Pay LMI or Wait for 20% Deposit? (Calculator)

Deciding whether to pay Lender’s Mortgage Insurance (LMI) or spend the next few years saving for a full 20% deposit is probably the biggest financial stressor in Australian property buying. Essentially, LMI is an insurance policy charged by the bank to cover the gap when your deposit is less than 20%. While it feels like a massive upfront cost—potentially ranging from $8,000 to $35,000—it buys you speed. You get into the market sooner, which is huge when property prices are climbing. On the other hand, waiting means saving every spare dollar, but it also exposes you to the risk of market appreciation. Before committing, you need to understand the numbers. If you are looking for a concrete picture of your costs, check out our mortgage affordability calculator to see how much you can borrow with your current savings.

The biggest risk when you wait to hit that magical 20% deposit is the opportunity cost. This is the value of what you give up by delaying your purchase. Historically, Australian property prices have risen between 3% and 7% per year. Imagine you are targeting a $600,000 home. If you wait just three years to save the remaining 8% deposit, that property might cost $600,000 * (1.03)^3, or roughly $649,700. That $49,700 difference is the money you didn't account for! While saving is crucial, you must factor in market growth. Furthermore, every month you wait, you are losing out on potential equity building. If your income is strong and the market outlook remains positive, paying the LMI fee might be the calculated decision that prioritises speed over perfect savings. We cover more advanced saving strategies on how to maximise your savings rate.

Paying LMI is a calculated trade-off: paying money now for speed later. For example, if you are buying a $600,000 home with a 10% deposit, the LMI might cost you around $12,000. If you are confident that the market growth over the next 12-18 months will be less than the LMI cost, or if you have a strong, stable income, paying it could be beneficial. LMI is most advisable when the market is rising quickly and you are worried about being priced out. It’s a fee, but it buys you a faster start to building equity. Always compare the LMI cost to your estimated property appreciation over the time you would otherwise spend saving. This decision requires careful budgeting and an understanding of your personal financial risk tolerance.

Before committing to LMI, look into the First Home Guarantee (FHG). This government scheme is designed for first-time buyers, allowing you to enter the market with just a 5% deposit and avoiding LMI. However, spots are limited and criteria are strict, so check the current eligibility requirements. If the FHG isn't an option, focus intensely on your savings strategy. If you are in a stable, flat market area and can save aggressively (e.g., saving an extra $2,000 per month), waiting remains a viable, low-risk option. The goal is to reach 20% naturally, which not only saves you LMI but also gives you the best possible loan structure from the start. Use our deposit saving plan guide to structure your savings goals.