Summary:

Lenders Mortgage Insurance (LMI) is a type of insurance required when a borrower takes out a home loan with a deposit of less than 20%.

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Lenders Mortgage Insurance (LMI) is insurance that protects the lender, not the borrower, when a home loan is taken out with a deposit of less than 20% of the property’s value. If the borrower is unable to repay the loan and the property is sold for less than the outstanding mortgage, LMI helps cover the lender’s loss.

In Australia, LMI is usually required when a borrower has a loan-to-value ratio (LVR) above 80%, meaning they have contributed less than a 20% deposit. The cost can vary depending on the size of the loan and deposit, but it often runs into many thousands of dollars. Borrowers typically pay the premium upfront at settlement, although it is often added to the loan amount, increasing the total amount borrowed.

Although LMI protects the lender rather than the borrower, it allows buyers to enter the property market sooner with a smaller deposit. Some government programs for first-home buyers allow eligible borrowers to avoid paying LMI even when their deposit is below 20%.