Lenders Mortgage Insurance: What It Covers and How to Compare the Cost

LMI is often described as a fee for buying with a smaller deposit. That shorthand misses the essential point: the policy protects the lender. It may help a lender offer a higher loan-to-value ratio, but it does not protect the borrower's repayments, deposit or equity.

Who LMI protects

ASIC's Moneysmart LMI definition says the cover protects the credit provider if borrowers cannot repay and does not benefit the borrower as insurance cover. If a property is sold after default and the proceeds do not clear the debt and enforcement costs, the borrower may still owe a shortfall. The rights and amounts depend on the loan, mortgage, sale and insurance arrangements.

When LMI may apply

Moneysmart says LMI is usually a one-off cost when the amount borrowed exceeds 80% of the property value. That is a general guide, not an entitlement to borrow up to a particular ratio and not a universal trigger for every lender or property.

The lender decides which value and policy apply. Its valuation can be lower than the purchase price. The loan-to-value ratio may also include capitalised LMI or other amounts, depending on the product calculation. Ask the lender for the ratio, value and loan amount used in writing.

How the cost is determined

There is no safe national premium table. QBE's LMI product explanation says pricing varies with factors such as loan amount and loan purpose and directs borrowers to their lender for an estimate. Other insurers and lender arrangements may use different inputs.

Obtain a dated lender quote showing:

• the property value and loan amount used;
• the calculated loan-to-value ratio;
• the LMI premium or fee passed to the borrower;
• whether it is paid in cash or included in the loan;
• how inclusion changes the balance, repayments and total interest;
• whether a revised valuation, loan amount or deposit changes the quote.

An online LMI calculator is an estimate only. The lender and insurer determine the applicable amount through the application process.

Pay upfront or add it to the loan

Some products may allow the borrower's LMI cost to be added to the loan, subject to approval and loan-to-value limits. QBE describes that as common for its insured lending, but it is not available in every case. If capitalised, the loan balance rises and interest can be charged on that additional amount under the loan terms.

Compare the cash required at settlement, resulting loan balance, scheduled repayments and total interest under both options using the actual quote. Product availability does not establish which option is suitable.

Ways LMI may be reduced or avoided

These are possibilities to investigate, not recommendations or approval promises:

• Increase the cash or equity contribution: ask the lender what amount would place the proposed loan within its non-LMI policy. Keep enough cash for duty, settlement costs and emergencies.
• Reduce the loan or purchase price:rerun the lender's ratio using the revised figures.
• Use an eligible government guarantee: participating lenders may offer loans without LMI where all scheme and credit criteria are met.
• Consider a family guarantee only with independent advice: a guarantee can put the guarantor's property or finances at risk and does not remove the lender's credit assessment.
• Ask about lender-specific waivers: any occupation, profession or product waiver is a current lender policy, not a market rule. Get eligibility and pricing in writing.

Money held in an offset account after settlement does not retrospectively become a purchase deposit. If the aim is to reduce the initial loan-to-value ratio, ask the lender how much must be contributed to completion and how that affects approval.

Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme says eligible first-home buyers may purchase through a participating lender with a minimum 5% deposit, and eligible single parents or legal guardians may have a 2% pathway, without LMI. Eligibility, property price caps, owner-occupier requirements and participating-lender credit approval still apply.

Check the current government eligibility and price-cap tools for the proposed property. Scheme eligibility does not guarantee a loan, establish borrowing capacity or make the purchase affordable.

Refunds, refinancing and reuse

Do not assume an LMI amount will be refunded, transferred or credited to a later loan. Moneysmart's switching-home-loans guidance tells borrowers with less than 20% equity to check whether new LMI may apply and to ask the current lender whether any refund is available. The answer depends on the actual arrangement, insurer and timing.

Before refinancing, compare any new LMI, discharge and application costs with the proposed savings. Prior LMI payment does not establish that another lender is insured or willing to approve the new loan.

Tax treatment for rental property

The ATO's rental borrowing-expense guidanceincludes lender's mortgage insurance billed to the borrower as a borrowing expense and explains that eligible borrowing expenses may be claimed over time. That does not make owner-occupier LMI deductible or determine treatment for a mixed-purpose loan.

Tax treatment depends on the use of borrowed funds, timing and the taxpayer's circumstances. Keep the lender invoice and loan records and obtain tax advice rather than deducting the whole premium automatically.

Quote and approval checklist

Related resources

• LMI glossary
• Home-loan pre-approval guide
• Types of home loans explained
• Upfront buying-cost checklist

General information only, reviewed 24 August 2026. This is not personal credit, financial, legal or tax advice. Lender and insurer criteria, premiums, waivers and approvals can change.