Lenders mortgage insurance (LMI) explained

What LMI is and who it protects

Moneysmart's glossary (updated 16 September 2019) says LMI protects a credit provider if borrowers are unable to repay their loan, and that it protects only the lender. Its Save for a house deposit page (updated 6 August 2026) says: "If your LVR is above 80%, you may need to pay lenders mortgage insurance" and that it "is a one-off fee that protects the lender if you can't repay the loan."

So it does not cover your repayments or your home. If you cannot repay, the borrower still owes the debt.

When it applies

LMI usually comes up when your loan-to-value ratio (LVR) is above 80%. That means your deposit is under 20%. What LVR means shows how to work it out.

The price is an illustrative round number. Lenders set their own policies, including the exact line, so check the lender's rules for your loan. The cost depends on the lender, the loan size and the LVR. No official page gives a typical premium, so we have not shown one.

Ways to avoid or reduce it

1. Save a bigger deposit. In the table above, a $120,000 deposit instead of $60,000 on a $600,000 property takes the loan from 90% to 80% LVR. That extra $60,000 is the simple arithmetic of the gap. Moneysmart says a deposit of 20% can help you avoid mortgage insurance.
2. Use a guarantor. Moneysmart says a guarantor uses their own home or savings to help secure the loan, and that "if you can't pay, the guarantor has to." That is a serious risk for them, so read guarantor home loans.
3. Check government schemes. The firsthomebuyers.gov.au page for the 5% Deposit Scheme says that for first home buyers with a minimum 5% deposit (single parents or legal guardians 2%), the changes from 1 October 2025 include "no Lenders Mortgage Insurance." It also says that if ongoing obligations are not met, "your lender may require you to pay Lenders Mortgage Insurance or other additional costs." You apply through a participating lender, and the scheme has no fees. See first home buyer schemes.
4. Ask about professional packages. Some lenders may waive or reduce LMI for certain professions. We found no official page on this, so ask each lender whether one exists for you.
5. Wait and pay the loan down. A lower balance or a rising valuation lowers your LVR, though values can fall too.

Can it be added to the loan?

Moneysmart's Save for a house deposit page, as reported in its search extract, says the fee is usually paid at settlement or added to the loan balance. If it is added to the loan, you borrow more, pay interest on it and your LVR goes up. Ask whether the lender allows it and what the loan then costs. This is borrowing more for the same property, so treat it as a cost like any other.

Using the rate board

Rates are tied to LVR bands. The 90% LVR owner-occupier board shows loans that accept a smaller deposit, and the main home loan rates page shows the lowest advertised standard variable rate. As at 2 Nov 2026 that rate is 5.69% (Aaa Financial Corporation), with the median at 6.74%. Those are advertised rates with a recorded date, and not what you will be charged. A loan at a higher LVR may carry a different rate and LMI. Compare in compare rates.

When you refinance

Moneysmart's switching page (updated 29 October 2026) says LMI applies if you have less than 20% equity and can make switching more expensive. It says you can ask your current lender for a partial LMI refund. See the refinancing checklist.

Mistakes and what to ask

• Comparing only the rate. Ask for the LMI cost in dollars from each lender.
• Not asking whether LMI can be added to the loan and how that changes your repayments.
• Assuming a scheme means no LMI ever. Check the ongoing conditions.
• Forgetting other costs. Stamp duty is paid in addition.