge transfers to a new lender. If you refinance while the loan is still above 80% of the value, the new lender may charge its own LMI or premium again. Before refinancing a loan that started with a small deposit, check the current value and LVR; the refinancing page covers it.
How can you avoid both?
- Save a 20% deposit, plus costs.
- Use the 5% Deposit Scheme if eligible, which removes LMI with a 5% deposit; see the 5% deposit checker.
- Use a family guarantee, where a parent’s property covers the gap; see guarantor home loans.
- Use a professional waiver if your occupation qualifies; see waived LMI home loans.
Do lenders treat the premium differently in serviceability?
Not really. Whether the charge is LMI or a premium, if it is added to the loan, the larger loan is what the lender assesses at the buffer rate. On a $720,000 loan, adding $15,000 of premium or insurance lifts the assessed repayment slightly, which can matter if your application is close to the limit.
A worked example
A buyer with a 10% deposit on a $800,000 Sydney apartment compares two lenders. One adds LMI to the loan; the other charges a low deposit premium and a rate 0.10 percentage points higher. On a $720,000 loan, 0.10 percentage points is about $720 a year in interest. If the premium is lower than the LMI by less than that over the years the buyer expects to keep the loan, the LMI lender may be cheaper overall. The figures depend on each lender’s actual charges.
Questions people ask
Is a low deposit premium the same as lenders mortgage insurance?
Not quite. LMI is insurance from an insurer; a low deposit premium is a fee the lender keeps. Both protect the lender and work in a similar way for you.
Is a low deposit premium tax deductible?
On an investment loan, borrowing costs can usually be claimed over five years. On your home, no. Check with your tax agent.
Can a low deposit premium be added to the loan?
Usually, which raises the loan and the repayments slightly.
Charles Touma compares the total cost of LMI, low deposit premiums and the schemes that avoid both, on your price and deposit. A free 30-minute call covers which route is cheapest for you. General information only, not credit advice.
Sources: Moneysmart, buying a home, lenders mortgage insurance; Housing Australia, 5% Deposit Scheme, checked 18 October 2026.
General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.
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