Lenders Mortgage Insurance (LMI) explained
LMI protects the lender, not you — but you pay for it. Here's how the premium is calculated, when it's charged, and how to legitimately avoid it.
Who LMI protects (spoiler: not you)
LMI is a one-off insurance premium that protects the LENDER if you default and the property sells for less than the loan balance. You pay the premium; you don't get any coverage from it. If your house is repossessed, the LMI insurer pays the lender's shortfall and then chases you for it.
It exists because Australian lenders are legally required to hold extra capital against high-LVR loans (above 80%). LMI lets them outsource that capital requirement.
How much it costs
Premium scales with both LVR and loan size. Indicative ballpark for a $600K loan: 85% LVR ~$8K, 90% LVR ~$15K, 95% LVR ~$25K. Some lenders let you capitalise the premium into the loan (pay it off over the loan term) rather than upfront.
Critically, LMI is non-refundable and non-portable. If you refinance to a new lender 18 months later, you pay LMI all over again at the new lender — the premium doesn't transfer.
Legitimate ways to avoid LMI
20% deposit + costs is the cleanest path. A family pledge / guarantor loan uses a parent's property equity to top up your deposit on paper. The Home Guarantee Scheme (FHBG / FHG / RFHBG) gives eligible buyers a no-LMI loan with 5% (FHBG) or 2% (FHG) deposit. Some professional packages (medical, legal) waive LMI up to 90% LVR.
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