Lenders Mortgage Insurance

Plain-English definition. Lenders Mortgage Insurance (LMI) is a one-off insurance premium paid by the borrower that protects the lender (not the borrower) against loss if the borrower defaults and the sale of the property doesn't recover the loan balance. It applies when borrowing above 80% LVR.

How it works in Australia. LMI can be provided by an external insurer or under a lender's own arrangement. The premium depends on loan size, LVR, lender, insurer, borrower and property. A lender may permit the premium to be added to the loan, subject to maximum LVR and product policy, which means interest can accrue on it. Refinancing can trigger a new LMI assessment. Waivers and the Australian Government 5% Deposit Scheme have separate eligibility and lender rules.

Concrete example. A first home buyer borrows $665,000 against a $700,000 purchase — 95% LVR. LMI premium is approximately $26,000 (about 4% of the loan). Capitalised, the new loan balance is $691,000 at 95.4% LVR. At 6.2% over 30 years, that capitalised LMI costs an additional $32,500 in interest over the life of the loan.

Common confusion. LMI protects the lender, not the borrower. A borrower can remain liable for a shortfall after enforcement, subject to the policy, recovery process and law. Online premiums are indicative; obtain a lender quote.