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What is Lenders' Mortgage Insurance (LMI), and when would I need it?

Lenders' Mortgage Insurance (LMI) is something you’ll need to pay if you borrow more than 80% of a property’s value (e.g. if you have less than a 20% deposit). It protects the lender from financial loss if you do not make your repayments and default on the loan. Some non-bank lenders charge a Lender Protection Fee (LPF) instead, however they serve the same purpose.

The LMI premium is usually added to your loan amount, which means you don’t pay for the insurance up front. However, it does mean your loan repayments will be higher than if you borrowed a maximum of 80% of a property’s value.

Factors that affect how much LMI will cost include:

The size of the loan - the bigger your loan, the higher the cost of LMI.
Your deposit amount - the smaller the deposit, the higher the cost of LMI.
The purpose of the loan - investors can pay as much as 20% more for LMI than home buyers.
Your employment status - how much you earn and whether you work full-time, part-time, or casually can influence the cost of LMI.
The insurer used by your lender - premiums differ between insurers.

Is LMI just for first home buyers?

No. LMI will apply to any loan you take out if you have less than 20% deposit or equity.

Do you need to pay LMI if you refinance?

If you are looking to refinance your home with less than 20% equity in your home, you may have to pay LMI. LMI policies can not be transferred from one funder to another. Refinancing with less than 20% equity in your home and paying another LMI premium could potentially offset any savings you make from getting a lower rate.