The premium
It is charged when you borrow more than 80% of what the property is worth, it is paid once, and it is not refunded when your equity improves. Here is what it changes and what it does not.
The definition
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
Read that last sentence twice, because the name works against it. This is an insurance policy you pay for, held by someone else, covering a risk to them. If the loan fails and the property sells for less than the debt, the insurer pays your lender and then has the right to come after you for the shortfall. You have bought your lender a safety net and kept the fall.
None of which makes it a bad deal automatically. LMI exists so that people without a 20% deposit can buy at all, and for many buyers paying it beats spending another three years saving while prices move. It just should not be mistaken for protection.
1 Moneysmart (ASIC), lenders mortgage insurance (LMI), glossary, retrieved 28 July 2026.
The 80% 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%, the lender has a fifth of the property's value as buffer between your debt and their security. That is roughly the margin they are willing to carry unprotected, so above it they insure the difference and charge you for the policy.
The premium does not rise gently. It scales with both the loan size and how far past 80% you are, and the steps get sharper as the ratio climbs. This is why a small increase in your deposit near the threshold can be worth far more than the same money applied anywhere else in the transaction, and why knowing your LVR before you talk to a lender is worth the two minutes.
2 Moneysmart (ASIC), loan to value ratio (LVR), glossary, retrieved 28 July 2026.
Paying for it
Most borrowers do not pay LMI in cash at settlement. They capitalise it, which means the premium is added to the loan. That is convenient and it changes the arithmetic more than people expect: a one off premium becomes a balance carrying interest for as long as the loan runs.
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
The premium does not come back. What changes is everything ahead of you.
The catch is that nothing announces the crossing. Your balance falls monthly and your property value moves with the market, so the day you pass under 80% is an ordinary Tuesday that neither you nor your lender marks. The premium you already paid is sunk; the pricing you are entitled to afterwards is only yours if you notice.
Questions
The lender, and only the lender. Lenders mortgage insurance protects a credit provider if borrowers are unable to repay their loan. It does not benefit the borrower. If the property is sold at a loss and the insurer pays the lender, the insurer can still pursue the borrower for that money. It is not protection for you in any sense.
Generally when the amount borrowed exceeds 80% of the value of the property. Below that threshold most lenders do not require it. The premium is usually a one off cost payable at settlement, and many borrowers capitalise it, meaning it is added to the loan and carries interest for the life of the mortgage.
No. The premium is paid once at settlement and is not refunded when your equity improves. Some insurers offer a partial refund if the loan is discharged within the first year or two, but that is a narrow window tied to cancellation rather than to your ratio improving. Assume the money is gone.
Only if the new loan is still above 80% of the property's value. LMI does not transfer between lenders, so refinancing at a high LVR generally means paying a fresh premium, which is why refinancing above 80% often is not worth it. If your equity has grown enough to take the new loan under 80%, no LMI applies.
It varies with the loan size and how far above 80% you are, and it rises steeply as the ratio climbs. The premium is set by the insurer rather than by your lender, so it is not something you negotiate. The reliable way to find your figure is to ask the lender for a quote at the specific loan amount and valuation you are working with.
Sources
Market figures are point in time published figures, checked each time this page is reviewed.
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