Lenders Mortgage Insurance Australia Explained

Lenders Mortgage Insurance (LMI) is a one-off cost that may apply when you borrow more than 80% of a property's value. It protects the lender if the borrower defaults and the property is sold for less than the loan balance. It does not protect the borrower.

You may need to pay LMI when your LVR is above 80%, which usually means your deposit is less than 20% of the property value. Some borrowers can avoid LMI through a government guarantee, guarantor structure, professional waiver or lender-specific policy.

LMI can range from a few thousand dollars to $35,000 or more, depending on the property price, loan amount, deposit size, LVR, borrower type and lender. It usually rises sharply as the LVR moves from 80% toward 90% or 95%.

Many lenders allow LMI to be capitalised, which means it is added to the loan rather than paid upfront at settlement. This reduces the cash needed upfront but increases the loan balance and the interest paid over time.

No. LMI protects the lender, not the borrower. If the lender makes a claim after a default and property sale, the borrower may still be pursued for any remaining shortfall, subject to the loan contract and legal process.

Common ways to avoid LMI include saving a 20% deposit, using a family guarantor, qualifying for the Australian Government 5% Deposit Scheme, meeting a professional waiver policy or reducing the loan amount before application.

LMI can be worth considering if it helps you buy sooner and the total cost is acceptable compared with waiting to save a larger deposit. It should be weighed against repayments, interest, property risk, stamp duty, cash buffer and your ability to hold the loan.

LMI is usually not refundable in full once the loan settles. Some lenders or insurers may offer a partial refund in limited circumstances, such as early repayment or refinance within a short period, but this depends on policy.