Lenders mortgage insurance (LMI) is an insurance policy that protects the lender — not the borrower — in the event the borrower defaults and the property sale does not cover the outstanding loan balance. LMI applies when a borrower’s deposit is below 20% of the property’s value (i.e., an LVR above 80%). For investment property buyers, LMI is a significant cost that must be factored into the overall investment analysis.
When Does LMI Apply to Investment Properties?
LMI applies when:
- Your loan-to-value ratio (LVR) exceeds 80% (deposit less than 20%)
- You are borrowing against the investment property itself (rather than using equity in another property as security)
Investment property buyers do not qualify for government LMI waiver schemes such as the First Home Guarantee (FHBG) or Regional First Home Buyer Guarantee — these are for owner-occupiers purchasing their first home.
How Much Does LMI Cost on an Investment Property?
LMI premiums are calculated on a sliding scale based on LVR and loan amount. The premium is charged once upfront and is typically capitalised into the loan (added to the loan balance).
Approximate LMI costs — $600,000 loan:
| LVR | Approx LMI premium |
|---|---|
| 80% (no LMI) | $0 |
| 85% | $8,000–$12,000 |
| 90% | $18,000–$24,000 |
| 95% | $28,000–$38,000 |
Exact premiums vary by lender and LMI insurer (Helia/Genworth). Use a lenders’ LMI calculator for an accurate estimate.
The two main LMI insurers in Australia are Helia (formerly Genworth) and QBE LMI. Different lenders use different insurers, and premiums differ slightly.
Is LMI Deductible for Investment Properties?
Yes — LMI paid on an investment property loan is tax deductible, but over 5 years (or the loan term if shorter), not as a single-year deduction. This is because LMI is a borrowing cost, deductible under Division 25 of the ITAA 1997 over the lesser of 5 years or the loan term.
For an $18,000 LMI premium on a 30-year investment loan:
- Annual deduction: $18,000 ÷ 5 = $3,600/year for 5 years
- At a 37% marginal tax rate: tax saving of approximately $1,332/year
This partial deductibility improves the economics of LMI compared to an owner-occupier situation (where LMI is not deductible at all).
Is It Worth Paying LMI on an Investment Property?
Some investors deliberately choose to pay LMI to enter the property market sooner with a smaller deposit. Arguments for and against:
Arguments for paying LMI (entering sooner):
- Captures capital growth sooner — in a rising market, the gain from buying now can exceed the LMI cost
- Preserves cash for other investments (diversification)
- LMI is partly deductible on investment properties
- Leveraging a higher LVR increases the return on equity (in rising markets)
Arguments against:
- LMI is a sunk cost — it doesn’t build equity
- Higher LVR = higher loan balance = more interest over the life of the loan
- Higher LVR loans often attract higher interest rates (risk pricing)
- In a falling or flat market, LMI amplifies the loss of equity
Strategies to Avoid LMI on an Investment Property
- Save a 20% deposit — eliminates LMI entirely
- Use equity in your home: If your existing home has sufficient equity, a lender may accept a security guarantee over your home, enabling you to borrow 80%+ of the investment property value without LMI
- Cross-collateralisation: Lenders can use multiple properties as security, potentially allowing higher borrowing without LMI — but this increases risk and complexity
- Lender-specific professional packages: Some lenders offer LMI waivers for professionals (doctors, lawyers, accountants) — generally only for owner-occupiers
Related Articles
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- Interest-Only Loans for Investment Property
- Investment Property Tax Deductions Australia
- How to Invest in Property Australia
- Property Investing hub
Frequently Asked Questions
Is LMI refundable if I sell my investment property? Generally no. LMI is non-transferable and non-refundable in most cases. If you sell the property, refinance, or pay down the loan below 80% LVR, the LMI premium is not returned.
Do investment property loans have higher LMI rates than owner-occupier loans? Yes. Investment property loans are considered higher risk, so LMI premiums for investment loans are typically higher than for equivalent owner-occupier loans at the same LVR and loan amount.
Can I claim LMI as a deduction on a property I live in? No. LMI on a loan for your principal place of residence is not deductible. Only LMI on investment property loans is deductible (spread over 5 years or the loan term).
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.