In this article
Kooky
Builder of Shaka, the payment router that pays every agent their commission on closing date.
About Kooky and Shaka →Almost every scheme for first home buyers is advertised with the same three words: no mortgage insurance. The Australian Government's 5% Deposit Scheme promises it. So do the two shared equity schemes, the Queensland Government's own home loan and every bank's family guarantee product. It is treated as a prize, and for a buyer with a small deposit it can be worth tens of thousands of dollars.
Yet lenders mortgage insurance is rarely explained to the people who would otherwise pay it. Many first buyers assume it is a kind of protection for themselves, like income protection or home insurance. It is not. It protects the lender, the borrower pays for it, and it is charged at the moment a buyer can least afford it.
This guide explains what the insurance is and why lenders require it, how the premium is charged, and how a guarantee, from the Government or from a family member, makes it unnecessary. It then sets out the routes a Queensland first buyer has around the premium, and the conditions attached to each. It draws on the Commonwealth Bank's published explanation of the insurance, Housing Australia and the Australian Government's First Home Buyers website for the guarantee, and a ministerial release of 1 October 2026 for the latest figures.
Commonwealth Bank, lenders mortgage insurance page; Housing Australia; media release, Minister for Housing, 1 October 2026.
What it is, and whom it protects
The Commonwealth Bank describes lenders mortgage insurance as "a one-off, non-refundable, non-transferrable premium that's added to your home loan." Each of those words matters to the person paying.
The bank is equally plain about the beneficiary. The insurance, it says, is designed to protect the bank, not the borrower, against the risk that the borrower cannot repay the loan. The policy is between the lender and an insurer. The borrower is not a party to it, cannot claim on it, and remains responsible for the whole of the debt.
Related readQueensland first-buyer loans slip to 5,646 as their average size jumpsIt should not be confused with the other insurance that comes with a home. Building insurance protects the house. Mortgage protection or income protection, where a borrower chooses to buy it, protects the borrower's ability to make repayments. Lenders mortgage insurance does neither. It exists so that a lender will agree to make a loan it would otherwise decline.
Why 20 per cent is the line
A lender's risk on a home loan is that the borrower stops paying and the home, when sold, does not cover what is owed. The deposit is the buffer against that. If a buyer has paid 20 per cent of the price, the home's value can fall a long way, and selling costs can be met, before the lender loses money.
The bank's explanation gives the threshold: the insurance is typically required when the loan-to-value ratio is more than 80 per cent, which is another way of saying the deposit is less than 20 per cent of the property's value. Below that mark the lender wants someone else to carry part of the risk, and the insurer does so for a premium.
The ratio is measured against the property's value as the lender assesses it, not simply the price in the contract. Where a valuation comes in below the purchase price, the ratio is higher than the buyer expected, and a deposit that looked like 20 per cent may no longer be.
For a Queensland first buyer the size of a full 20 per cent deposit explains why the insurance is so common. On a home at $700,000 it is $140,000. On a home at $1,000,000 it is $200,000. Those are the two price caps the federal scheme applies in Queensland, and they frame the market most first buyers are in.
Related readThe Queensland First Home Owner Grant: who qualifies and how to claimWhat it costs, and how it is paid
There is no single price. The Commonwealth Bank says the cost varies with the loan-to-value ratio, the size of the loan and the lender's policies, and generally ranges from 1 to 5 per cent of the loan amount. As an illustration it says that on a $500,000 purchase with a 10 per cent deposit, the premium could be more than $10,000.
The premium rises as the deposit shrinks, which means the buyers with the least savings pay the most. Applying the bank's general range to the loans a Queensland buyer would need with a 5 per cent deposit at the two caps gives a sense of scale. These are illustrations of the range, not quotes.
| Purchase price | Loan at 95% | Premium at 1% | Premium at 5% |
|---|---|---|---|
| $700,000 | $665,000 | $6,650 | $33,250 |
| $1,000,000 | $950,000 | $9,500 | $47,500 |
Illustrative figures: the Commonwealth Bank's general range of 1% to 5% of the loan amount applied to a 95% loan. Actual premiums depend on the lender, the insurer and the borrower.
The Government's own estimate sits inside that range. In a release on 1 October 2026 the Minister for Housing, Clare O'Neil, put the insurance avoided by a buyer purchasing at the national median price with a 5 per cent deposit at about $23,700.
How the premium is paid matters as much as its size. The bank says all premiums are capitalised, meaning added to the home loan when it settles. The buyer does not write a cheque. The loan is simply larger from the first day, and interest is charged on the premium for as long as that part of the debt remains. A buyer who borrows 95 per cent of the price and adds the premium owes more than 95 per cent of the home's value before making a single repayment.
The other two words in the bank's description are the ones borrowers find out about later. Non-refundable means that paying the loan down, or the home rising in value, does not bring the premium back. Non-transferable means the policy belongs to that loan with that lender. A borrower who moves to another lender while still owing more than 80 per cent of the home's value can expect the new lender to require cover of its own.
Related readHelp to Buy gets a third lender as Teachers Mutual Bank signs onHow the Government's guarantee takes its place
A guarantee does the insurer's job without the premium. Under the Australian Government's 5% Deposit Scheme, Housing Australia guarantees to the lender part of the loan that the deposit does not cover. Housing Australia describes the guarantee as covering up to a maximum of 15 per cent of the value of the property, for a buyer with a deposit of between 5 and 20 per cent.
The arithmetic is exact. A buyer with 5 per cent, plus a guarantee of 15 per cent, presents the lender with the same protection as a buyer with 20 per cent. The lender's exposure above 80 per cent is covered by the Commonwealth, so the lender has no need to buy insurance and nothing to pass on.
- The buyer brings 5%The deposit comes from the buyer. On a $700,000 home it is $35,000.
- The Commonwealth guarantees up to 15%Housing Australia guarantees that slice of the loan to the lender. On the same home it is $105,000.
- The lender sees 20% coveredNo mortgage insurance is required, and the buyer borrows the full 95%.
The scheme has been open to every eligible first buyer since 1 October 2025, when its income limits and its limit on places were removed. The First Home Buyers website sums it up as no income caps, no waitlists and no lenders mortgage insurance. A buyer applies through a participating lender as part of the home loan application. In Queensland the home must cost no more than $1,000,000 in Brisbane, the Gold Coast and the Sunshine Coast, or $700,000 elsewhere.
A single parent or single legal guardian can use the scheme with a deposit of 2 per cent.
What the guarantee does not do
Housing Australia is careful to say the guarantee is not a cash payment, and three limits follow from that.
It does not reduce the loan. The buyer in the example still borrows $665,000 and pays interest on all of it. The guarantee is a promise to the lender about what happens if things go wrong. It is not a contribution to the price.
Related readWho counts as a first home buyer in Queensland? Six tests comparedIt does not replace the lender's assessment. The buyer has to qualify for the loan on their own income and expenses. A buyer who could not afford the repayments on 95 per cent of the price is not helped by having the insurance waived. With the Reserve Bank's cash rate at 4.60 per cent since 29 September, that test is harder to pass than it was when the scheme was expanded.
It does not protect the buyer. Like the insurance it replaces, the guarantee is for the lender's benefit. The First Home Buyers website states that borrowers remain responsible for all loan repayments.
The comparison with the insurance is therefore narrower than it first appears. In both cases a third party stands behind the top slice of the loan. The difference is who pays for that. With insurance the borrower pays a premium. With the guarantee the Commonwealth carries the risk and the borrower pays nothing for it.
The saving, in the Government's figures
The ministerial release of 1 October 2026, which marked a year of the expanded scheme, gives the saving in total. Buyers have avoided $2.5 billion in lenders mortgage insurance since 2022, it says, and $1.4 billion of that was in the past year alone.
Media release, Minister for Housing, 1 October 2026: $2.5 billion since 2022, of which $1.4 billion in the past year. The earlier figure is the difference between the two.
More than half of everything saved since 2022 was saved in the twelve months after the income and place limits were lifted. The same release counts 102,594 first home buyers using the scheme in that year, 20,125 of them in Queensland.
The release also reports on what the Commonwealth's side of the bargain has cost so far. It says 99 per cent of borrowers are ahead of or on track with their repayments, and that 13 claims have been paid under the guarantee since the scheme began. Borrowers remain on the scheme for an average of 2.5 years.
Related readBoost to Buy: how Queensland's shared equity scheme works for a buyerOther routes around the premium in Queensland
The federal guarantee is the most widely used way to avoid the insurance, but it is one of five, and each replaces the insurer with someone different.
| Route | Deposit needed | Who stands behind the loan | Main limit |
|---|---|---|---|
| Conventional deposit | 20% | The buyer's own equity | Time taken to save |
| 5% Deposit Scheme | 5% | The Commonwealth, by guarantee | Price caps of $1,000,000 and $700,000 |
| Family guarantee | Set by the lender | A family member's home | The guarantor's equity and willingness |
| Shared equity | 2% | A government that owns part of the home | Income tests and limited places |
| Queensland Housing Finance Loan | 2% | The State, as the lender | Household income limit |
First Home Buyers website; St.George, Family Pledge; Queensland Treasury, Boost to Buy; Queensland Government housing pages.
A family guarantee works on the same principle as the federal one. A parent or other family member offers equity in their own home as security for part of the loan. St.George, describing its Family Pledge product, says the guarantee reduces the borrower's loan-to-value ratio and can remove the need for the insurance entirely, and gives the example of a $125,000 guarantee that brings a loan from 90 per cent of the property's value to 80 per cent. The Commonwealth Bank lists guarantor support beside the 5% Deposit Scheme as a way to avoid the premium. Unlike the federal scheme there is no price cap, and the risk falls on the family member, whose home can be sold if the loan is not repaid.
Shared equity removes the premium by a different mechanism: the loan is smaller. Under Queensland's Boost to Buy the State pays up to 25 per cent of the price of an existing home or 30 per cent of a new one, and under the federal Help to Buy scheme the Commonwealth pays up to 30 or 40 per cent. With a 2 per cent deposit the buyer borrows roughly 58 to 73 per cent of the price, well under the 80 per cent line. Unity Bank, the lender for Boost to Buy, lists the absence of mortgage insurance among the features of its loan. Both schemes are income tested and limited in places, and Queensland Treasury said on 30 September that Boost to Buy's South East Queensland allocations were exhausted while regional places remained available.
Related readBoost to Buy places run out in South East Queensland, regions stay openThe Queensland Housing Finance Loan is a loan from the State itself. The Queensland Government's housing pages say it requires a minimum deposit of 2 per cent and no lenders mortgage insurance, with household income limited to $141,000, or $201,000 in a list of regional trial areas until 31 October 2026.
The schemes that involve a government cannot be stacked on one another. Boost to Buy excludes a buyer who holds a Commonwealth guarantee, and Help to Buy excludes other guarantees and shared equity arrangements.
When buyers still pay the premium
None of this has made the insurance disappear. Buyers continue to pay it in several situations.
The first is price. A home above $1,000,000 in the south-east, or above $700,000 in the rest of Queensland, is outside the federal scheme whatever the buyer's circumstances.
The second is eligibility. The scheme treats a person as a first home buyer if they have not owned a home or land in Australia in the past ten years, and requires citizenship or permanent residency. Someone who sold a home six years ago, or who holds a temporary visa, is outside it.
The third is purpose. The guarantee is for a home the buyer lives in. An investment purchase does not qualify.
The fourth is the lender. The scheme is delivered through participating lenders, and a buyer who wants a particular loan from a lender outside the panel takes that lender's terms.
For buyers in those positions the choice is between paying the premium now and saving for longer. The Commonwealth Bank's page also mentions a third possibility at that bank, a low deposit premium offered as an alternative to the insurance. Which is cheaper over time depends on the premium quoted, the interest rate, and what prices and rents do while the buyer waits, and none of those can be known in advance.
Keeping the guarantee in place
The federal guarantee comes with conditions that continue after settlement, and a buyer who breaks them can end up paying for insurance after all.
Move out early and the insurance can come back
The First Home Buyers website says a buyer must move in within six months of settlement and keep living in the home while the guarantee is active. A buyer who does not may lose the guarantee, and the lender may then require lenders mortgage insurance or other additional costs.
The condition matters most to buyers whose plans are uncertain: someone who may be transferred for work, or who intends to rent the home out after a year or two. The website ties the guarantee to owner occupation, and it is the lender who decides what happens to the loan once the guarantee no longer applies.
The website also notes that the deposit is calculated on the home's value as assessed by the lender, and that both the price and that value must be at or under the cap. A valuation that differs from the contract price can therefore affect whether the scheme applies as well as how much deposit is needed.
Questions before choosing a route
A first buyer weighing the options can reduce them to six questions.
- What will my loan-to-value ratio be, on the lender's valuation, with the deposit I have?
- If it is above 80 per cent, do I qualify for the 5% Deposit Scheme on price, ownership history and residency?
- If not, what premium is the lender quoting, and how much does it add to the loan?
- Is a family guarantee available, and has the family member taken independent legal advice on what it puts at risk?
- Do my income and the home's price fit a shared equity scheme or the State's loan, and are places open where I am buying?
- Whichever route I take, can I afford the repayments on the full loan at current interest rates?
The last question is the one the insurance and the guarantee both leave untouched. Each exists to answer the lender's worry about a small deposit. Neither changes what the buyer owes or what it costs each month. The lender or broker arranging the loan can quote the premium and say which schemes a buyer fits; the First Home Buyers website, Queensland Treasury and the Queensland Government's housing pages publish the rules for each alternative.
Kooky, from Shaka
Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.
