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LMI vs. a larger deposit.
William Sun · May 2026
The advice most first-home buyers receive is consistent: save a 20% deposit, avoid lenders mortgage insurance, don't pay a premium to protect someone else's risk. It's presented as a rule. In practice, it's a starting position that deserves scrutiny — because for a meaningful number of buyers, paying LMI and entering the market earlier produces a better financial outcome than waiting.
That isn't a sales pitch for LMI. It's arithmetic. Whether the numbers support entering earlier depends on your specific purchase price, your savings trajectory, and what the property market does in the interim. Sometimes the numbers don't support it. But dismissing LMI as automatically wrong, without running the calculation, is equally poor financial reasoning.
What LMI actually is
Lenders mortgage insurance is a one-off premium that protects the lender — not you — in the event the loan defaults and the property sale doesn't cover the outstanding balance. It is triggered when the loan-to-value ratio exceeds 80%, meaning your deposit is less than 20% of the purchase price.
The premium is calculated as a percentage of the loan amount and varies by lender, LVR, and loan size. At a 90% LVR on a $700,000 property, LMI typically runs between $12,000 and $18,000. Most lenders allow you to capitalise the premium — roll it into the loan — rather than pay it upfront. This means it gets added to your loan balance and you pay interest on it over the life of the loan.
The cost is real. The question is whether it's the most expensive cost available to you — or whether the alternative (continuing to save) has its own cost that the headline number obscures.
The cost of waiting
Suppose you have a 10% deposit today and need 12 to 18 months to save to 20%. In a flat or declining market, that delay costs you relatively little. In a market rising at 6–8% per year — which describes significant portions of Sydney and Melbourne over the past decade — the property you're targeting becomes more expensive faster than you can save.
The arithmetic works like this: if a property is worth $800,000 today and rises 7% over 18 months, it's worth approximately $884,000 when you reach your 20% deposit. You now need an additional $16,800 in deposit just to maintain the same LVR — on top of the savings you were already accumulating. The LMI you avoided by waiting may have cost you more than the LMI itself would have.
This is a probabilistic argument, not a guarantee. Property values don't always rise. But in the markets where most LMI-relevant purchases happen, the historical probability of prices rising over an 18-month window is high enough to run the numbers seriously.
The variables that change the answer
One — your savings rate
If you can reach 20% in six months, wait. The cost of LMI rarely justifies a six-month delay. If reaching 20% requires two or more years, the market-timing risk shifts meaningfully and the LMI calculation becomes more favourable.
Two — your LVR at entry
LMI at 85% LVR is substantially cheaper than at 90% or 95%. A borrower with a 15% deposit is paying a much smaller premium for the same logic. If you're close to the 80% threshold, the premium is often small enough that the wait-cost argument closes quickly.
Three — the property market you're buying in
In a flat or declining market, waiting to accumulate a larger deposit is straightforwardly better. The case for accepting LMI is strongest in supply-constrained markets with sustained price growth — typically the inner and middle rings of Sydney and Melbourne.
Four — government scheme eligibility
The First Home Guarantee allows eligible buyers to purchase with a 5% deposit without paying LMI, because the government guarantees the remaining portion of the deposit threshold. If you qualify, the LMI question becomes largely irrelevant — the scheme removes the premium. Places are limited and criteria apply; it's worth checking eligibility before modelling anything else.
The right answer here is specific to your numbers. LMI is a cost worth avoiding if avoiding it doesn't itself cost you more. Whether that condition holds is an empirical question — one that takes about twenty minutes to model once someone has your deposit balance, your savings rate, your target property range, and a realistic view of the market you're buying in.
That's the conversation. Not "LMI bad, avoid it." Not "pay LMI and get in." Just: here are your numbers, here is what each path costs, here is our recommendation.
About the author
William Sun
Principal Mortgage Broker · Brilliant Finance Solutions · Est. 2017
William Sun is the principal of Brilliant Finance Solutions, a Sydney mortgage practice established in 2017. He holds Credit Representative Number 498730, authorised under BLSSA Pty Ltd Australian Credit Licence 391237, and is a member of the Finance Brokers Association of Australasia (FBAA M-333308). Every client engagement begins with a written Strategy Memo — a structured assessment of loan options before any lender is approached.
About the practice →The conversation
Start with a written assessment, not a sales pitch.
Fourteen minutes — long enough to understand your situation, short enough to respect your time.