Can You Get an LMI Refund in Australia?

Short answer

Sometimes, but do not assume it.

Lenders Mortgage Insurance is usually a one-off cost paid when the loan-to-value ratio is above 80%. It protects the lender, not the borrower. A partial refund may be possible in limited situations, usually when the loan is closed or refinanced early and the lender or insurer's policy allows it.

The useful step is simple: before refinancing, selling or discharging a high-LVR loan, ask the current lender whether any LMI refund applies, how it is calculated, and whether the answer changes if the loan was capitalised.

Use the LMI Calculator to estimate the original premium, then compare refinance costs with the Refinance Break-even Calculator and Loan Comparison Calculator.

What an LMI refund is

An LMI refund is a partial return of the original lenders mortgage insurance premium.

It is not automatic and it is not a refund because the borrower "did not use" the insurance. LMI is arranged to protect the lender if the borrower defaults and the property sale does not cover the debt. ASIC Moneysmart describes LMI as a one-off borrower cost that usually applies when the amount borrowed exceeds 80% of the property value, and notes that it does not benefit the borrower.

That is why refund rules are usually controlled by the lender, the insurer and the loan contract. Some policies may allow a partial refund if the loan is paid out very early. Others may allow no refund at all.

When a refund may be possible

A refund is most likely to be worth asking about when:

• the loan is refinanced within the first year or two,
• the property is sold soon after settlement,
• the loan is discharged early,
• the original LMI premium was large,
• the lender used an insurer policy that allows refunding,
• the borrower paid the premium upfront rather than only seeing it buried in the loan balance.

Moneysmart's refinancing guidance specifically tells borrowers who decide to switch to ask for a refund of some LMI from the current loan. That does not mean every borrower will receive one. It means the question belongs in the refinance checklist.

When a refund is unlikely

A refund is less likely when:

• the loan has been open for several years,
• the lender's LMI policy says no refund applies,
• the loan is only being varied with the same lender rather than discharged,
• the original premium was low,
• the borrower is refinancing into another high-LVR loan and paying fresh LMI,
• the new lender is not recognising the previous LMI policy.

The common disappointment is refinancing too early for a small interest-rate saving, then discovering that a new LMI premium, discharge fees and application costs absorb the benefit.

Refinancing with less than 20% equity

If you refinance while your equity is still below 20%, the new lender may require LMI again.

That can happen even if you already paid LMI on the original loan. The old policy generally protected the old lender. The new lender needs its own risk cover or internal approval.

For example, assume a buyer purchased for $800,000 with a $720,000 loan and capitalised $14,000 of LMI. One year later the loan balance is still about $727,000 and the property value is unchanged.

The refinance LVR is roughly:

At that LVR, the new lender may price the loan as a high-LVR refinance and require fresh LMI. A small partial refund from the old lender may not be enough to offset the new premium.

Worked example: refund versus new LMI

Assume a borrower paid $16,000 in LMI when buying with a 10% deposit.

After 14 months, they refinance to chase a lower rate. The current lender says a partial refund may be available, but only $2,400.

The new lender quotes:

The lower interest rate may still be worthwhile, but the break-even point is no longer just a rate comparison. The borrower needs to recover the net cost through lower repayments over time.

What to ask the lender

Before switching, ask the current lender:

1. Was LMI charged on my loan?
2. Was it paid upfront or capitalised into the loan?
3. Which insurer or internal policy was used?
4. Does the policy allow any partial refund?
5. What is the estimated refund if I discharge on a specific date?
6. Will the refund be paid to me, credited against the payout figure or handled another way?
7. Are there forms or timing rules?
8. Does refinancing internally produce a different outcome from switching lenders?

Ask the new lender:

1. What property value will be used for LVR?
2. Will fresh LMI apply?
3. Is the new LMI premium payable upfront or capitalised?
4. Does capitalising the premium push the loan into a higher LVR band?
5. Are there professional, guarantor or government-guarantee options that avoid LMI?

How this affects the refinance decision

An LMI refund is only one line in the refinance calculation.

The full comparison should include:

• old and new interest rates,
• remaining loan term,
• discharge fees,
• application fees,
• valuation fees,
• government registration fees,
• any new LMI,
• any partial LMI refund,
• whether the new loan term resets to 30 years,
• offset, redraw and extra-repayment features.

Moneysmart says refinancing can save money, but borrowers should check whether the benefits outweigh the costs. That is especially important when equity is below 20%.

Common mistakes

• Assuming LMI is borrower protection because the borrower paid for it.
• Refinancing below 20% equity without checking fresh LMI.
• Counting a possible refund before the lender confirms it in writing.
• Comparing the lower repayment but ignoring the reset loan term.
• Forgetting that capitalised LMI increases the payout balance.
• Treating a government guarantee, guarantor loan and standard LMI policy as the same thing.

Sources

• ASIC Moneysmart: lenders mortgage insurance, checked 2 July 2026.
• ASIC Moneysmart: switching home loans, checked 2 July 2026.
• Australian Government First Home Buyers website, checked 2 July 2026.
• Treasury: supporting people into home ownership, checked 2 July 2026.

General information disclaimer

This guide is general information only. It is not credit advice, financial advice, legal advice or a lender quote. LMI premiums, refund rules and refinance approval depend on the lender, insurer, loan contract, property value, LVR, borrower profile and timing. Ask your lender or broker for written figures before relying on an estimate.