If you’ve ever saved hard for a deposit, finally got close to buying a home, and then discovered you need to pay thousands (sometimes tens of thousands) in Lenders Mortgage Insurance…

You’re not alone.

And if your next thought was:

“Hang on… why am I paying for insurance that protects the bank?

Fair question.

Lenders Mortgage Insurance (LMI) is one of the most misunderstood parts of the home buying process in Australia. It’s also one of the most frustrating because it feels like a cost you can’t negotiate, can’t shop around for, and don’t personally benefit from.

So let’s break it down properly: what LMI is, who provides it in Australia, why the market has so little competition, and whether it’s actually a scam… or just a necessary evil.

Key Takeaways:

• LMI protects the lender, not the borrower even though you pay for it.
• In Australia, most LMI is provided by Helia, QBE and Arch.
• Borrowers can’t choose the insurer, which is why pricing feels opaque.
• LMI can cost thousands (or tens of thousands) depending on your deposit and LVR.
• Some buyers can reduce or avoid LMI through bigger deposits, government schemes, or guarantor structures.

What Is LMI (and Why Does It Exist)?

LMI stands for Lenders Mortgage Insurance.

Despite what the name suggests, it’s not insurance that protects you as the borrower.

It’s insurance that protects the lender if you default on your loan and the property sale doesn’t recover enough money to cover the debt.

So yes, it’s exactly as backwards as it sounds:

You pay the premium, but the lender gets the protection.

Most Australians encounter LMI when their loan-to-value ratio (LVR) is above 80% meaning they have less than a 20% deposit.

For example:

• Buying a $700,000 home with a $70,000 deposit (10%)
• Loan required = $630,000
• LVR = 90%
• LMI is likely required

Depending on the lender and the numbers, LMI can range from a few thousand dollars to well over $20,000.

Why Does LMI Feel Like a Rip-Off?

Because from the borrower’s perspective, it often is.

Here’s the brutal truth: LMI is a cost you pay because the lender is taking a higher risk loan.

And you’re paying it upfront, before you’ve even moved in.

It gets worse when you realise:

• You don’t get to choose the insurer (your bank aligns with their chosen insurer)
• You don’t get to compare pricing (the best you can do is consider a different bank who uses a different insurer... though guess what? The 3 insurers all price up similarly)
• You don’t get any direct benefit if things go wrong
• And if the lender claims on the policy, you may still owe the shortfall

That’s the part that shocks most buyers.

So yes, LMI is a legitimate financial product… but the way it’s sold and packaged can absolutely feel like a system that’s rigged against borrowers.

Who Provides LMI in Australia Today?

The Australian LMI market is surprisingly small.

For most lenders and brokers, there are really only three major providers operating today:

1. Helia (formerly Genworth Mortgage Insurance Australia)

Helia is one of the oldest names in Australian mortgage insurance and has operated since 1965, positioning itself as Australia’s first LMI provider.

It used to be widely known as Genworth, but rebranded to Helia after separating from its former US parent company and losing rights to the Genworth name.

Helia is now listed on the ASX as Helia Group Limited.

In its recent reporting, Helia disclosed New Insurance Written (NIW) of approximately $13.2 billion in FY24, and has stated it helped over 31,000 Australians achieve home ownership in 2024.

2. QBE LMI (QBE Lenders’ Mortgage Insurance)

QBE is one of Australia’s biggest insurers and owns its LMI arm through the broader QBE Insurance Group.

QBE expanded its presence in the sector through acquisitions, including the purchase of PMI Australia in 2008, which later became QBE LMI.

While QBE is a major name in Australian insurance, the LMI side of its business is much more behind-the-scenes — most borrowers don’t realise QBE may be the insurer attached to their loan.

3. Arch LMI (Arch Lenders Mortgage Indemnity)

Arch is a more recent player in the Australian market, backed by Arch Capital Group Ltd, a global insurance and reinsurance business.

Arch received Australian regulatory approval in 2019, and in 2021 it acquired Westpac’s lenders mortgage insurance business (WLMI).

As part of that transaction, Westpac also disclosed a long-term exclusive supply arrangement with Arch, a detail that says a lot about how “competitive” this market really is.

Arch has grown quickly and is now a major force in Australian LMI.

What Happened to Competition?

If you’ve been around the mortgage world long enough, you’ve probably heard brokers say:

“It used to be Genworth and QBE… then it was basically just QBE… now it’s QBE and Arch.”

That’s not perfectly accurate in corporate terms — because Genworth didn’t vanish, it became Helia but the feeling behind it is real.

The market is narrow.

And many lenders have preferred panels or exclusive relationships, meaning the borrower effectively has no ability to shop around, even if another insurer might price differently.

In plain English:

You pay the premium, but you don’t get to choose the provider.

That’s not how most markets work and it’s one of the reasons LMI attracts so much frustration.

How Much LMI Costs in Australia

LMI is generally calculated based on:

• Loan size
• LVR
• Loan type and structure
• Borrower risk profile (in some cases)

The premium can vary significantly, but it’s not unusual for LMI to cost somewhere between 1% and 5% of the loan amount depending on how high the LVR is.

And the closer you get to a 95% LVR, the more aggressive the premium becomes. That is, premiums do not rise linearly with LVR and loan amount. They rise exponentially.

Borrowers typically pay LMI in one of two ways:

Option 1: Pay upfront

You pay the premium as part of your settlement costs.

Option 2: Add it to the loan

Many lenders allow you to capitalise the premium, meaning it gets added to your mortgage balance.

This can reduce upfront cost, but it also means you pay interest on the LMI amount for years.

How Often Do LMI Insurers Actually Pay Claims?

Here’s where things get interesting.

Unlike car insurance or home insurance, LMI claims aren’t widely understood because borrowers don’t claim on LMI policies, lenders do.

And claims aren’t based on missed repayments alone.

A lender only claims when:

• a borrower defaults,
• the property is sold,
• and the sale proceeds don’t cover the outstanding loan amount (after costs and recoveries).

That means claims can be highly cyclical.

In strong property markets, insurers may experience very low claims. In downturns, claims can spike quickly especially if unemployment rises and house prices fall at the same time.

Some insurers have reported extremely low (and occasionally negative) incurred claims ratios in strong market periods, often due to reserve releases and favourable credit performance.

That doesn’t mean risk has disappeared, it means the product is built for “tail risk”: major downturn events.

So Is LMI a Scam?

Let’s call it straight.

Why it feels like price gouging

Because:

• you pay thousands for protection you don’t receive
• you can’t shop around
• you can’t negotiate pricing
• and the market is dominated by a small number of insurers

That structure makes LMI feel less like a free market product and more like a mandatory fee attached to borrowing.

And honestly, from the borrower’s seat, that’s exactly what it feels like.

Why it isn’t technically a scam

Because LMI does serve a real purpose.

Without it, lenders would likely:

• refuse many high-LVR loans altogether, or
• charge significantly higher interest rates to cover risk

LMI helps enable home ownership for buyers who don’t yet have a 20% deposit, especially first home buyers.

It’s a risk transfer product that supports the entire lending system.

So the concept is legitimate.

The frustration comes from how the market operates.

The Real Problem: Borrowers Pay, Lenders Choose

This is the core issue with LMI.

In most industries, the person paying for a product chooses the provider.

With LMI, the opposite happens.

The lender chooses the insurer, sets the policy requirement, and the borrower gets the bill usually without visibility into how that premium was calculated or whether a better-priced alternative exists.

That’s why LMI attracts so much criticism.

Not because insurance is inherently wrong but because the structure is designed in a way that gives borrowers the least control.

How First Home Buyers Can Reduce or Avoid LMI

If you’re facing LMI, there are a few practical strategies worth exploring:

1. Save a bigger deposit (even small increases help)

Sometimes increasing your deposit slightly can drop your LVR below a key pricing threshold and significantly reduce the premium.

2. Consider government guarantee schemes

Some eligible first home buyers can purchase with as little as 5% deposit without paying LMI under government-backed schemes.

3. Consider guarantor options

A family guarantee structure can sometimes help reduce your LVR without needing a full 20% deposit.

4. Run the numbers properly

Sometimes paying LMI is still worth it if:

• house prices are rising,
• rent is expensive,
• and waiting another 2–3 years to save 20% would cost you more overall.

There isn’t one “right” answer, but there is always a right strategy for your situation.

If you’re buying your first home, visit our Your First Home guide for a clear breakdown of deposits, government schemes, and smarter ways to structure your loan.

Mountway’s Take: LMI Isn’t Evil, But It’s Not Transparent

LMI isn’t a scam in the legal sense.

It’s a risk-transfer product that plays a major role in Australian lending.

But the way it’s structured where borrowers pay for protection that benefits lenders, in a market with limited transparency and limited competition makes it easy to see why so many Australians feel like they’re being squeezed.

At Mountway, we don’t believe in sugar-coating it.

If you’re paying LMI, you deserve to understand:

• why it exists,
• who’s charging it,
• what your alternatives are,
• and whether it’s worth paying now or avoiding altogether.

Because home buying is hard enough without surprise fees that no one properly explains.

Want Help Avoiding LMI (or Reducing It)?

If you’re buying your first home and you’re not sure whether you should:

• wait for a bigger deposit,
• use a government scheme,
• restructure the loan,
• or just move forward and accept LMI,

Mountway can help you run the numbers and make the smartest move, not the “bank-approved” move.

Reach out and we’ll show you what your options really are.

Have a question about LMI or your first home?