What is lenders mortgage insurance? (LMI)
Lenders Mortgage Insurance, or LMI, is designed to protect the lender, not the borrower, in case the borrower defaults on their loan (i.e. can no longer make their repayments). If the borrower defaults, the lender can repossess the property, however there’s a risk that the property price could have fallen and the lender could suffer a loss. LMI covers this risk.
What you need to know
- LMI can allow borrowers with a smaller deposit to get into the property market sooner
- Typically, LMI is only required if the borrower has less than a 20% deposit as they are seen as more risky and the lender has less of a buffer if the property value was to decrease. However, as different lenders may have different rules, ask your broker about different lenders policies
- The amount of LMI required varies and can depend on the size of your deposit, the loan amount and property value.
- Depending on the lender, the LMI amount may be added onto the loan or paid as an upfront cost
- If it’s added to the loan, it will increase your loan amount and therefore increase the interest you pay over the life of the loan
- To avoid paying LMI you could consider.
– Growing your deposit to 20% or more
– Getting a family member to go guarantor
– Asking your broker if you qualify for any LMI Waiver schemes
Let’s look at this example
If you want to buy a house that’s worth
$500,000, you would typically require a deposit of $100,000 (20% of the property’s value). If you’ve only saved $50,000, but you have sufficient income to support the loan, you may be able to take advantage of Lenders Mortgage Insurance. You could then secure a loan of $450,000 needed to buy your new home.
Need more information?
LMI requirements may differ between lenders so it’s important to understand your chosen lender’s requirements.
It should be remembered that this fact sheet is intended to provide general information of an educational nature
only. It does not have regard to the financial situation or needs of any individual and must not be relied upon as
financial product advice. As this information has been prepared without considering your objectives, financial situation
or needs you should, before acting on this, consider the appropriateness to your circumstances. As always, if you have any questions, you can contact your broker.
Licensing statement: Rayne Finance ABN [70 605 100 838] is authorised under LMG Broker Services Pty Ltd Australian Credit Licence 517192. Disclaimer: (1) As with any financial scenario there are risks involved. This information provides an overview or summary only and it should not be considered a comprehensive analysis. You should, before acting in reliance upon this information, seek independent professional lending or taxation advice as appropriate and specific to your objectives, financial circumstances or needs. This publication is provided on the terms and understanding that: (2) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication. (3) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to the maximum extent permitted by the law to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.
Explore other FAQs and Facts
Savings: The Foundation of Your First Home Deposit
Saving for your first home is not just about how much money you have. Lenders also look at how your deposit has been built over time. Understanding the difference between savings and genuine savings early can make the entire home buying process clearer and far less stressful.
Buy Now Pay Later (BNPL) Helped with Christmas But Will It Hurt Your Mortgage?
Used BNPL to get through Christmas? You’re not alone. But with new credit rules now in place, even small pay-later habits could affect your chances of getting a home loan. Here’s what’s changed, what lenders are looking at, and how to make sure your BNPL use doesn’t hold you back.
Regional Victoria: Why buying now stacks up
Regional Victoria’s property market has hit a sweet spot in 2025. Towns like Ballarat, Bendigo and the Surf Coast are seeing steady growth supported by real demand, thriving infrastructure and better buyer choice. With balanced conditions and lasting value on offer, it’s an ideal time to make your move locally.
The Block Daylesford: TV Hype vs. Market Reality
The Block’s Daylesford finale made headlines for all the wrong reasons, but beyond the TV drama, the regional outcome was far from a failure. With three homes selling over $3 million and millions injected into the local economy, the real winner wasn’t the contestants, it was the town.
Five tips to get your property ready for sale
Spring is peak selling season, with listings up 14.4% in August alone. Warmer weather, blooming gardens, and longer days bring buyers out in force. If you’re thinking of selling, small changes like freshening up your street appeal or boosting natural light can make a big impact on both speed and price.
50,000 new places in the Home Guarantee Scheme
From 1 July 2025, an extra 50,000 places are available in the Home Guarantee Scheme, helping eligible buyers purchase a home with a smaller deposit and avoid lenders mortgage insurance. The scheme has already supported over 160,000 Australians since 2020, with tailored guarantees for first-home buyers, regional buyers, and single parents.
How property markets are performing throughout Australia
Australia’s property market is maintaining steady momentum, with dwelling prices rising 1.7% in the first five months of 2025. Perth leads annual growth at 8.6%, followed by Adelaide and Brisbane. Nationwide, demand is outpacing supply, fuelled by interest rate cuts, strong migration, and renewed buyer confidence.
How much do you need for a home deposit?
Buying a property but don’t have the deposit in cash right away? There may be an alternative worth considering. In some situations, buyers can provide a guarantee instead of upfront funds. It’s a tool that can offer flexibility without compromising the seller’s confidence, but how does it actually work?
What are deposit bonds and how do they work?
Buying a property but don’t have the deposit in cash right away? There may be an alternative worth considering. In some situations, buyers can provide a guarantee instead of upfront funds. It’s a tool that can offer flexibility without compromising the seller’s confidence, but how does it actually work?
Understanding conditional loan approval
Thinking about buying a property? You’ve probably heard the term “conditional approval” thrown around but what does it actually mean, and how does it differ from unconditional approval? Understanding the difference can help you feel more confident, better prepared, and avoid surprises as you move through the home loan process.