Lenders mortgage insurance protects your lender, not you.
LMI is commonly a cost when borrowing above 80% of the lender-accepted property value. Check whether it applies, how it is paid and what it means for your proposed loan.
The definition
What LMI is
Lenders mortgage insurance protects a credit provider if borrowers are unable to repay their loan. It is usually a one off cost to a home loan borrower, payable when the amount borrowed exceeds 80% of the value of the property. LMI does not benefit the borrower, it only protects the lender.1
Paying the premium does not provide repayment cover for your household or cancel the debt if you cannot repay. Ask the lender to explain the insurance and any shortfall obligations separately from other insurance you may hold.
LMI can help a lender offer a loan with a smaller deposit. Compare the premium, repayments and cash retained with your other options. Future property growth is uncertain and should not be treated as a guaranteed way to recover the cost.
1 Moneysmart (ASIC), lenders mortgage insurance (LMI), glossary, retrieved 28 July 2026.
The 80% line
Why 80% is the line
Your loan to value ratio is the loan amount divided by the value of the asset it was used to buy.2 At 80% LVR, the loan equals four-fifths of the accepted property value. It is a common reference point for LMI, not a universal approval or insurance rule.
Obtain quotes for the loan amounts you are considering. A different deposit may change the premium, but compare the quoted result alongside the cash you need to retain.Calculate your indicative LVRbefore confirming the valuation and policy with a lender.
2 Moneysmart (ASIC), loan to value ratio (LVR), glossary, retrieved 28 July 2026.
Paying for it
Capitalising the premium, and what it really costs
If the lender allows you to add the premium to the loan, the borrowed amount increases and interest can be charged on that additional debt. Compare paying upfront with financing it using the same term and rate assumptions. Confirm that the quoted loan balance includes it.
It also nudges your LVR the wrong way. Adding the premium to the loan increases the amount borrowed against the same property, so a borrower who was at 88% before capitalising is slightly above that afterwards. Lenders account for this, but it is worth knowing that the number on your statement is the post-capitalisation one.
Afterwards
What changes when you cross back under 80%
Crossing below 80% LVR does not automatically refund a premium or change your rate. It can be a useful time to request a review and compare available options.
- Your pricing tier. Ask whether the updated LVR qualifies for a different rate. The lender’s product rules and accepted valuation determine eligibility.
- Your ability to refinance. A new LMI premium may apply when switching. Confirm the actual costs and approval requirements at the new lender. How much equity you need to refinance covers the thresholds in detail.
- Your access to equity. An 80% assumption can help estimate the equity in the property but additional borrowing also depends on affordability and lender assessment.See why equity and borrowing power differ.
Before switching, use Moneysmart’s switching guidance to identify possible costs. Then compare them with interest and fee savings using therefinance savings calculator. A lower LVR alone does not establish that the move is worthwhile.
Common questions.
Who does LMI protect?
LMI insures the lender against covered losses if a borrower cannot repay. It does not insure your ability to make repayments or remove your liability for the debt. Ask the lender to explain the policy and any shortfall obligations.
When is LMI charged?
It is commonly required when borrowing exceeds 80% of the lender-accepted property value, but requirements and exceptions vary. Ask whether a premium applies, how it is paid and whether it will be added to your loan.
Do I get a refund if my LVR falls below 80%?
A lower LVR does not automatically trigger a refund. Ask your lender whether the policy has any refund conditions, particularly if you repay or refinance early. Do not include a refund in your comparison until it is confirmed.
Do I pay LMI again if I refinance?
A new premium may apply, particularly above 80% LVR. Do not assume the old premium transfers. Confirm the new lender’s requirements, any eligible exception and the actual cost before comparing the switch.
How much does LMI cost?
The amount depends on the loan, LVR and applicable lender and insurer arrangements. Ask for a quote using the proposed loan amount and accepted valuation, including any premium financed into the loan.
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