Preparing financially
Lenders Mortgage Insurance explained
What LMI actually protects, what influences the premium, upfront vs. capitalised payment, and the alternatives that can avoid it altogether.
- LMI protects the lender, not you — an insurer can still pursue you for a shortfall it pays out.
- Premiums rise with a higher LVR and a larger loan amount, and vary by insurer.
- Capitalising LMI avoids the upfront cost but adds interest on the premium for the loan's life.
- A larger deposit, a government scheme, or a family guarantee can each avoid or reduce LMI.
Who LMI actually protects
Lenders Mortgage Insurance protects the lender, not you, if you default and the property sale doesn't cover the outstanding loan. It's commonly required once your LVR is above roughly 80% (ASIC (Moneysmart), verified 29 Jul 2026), because a smaller deposit means more risk is carried by the lender relative to the property's value. If the insurer pays the lender after a default and shortfall, the insurer can still pursue you directly for that amount — LMI does not protect you from that debt.
What actually influences the premium
LMI premiums are set by mortgage insurers, not published as open government data, and generally increase with a higher LVR and a larger loan amount — a 95% LVR loan typically attracts a materially higher premium than a 85% LVR loan on the same property, and a larger loan attracts a larger premium in dollar terms even at the same LVR. Delora does not calculate an exact premium here; ask your lender or broker for a current quote at your specific LVR and loan size.
Paying upfront vs. capitalising
LMI can typically be paid as a lump sum at settlement, or "capitalised" — added to the loan balance and repaid over the loan term. Capitalising avoids the upfront cash cost but means you pay interest on the LMI premium itself for the life of the loan, increasing the total cost.
Alternatives to paying LMI
A larger deposit (reducing LVR below the threshold), an eligible government deposit scheme (which can waive LMI without needing a 20% deposit — see the government support guide), a family guarantee arrangement (see the family guarantee guide), or a professional LMI waiver — some lenders waive or reduce LMI at a higher LVR for borrowers in certain professions, such as medicine, law or accounting, though eligibility and terms vary significantly by lender — can each avoid or reduce an LMI premium, depending on your eligibility for each.
Practical checklist
Before budgeting for or around LMI
- Get an LMI estimate from your lender or broker at your actual expected LVR
- Compare paying upfront vs. capitalising, including the extra interest cost of capitalising
- Check whether a government deposit scheme could remove the need for LMI in your situation
- Ask what your specific insurer's refund policy is, if you might refinance early
Questions for a professional
- What would my LMI premium be at my expected LVR and loan size?
- What is this insurer's refund policy if I refinance within the first few years?
- Would a government scheme or family guarantee remove the need for LMI in my case?
Official resources
Sources and methodology
- Save for a house deposit — ASIC (Moneysmart) (retrieved 29 Jul 2026)
Figures on this page are drawn from Delora's local knowledge graph, refreshed from these primary sources and checked for changes on a regular schedule. If a figure here looks out of date, the official source above is always the authority — please let us know.