If you have started researching home loans in Perth, you have almost certainly come across the term Lenders Mortgage Insurance (LMI). For many buyers, it appears as an unexpected and unwelcome addition to the cost of purchasing a home. Understanding exactly what LMI is, why lenders charge it, and how to avoid it altogether can save you a very significant amount of money.
Knowing how to avoid LMI in Perth can make a real difference, especially when you’re trying to get into the property market without handing over extra cash for something that doesn’t even benefit you. This guide explains LMI in plain terms, what it typically costs on Perth property purchases, and the specific pathways available to buyers in Western Australia who want to avoid paying it altogether.
What Is Lenders Mortgage Insurance?
Lenders Mortgage Insurance is an insurance policy that protects the lender, not the borrower, in the event that a borrower defaults on their home loan and the sale of the property does not cover the outstanding loan balance. Despite being a product that provides no direct benefit to the buyer, the cost of LMI is passed on to the borrower.
LMI is triggered when a borrower takes out a loan for more than 80% of the property’s value. This threshold is known as the loan-to-value ratio, or LVR. A loan with a 90% LVR means you have borrowed 90% of the purchase price and have provided a 10% deposit. Anything above 80% LVR is considered higher risk by lenders, and LMI is their mechanism for managing that risk at the borrower’s expense.
It is worth being clear about this: LMI does not protect you if you cannot make repayments. If your lender calls in the insurance policy, you are still liable for any remaining debt after the property is sold and the insurer pays out. LMI is purely a product that protects the financial institution.
How Much Does LMI Actually Cost in Perth?
LMI is not a flat fee. It is calculated as a percentage of the loan amount and varies depending on the lender, the LVR, and the loan size. The higher your LVR and the larger your loan, the more LMI costs. In general, LMI becomes significantly more expensive as your LVR increases beyond 85% and again beyond 90%.
To give a sense of scale, on a $700,000 property in Perth purchased with a 10% deposit (90% LVR), LMI can cost approximately $18,000 to $22,000 depending on the lender. On the same property with a 5% deposit (95% LVR), the cost rises to approximately $25,000 to $32,000. These are substantial amounts that either need to be paid upfront or added to the loan balance, where they attract interest over the life of the loan.
When LMI is added to the loan rather than paid upfront, the true cost increases further because you are paying interest on that amount over 25 or 30 years. A $20,000 LMI cost added to a loan at a 6% interest rate over 25 years effectively costs considerably more in total repayments over time.
Can LMI Be Added to the Loan?
Yes, most lenders allow LMI to be capitalised into the loan rather than paid as a lump sum at settlement. This reduces the immediate cash requirement and can make it easier to proceed with a purchase when you have a smaller deposit. However, it is important to understand that adding LMI to the loan increases your total debt and means you pay interest on that amount for the duration of the loan.
For buyers with limited cash at settlement, capitalising LMI into the loan may be the practical choice. But wherever possible, avoiding LMI entirely is the better financial outcome, and in Perth there are several well-established ways to do that.
How to Avoid LMI: Option 1 – Save a 20% Deposit
The most straightforward way to avoid LMI is to save a deposit of at least 20% of the purchase price, bringing your LVR to 80% or below. At 80% LVR, LMI is not required regardless of the lender. On a $700,000 property, that means having $140,000 saved plus enough to cover upfront costs such as stamp duty and conveyancing.
The challenge, of course, is that saving $140,000 while paying rent in Perth takes time. For many buyers, the years spent saving a larger deposit are years of paying someone else’s mortgage and missing out on potential capital growth in their own property. This is why so many Perth buyers look to the alternatives below.
How to Avoid LMI: Option 2 – The Federal Home Guarantee Scheme
The Home Guarantee Scheme is a federal government initiative that allows eligible buyers to purchase a property with as little as a 5% deposit while the government guarantees the remaining portion up to 15%, effectively replacing the need for LMI. Because the government is acting as guarantor, the lender does not require LMI even though the buyer’s deposit is well below 20%.
As of late 2025, the scheme was significantly expanded. There are no longer income caps or limits on available places, and the property price cap for Perth metro was raised to $950,000. The scheme has three streams: the First Home Guarantee for first home buyers, the Regional First Home Buyer Guarantee for buyers in eligible regional areas, and the Family Home Guarantee for eligible single parents purchasing with as little as a 2% deposit.
Learn more about how the Home Guarantee Scheme works alongside other first home buyer options on our first home buyers Perth page.
How to Avoid LMI: Option 3 – Keystart Home Loans
Keystart is a Western Australian Government home loan provider that offers loans with deposits as low as 2% and no LMI requirement. It is available exclusively to WA residents who meet the income and property price eligibility criteria. As of 2026, income limits are $148,000 per year for singles and $218,000 for couples and families, with a property price cap of $800,000 for the Perth metro area.
Keystart is a transitional lender, meaning it is designed to get you into the market rather than to keep you there permanently. Interest rates are higher than what competitive mainstream lenders offer, so most Keystart borrowers refinance once they have built sufficient equity.
Read our detailed guide to Keystart home loans in Perth for a full breakdown of eligibility, updated 2026 limits, and how the application process works.
How to Avoid LMI: Option 4 – Guarantor Home Loan
A guarantor loan allows a family member, typically a parent, to use the equity in their own property as additional security for your loan. This extra security reduces your effective LVR below the 80% threshold from the lender’s perspective, eliminating the need for LMI even though you may have a very small deposit.
The guarantee is typically structured as a limited guarantee over a specific amount rather than the full loan, which reduces the financial exposure for the guarantor. Once you have built enough equity in your property to bring the LVR below 80%, you can apply to have the guarantee released.
Find out how guarantor and family assist loans work and whether this could be the right option for your family.
How to Avoid LMI: Option 5 – Professional Waiver
Some lenders offer LMI waivers to borrowers in specific high-income professions, such as medical professionals, lawyers, accountants, and engineers. These borrowers are considered lower risk due to their income stability and earning potential, and certain lenders will allow LVRs of up to 90% or even higher without requiring LMI.
If you work in one of these professions and are purchasing in Perth, it is worth asking a broker whether you qualify for a professional LMI waiver. Eligibility criteria vary between lenders, and not all brokers have access to every lender that offers this product.
Which Option Is Right for You?
The best pathway depends on your income, deposit size, employment type, whether you have family in a position to help, and the price of the property you want to buy. For some buyers, the Home Guarantee Scheme will be the most accessible option. For others, Keystart or a guarantor loan may be more suitable. In some cases, a combination of approaches can work together.
The most efficient way to identify the right option is to speak with an experienced mortgage broker who knows the Perth market and has access to the full range of lenders and schemes. Our team at Central Lending Solutions can assess your situation and map out the most suitable path at no cost to you. Get in touch today.
Frequently Asked Questions
Is LMI a one-off payment or an ongoing cost?
LMI is a one-off cost paid at settlement, either as a lump sum or capitalised into the loan. It is not an ongoing monthly premium. However, if it is added to your loan balance, you pay interest on it over the life of the loan, which increases the total cost over time.
If I refinance, do I have to pay LMI again?
You may need to pay LMI again if your LVR is still above 80% at the time of refinancing, depending on the new lender’s policies. If your property has increased in value or you have paid down enough of the loan to bring your LVR to 80% or below, you can generally refinance without LMI. This is one reason why building equity quickly is a priority for many Perth homeowners who used a low deposit loan.
Does LMI cover me if I lose my job and cannot pay the mortgage?
No. LMI does not provide any protection for the borrower. It is a policy that protects the lender in the event of a default and subsequent shortfall after property sale. If you are concerned about protecting yourself in the event of job loss or illness, mortgage protection insurance is a separate product worth exploring.
Can I negotiate to have LMI waived by my lender?
For most standard borrowers, LMI cannot be negotiated away directly with the lender. However, professional waivers exist for certain occupations, and accessing schemes like the Home Guarantee Scheme or Keystart removes the LMI requirement entirely. A mortgage broker can identify whether any waiver or scheme applies to your situation.
Does a larger deposit always mean a lower LMI cost?
Yes. The lower your LVR, the lower the LMI premium. Increasing your deposit from 5% to 10% can reduce the LMI cost by thousands of dollars. Moving from 10% to 15% reduces it further. The full elimination of LMI occurs at 80% LVR, which requires a 20% deposit. Even incremental increases in deposit can meaningfully reduce the LMI cost if you are unable to reach the 20% threshold before purchasing.
Want to Know If You Can Avoid LMI?
Our team at Central Lending Solutions helps Perth buyers find the most cost-effective path into the market. Whether it is through the Home Guarantee Scheme, Keystart, a guarantor loan, or a professional waiver, we will identify the right option for your situation at no cost to you. Book a free consultation today.