Lenders mortgage insurance (LMI) explained

Lenders mortgage insurance (LMI) is a one-off cost that protects the lender — not you, and not your guarantor — if you cannot repay your home loan. It typically applies when you borrow more than 80% of the property’s value, and it can be paid at settlement or added (capitalised) to the loan. Eligible buyers may avoid it with a 20% deposit, through the Australian Government 5% Deposit Scheme, or in some cases through guarantor support.

Key points:
- LMI protects the **lender**, not the borrower — [Moneysmart](https://moneysmart.gov.au/saving/save-for-a-house-deposit) is blunt about it: the policy does not protect you or your guarantor.
- It typically applies when the loan-to-value ratio is above 80% — that is, a deposit under about 20% — but the exact threshold and requirements vary by lender and loan type.
- The premium is a one-off cost, paid at settlement or added (capitalised) to the loan — capitalising spreads the cost but means paying interest on the premium for the life of the loan.
- LMI does not move with you: refinancing with less than 20% equity can mean paying LMI again, so Moneysmart suggests asking your current lender for a partial refund when you switch — availability depends on the insurer’s and lender’s policies.
- Eligible first home buyers can purchase without LMI under the [Australian Government 5% Deposit Scheme](https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme) (formerly the Home Guarantee Scheme): minimum 5% deposit (2% for single parents or legal guardians), no income caps, uncapped places, with Housing Australia guaranteeing up to 15% of the property value to the lender under the first home buyer stream.
- In NSW, an LMI policy over NSW property is exempt from insurance duty where the premium was paid on or after 1 July 2017.