LVR and LMI Explained: How Much Deposit Do You Really Need?

The short answer

A typical bank will lend you up to 80% of a property’s value on a standard loan, as long as you have enough borrowing capacity. That means you’d need a 20% deposit, plus funds for upfront costs like stamp duty.

You can borrow more than 80%, but you’ll usually pay Lenders Mortgage Insurance (LMI). There are also legitimate ways to buy with a smaller deposit and avoid LMI altogether.

What is LVR?

LVR stands for loan-to-value ratio. It’s your loan amount as a percentage of the property’s value, usually the lower of the purchase price or the bank’s valuation.

LVR = loan amount ÷ property value × 100

Example: You buy an $800,000 home with a $160,000 deposit and borrow $640,000. Your LVR is 80%. With a $40,000 deposit, you’d borrow $760,000, an LVR of 95%.

What is LMI?

Lenders Mortgage Insurance is a one-off premium you usually pay when your LVR is above 80%.

• Who it protects: the lender, not you. It covers the lender if the loan goes bad and the property sells for less than the debt.
• What it costs: the premium rises with your LVR and loan size. On larger loans with smaller deposits, it can run into tens of thousands of dollars.
• How you pay: many lenders let you add LMI to your loan, so you don’t need the cash upfront. You’ll pay interest on it over the life of the loan.
• How high you can go: some lenders will lend up to 95% plus LMI for owner-occupiers, subject to borrowing capacity and policy.

How to avoid LMI

• Save a 20% deposit: keep your LVR at 80% or below.
• The 5% Deposit Scheme: eligible first home buyers can buy with a 5% deposit and no LMI, because the government guarantees part of the loan. Single parents and legal guardians can buy with as little as a 2% deposit. Since October 2025, there are no income caps or limits on places, but property price caps apply by location.
• Professional LMI waivers: some lenders waive LMI for eligible professionals, such as doctors, lawyers and accountants, often up to 85–90% LVR.
• A family guarantee: parents can use equity in their own home as extra security, so you can borrow more without LMI. We’ll cover guarantor loans in a later lesson.

Each option has its own eligibility rules, and not every lender offers every one. Your broker can tell you which you qualify for.

LVR and your interest rate

LVR doesn’t just decide whether you pay LMI. Many lenders price their loans in LVR tiers, such as 60%, 70% and 80%. The lower your LVR, the lower the risk to the lender, and often the sharper your rate.

It’s worth knowing which tier you sit in. As your loan reduces or your property grows in value, you may move into a better tier, which is a good reason to review your rate.

Is LMI always bad?

Not necessarily. LMI is a cost, but so is waiting. While you save for a full 20% deposit, you’re still paying rent, and property prices can move in the meantime.

For some buyers, paying LMI to get into the market sooner makes sense. For others, a scheme, waiver or guarantor is the better path. The right answer depends on your deposit, your income, the property and your timeline.

Example: Maya has a 10% deposit for a $700,000 apartment. She could wait two more years to save 20%, or buy now with LMI added to her loan. We’d compare the LMI cost against two more years of rent, and check whether she qualifies for a waiver or scheme first.

Not sure how much deposit you need?

With access to over 40 lenders, our team of lending specialists can check which schemes, waivers or guarantor options you qualify for, and show you the numbers with and without LMI.

Book a chat · Next lesson: Deposits and genuine savings

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Lender policies and government scheme rules vary and change regularly; eligibility criteria and property price caps apply. Examples are illustrative. Seek advice from a licensed credit adviser before acting. Insight Property Finance.