What Is Lenders Mortgage Insurance (LMI)?

1. What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) is insurance that protects the lender or credit provider if the borrower cannot repay the home loan. If the property is sold and the sale does not cover the outstanding loan, LMI may compensate the lender for the shortfall.

An important point for buyers: LMI does not protect you, the borrower. You pay the premium, but the cover benefits the lender. This is different from insurance you might take out to protect yourself, such as income protection or home and contents insurance. Moneysmart, the Australian Government's financial guidance service, describes LMI in exactly these terms in its home-loan guidance.

2. When might you need LMI?

LMI commonly applies when your home loan is more than 80% of the property's value — in other words, when your deposit is less than 20%. Lenders see higher loan-to-value lending as higher risk, and LMI is one way that risk is managed.

That said, LMI is not automatically required in every case where the loan exceeds 80%. Lender policies and individual circumstances can differ, and some pathways — such as a government guarantee — can change the outcome. Use words like "commonly" and "may" when thinking about LMI: the only way to know for sure is to ask your lender or mortgage broker.

3. LVR and LMI explained

Your Loan-to-Value Ratio (LVR) is the share of the property's value that you are borrowing:

LVR = loan amount ÷ property value × 100

Here are simple mathematical examples on a $700,000 property:

• $560,000 loan on a $700,000 property = 80% LVR
• $630,000 loan on a $700,000 property = 90% LVR
• $665,000 loan on a $700,000 property = 95% LVR

These are mathematical examples only. A particular LVR does not guarantee that a particular lender will or will not require LMI — each lender applies its own policies to your situation.

4. How your deposit affects LVR

The bigger your deposit, the smaller your loan — and the lower your LVR. This table shows how different deposit sizes work on a hypothetical $700,000 property:

These figures are mathematical examples on a hypothetical property. They do not represent a lender's approval of any loan amount, a guaranteed LMI outcome, or what you personally could borrow — your lender will assess your income, expenses, debts and credit history.

Our how much deposit do I need guide walks through each of these deposit sizes in more detail.

5. How much does LMI cost?

There is no single fixed price for LMI. The actual premium depends on factors such as the size of the loan, the property, the loan-to-value ratio, whether you are buying to live in or invest, and the lender's and insurer's requirements. That is why we do not publish dollar figures here — quoting a number that is wrong for your situation would be worse than no number at all.

The reliable way to find out is to ask your lender or mortgage broker for the actual LMI quote for your loan before you commit. Many lenders can give you a one-off premium figure during the application process, and some brokers can compare premiums across lenders.

6. How is LMI paid?

How LMI is paid depends on the lender. Commonly, the premium may be:

• paid as a one-off amount at settlement, or
• added to your home loan (sometimes called "capitalised"), depending on the lender.

If the premium is added to the loan, the amount you borrow increases. A larger loan generally means more interest over the life of the loan, so it is worth asking how the premium would be treated and comparing the total cost either way. Moneysmart's guidance on buying a house covers LMI as one of the costs to plan for, alongside stamp duty, legal fees and inspections.

7. Can you avoid LMI?

Depending on your situation, there are a few possibilities:

• A sufficiently large deposit or equity. As a general rule, borrowing 80% or less of the property's value commonly means LMI is not required — but this is a rule of thumb, not a guarantee, and lender policies can differ.
• An eligible government scheme. A scheme that provides a guarantee to the lender, such as the 5% Deposit Scheme, can mean no LMI for eligible buyers. Eligibility requirements apply.
• Other lender-specific arrangements. Some lenders have their own products or policies for certain professions, guarantor loans or other situations. Ask your lender or broker what may apply to you.

Not every borrower can avoid LMI simply by reaching a particular deposit percentage — the outcome depends on the lender's policy and your individual circumstances. If in doubt, get the actual answer from your lender or broker before you commit.

8. LMI and the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme helps eligible first-home buyers buy a home with a minimum 5% deposit. Under the scheme, the government provides backing to the participating lender, which means eligible buyers pay no LMI under the scheme — normally, borrowing 95% of a property's value would commonly attract LMI.

Keep these points in mind:

• Eligibility requirements apply — being a first-home buyer, citizenship or residency, property price caps and other rules apply.
• You still need lender approval. The scheme does not guarantee a home loan; a participating lender must still assess and approve your application.
• The guarantee protects the lender, not the buyer. As with any LMI-style arrangement, you remain responsible for the loan.
• You remain responsible for repayments and other home-buying costs, including stamp duty, legal fees, inspections and ongoing ownership costs.

Scheme details and eligibility rules can change, so confirm current requirements through the official Australian Government sources linked from our Government Help page or with a participating lender.

9. LMI and first-home buyers

LMI matters most when you are comparing different deposit sizes. A smaller deposit might let you buy sooner, but it usually means a higher loan-to-value ratio — and commonly, paying LMI on top. A larger deposit may avoid LMI, but can mean years more saving while prices and rents potentially move.

That is why it helps to think about the total cost of buying, not just the deposit: the deposit, transfer duty (stamp duty), conveyancing, inspections, and any LMI premium all come out of the same savings. Our first home buyer costs guide lists each of these so you can budget beyond the deposit itself.

10. How Aus Property Guide estimates LMI

Our first home buyer affordability calculator uses your property price, deposit and other inputs to work out your loan-to-value ratio, and uses that to indicate whether LMI may be relevant for your numbers and roughly at what scale. It is an estimate to help you plan — it is not a lender decision, a quote, or financial advice. The actual premium, or whether LMI applies at all, is determined by your lender and insurer.

To explore further, see our deposit guide, the costs of buying, or use the home loan repayment calculator to see what different loan sizes mean for your repayments.

11. Sources and further reading

This page is based on general information from official Australian sources:

• Moneysmart — Home loans (includes Lenders Mortgage Insurance in its glossary and guidance)
• Moneysmart — Save for a house deposit
• Moneysmart — Buying a house
• Australian Government 5% Deposit Scheme (firsthome.gov.au)

Government rules and lender policies change, so always confirm the details that matter to you with your lender, broker or the official source.