Australian lenders normally charge Lenders Mortgage Insurance (LMI) when your deposit is under 20%, and on a typical first home that premium can be tens of thousands of dollars. Since 1 October 2025, the expanded Australian Government 5% Deposit Scheme lets every eligible first home buyer buy with 5% down and no LMI. Here is how it works, and when paying LMI might still be the better choice.
What LMI costs
LMI is a one-off premium that protects the lender. It is usually added to the loan. The cost rises steeply as the deposit shrinks and the loan grows. As a rough guide, it is about 1%–2% of the loan at 10%–15% deposit and 3%–4%+ at a 5% deposit. Stamp duty applies to the premium in some states. On a A$700,000 purchase with 5% down, LMI can easily run to A$25,000–A$30,000, and because it is added to the loan, you also pay interest on it for 30 years.
How the 5% Deposit Scheme works
Under the scheme, the government, through Housing Australia, guarantees up to 15% of the property value to a participating lender. That way a 5% deposit is treated like a 20% deposit, and no LMI is charged. Since October 2025:
- No income caps. The old limits (A$125,000 for singles, A$200,000 for couples) were removed.
- No limit on places. The yearly quota was scrapped, so you no longer have to wait for a spot to open.
- Higher property price caps in every stream. For example, A$1.5 million in Sydney and major NSW regional centres, A$1 million in Brisbane and major Queensland centres, and A$950,000 in Melbourne and Geelong. Caps are lower in other areas.
- You must be a first home buyer (or not have owned property in Australia in the past 10 years), be an Australian citizen or permanent resident, and live in the property.
- Single parents and single legal guardians can buy with as little as 2% down under the Family Home Guarantee stream.
Scheme vs LMI: a side-by-side
For a A$700,000 home:
| 5% deposit + scheme | 5% deposit + LMI | 20% deposit | |
|---|---|---|---|
| Deposit | A$35,000 | A$35,000 | A$140,000 |
| LMI | A$0 | ~A$25,000–30,000 | A$0 |
| Loan | A$665,000 | ~A$690,000+ | A$560,000 |
| Time to save the deposit* | ~2 years | ~2 years | ~8 years |
*Saving A$1,500 a month, ignoring interest and stamp duty.
The scheme wins clearly on cost: you get into the market years sooner and skip a five-figure premium. The trade-off is a larger loan than with 20% down, so higher repayments and more total interest. You still have to pass the lender's serviceability test at your rate plus a 3% buffer.
When paying LMI can still make sense
- The home is above the price cap for your area.
- You're not a first home buyer and don't qualify for the Family Home Guarantee.
- Your lender isn't a scheme participant and offers a much better rate. Compare the total cost over 5–10 years, not just the upfront premium.
- You're in a profession that qualifies for an LMI waiver (many lenders waive LMI for doctors, lawyers and accountants at up to 90% LVR).
Don't forget stamp duty
Most states have first home buyer stamp duty exemptions or concessions below certain prices. For example, NSW gives a full exemption up to A$800,000 and Victoria up to A$600,000. Combined with the 5% scheme, this can cut the upfront cash needed by more than half. Check your state's rules with our stamp duty and closing costs calculator.
Run your numbers
The Australian deposit calculator compares 5%, 10% and 20% deposits, with LMI estimates, loan size and repayments for each. See current Australian home loan rates for the rate to plug in.
Published September 22, 2026. Figures are estimates for education only, not financial advice; program rules and rates change, so confirm with a licensed lender. Spotted an error? Let us know.