What Is Lenders Mortgage Insurance (LMI)?

If you are buying a home with a smaller deposit, you may hear about LMI. Here is what it really means, in plain words.

What LMI actually is

LMI stands for Lenders Mortgage Insurance. It is a one-off cost that can apply when you borrow with a smaller deposit.

Here is the part that surprises people. Lenders mortgage insurance protects the lender, not you. If a loan went bad and the lender lost money, the insurer helps cover that loss. You pay for it, but it does not protect your own repayments or your home.

It is not the same as home and contents insurance, and it is not income protection. Think of it as a fee tied to the size of your deposit.

When does LMI usually apply?

LMI usually comes up when your deposit is under 20% of the property price. In lender language, that is when your LVR is over 80%.

LVR means loan to value ratio. It is the size of your loan compared to the value of the home. A bigger deposit means a lower LVR, and a lower chance of paying LMI.

So a 20% deposit often avoids it. A 10% or 5% deposit often means LMI applies. The smaller your deposit, the larger the cost tends to be. This matters whether you are looking at home loans for your first place or your next one.

How much can it cost?

There is no single set price. The cost depends on the lender, the insurer, your loan size and your deposit.

Please treat that as rough only. Use a lender’s LMI calculator, or ask us to estimate it for your situation.

Ways to reduce or avoid LMI

There are a few common paths, and the right one depends on your goals.

• Save a larger deposit. Reaching a 20% deposit often removes LMI altogether.
• Use a guarantor. A family member may use their own equity to help, which can lower your LVR.
• Check government schemes. Some buyers may qualify for support that reduces or removes LMI. Eligibility rules apply.
• Some lenders offer reduced LMI for certain jobs or buyers. This changes often, so it is worth checking current options.

If you are buying your first place, our first home buyers page is a good starting point. Already own a home and thinking about your next move? Refinancing or buying again can also affect LMI, and our refinance and investment loans pages explain more.

Every situation is different. If you would like a clear estimate and a look at your options, you can request a callback and we will walk you through it.