What is LMI?

Lenders Mortgage Insurance (LMI) is a one-off insurance premium you may need to pay if your deposit is less than 20% of the property’s value. LMI helps protect the lender, not you, but it can help you buy your home sooner without saving a full 20% deposit.

What is lenders mortgage insurance (LMI) and when does it apply?

LMI is insurance that a lender takes out to help protect itself against loss. If you can’t meet your loan repayments and your property sells for less than the outstanding balance, the lender claims on the LMI policy to cover the shortfall.

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Although you (the borrower) pay the premium, the policy only benefits the lender. You cannot make a claim under an LMI policy.

When do you need to pay LMI?

LMI is typically required when your loan-to-value ratio (LVR) is above 80%. This means your deposit is less than 20% of the property’s purchase price or valuation.

LVR example

If you’re buying a $600,000 property with a $60,000 deposit, your LVR is 90%. LMI would likely apply in this scenario.

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If your deposit was $120,000 (20%), your LVR would be 80% and LMI wouldn’t be required.

How much does LMI cost?

The cost of LMI varies depending on:

• Your loan amount - larger loans attract a higher premium
• Your LVR - the closer to 80%, the less you’ll pay
• The property type - investment properties typically cost more than owner-occupied homes
• Your lender - LMI premiums can vary between providers

LMI cost example

LMI typically costs between 1% and 5% of your loan amount, depending on your LVR. Here’s a rough guide for an owner-occupier:

Please note that the LMI amounts shown are indicative examples only and do not represent a quote. Actual LMI premiums are calculated by the lender’s mortgage insurer based on your specific circumstances, including loan amount, LVR and borrower details. LMI may be added to your loan (capitalised), which means interest may be charged on the premium over the life of the loan. Government charges such as stamp duty on LMI may also apply in some states.

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LMI is usually a one-off premium paid at settlement. You can often choose to pay it upfront or add it to your loan (called capitalising).

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Capitalising LMI means you’ll pay interest on the premium over the life of the loan. This increases the total cost.

Is LMI always required?

There may be circumstances where LMI may not be required or the amount of LMI may be reduced, such as:

• Save a 20% deposit - this brings your LVR to 80% or below, so LMI isn’t required
• Use a guarantor - a family member can use their property equity to secure your loan, removing the need for LMI
• Access a government scheme - the Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with as little as 5% deposit without paying LMI
• Check for professional waivers - some lenders waive LMI for borrowers in certain professions such as medical, legal, or accounting

If a 20% deposit isn’t realistic right now, these strategies can help reduce or eliminate the cost.

What is the difference between LMI and mortgage protection insurance?

LMI and mortgage protection insurance are often confused, but they protect different parties:

• LMI helps protects the lender if you default and the property sells for less than the outstanding balance
• Mortgage protection insurance helps protects you (the borrower) by covering repayments if you can’t pay due to illness, injury, or job loss

They are separate products and are not interchangeable.

How does LMI affect your loan?

LMI can affect your loan in several ways:

• Increase your upfront costs - LMI can range from a few thousand to tens of thousands of dollars
• Increase your total loan balance if capitalised - you’ll pay interest on the LMI premium over the loan’s life
• Increase your ongoing repayments - if the premium is added to the loan

LMI doesn’t reduce your balance or benefit you directly. However, it can make home ownership possible sooner by letting you borrow with a smaller deposit.

How does LMI relate to LVR?

LMI is directly tied to your loan-to-value ratio (LVR). Your LVR is the amount you borrow as a percentage of the property’s value.

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The higher your LVR, the more likely LMI applies - and the higher the premium. A 95% LVR will attract a significantly higher LMI premium than 85%.

Is LMI tax deductible?

If your home loan is connected to an income-producing activity, you may be able to claim any LMI you’ve incurred as an income tax deduction. For more information about borrowing expenses, please visit the ATO website.

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Tax rules can be complex, and the tax implications will depend on your particular circumstances. If you’re unsure, you may want to visit the ATO website or speak with a registered tax agent, accountant or adviser.

Can you get an LMI refund?

In some cases, you may be eligible for a partial LMI refund if you pay off your loan within the first few years. Refund policies vary between LMI providers.

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However, if you refinance to a new lender and your LVR is still above 80%, you may need to pay LMI again. Check with your lender or mortgage insurer for their specific refund policy.

What happens if you default on a loan with LMI?

If you default on your loan and the property sells for less than the outstanding balance, the lender claims on the LMI policy to cover the shortfall.

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Importantly, you may still owe the remaining amount. The LMI insurer can seek repayment of the shortfall directly from you. LMI does not protect you from this debt.

Does Unloan offer loans above 80% LVR?

Yes. Unloan offers eligible borrowers home loans up to 90% LVR.

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If your deposit is less than 20%, LMI may apply depending on your circumstances and lending assessment. Review Unloan’s LMI information and 90% LVR eligibility criteria to understand how this affects your loan.

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Check your borrowing power with our borrowing calculator.