(08) 8357 3999
Book an Appointment
77 King William Rd, Unley SA 5061 (08) 8357 3999
Document AreaBook an Appointment

Lenders Mortgage Insurance

MBA Financial Strategists•Latest Articles•Lenders Mortgage Insurance

Lenders Mortgage Insurance

What is Lenders Mortgage Insurance (LMI)?

If you’re finding it difficult to save a 20% home loan deposit, you might still be able to borrow by paying Lenders Mortgage Insurance. Here’s everything you need to know:

  • Lenders Mortgage Insurance (LMI) is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance.
  • This is required if you, the borrower, are unable to meet your loan payments and the property is sold for less than the outstanding loan amount (known as the ‘shortfall debt’). The lender will normally require LMI if you do not have the required home loan deposit (typically 20% of the property value). The cost is paid by the borrower as a one-off upfront payment or is added to the loan amount.
  • LMI waivers may be available for medical, legal and financial professionals, subject to eligibility.
  • Paying LMI may mean that you are able to apply for a home loan sooner. However, a smaller deposit may also increase the possibility of a shortfall debt as there is less of a buffer between the outstanding loan amount and the property value.

It’s important to note that LMI is insurance that protects the lender, not you (or any guarantors) against loss. Only the lender can make a claim under the LMI policy, not you.

Benefits of LMI

Where you meet all other lending criteria, LMI is one way of buying your home sooner without having the 20% deposit typically required by lenders. This can help you break the rental cycle and start building equity in property instead. Without LMI, a lender may not be able to offer you a home loan even where those other lending requirements are met.

What does LMI cost?

LMI can cost up to 6.5% of the loan amount. The cost depends on various factors including, the home loan size, the value of the property, type of loan and your lender. We will provide you with the LMI amount to be paid when you apply for your home loan.

How does LMI get paid?

LMI is charged to the customer as a one-off upfront payment or is added to the loan amount. This amount only includes the premium the LMI provider charges us, and no more.

Is LMI refundable or transferable to another financial institution?

LMI is not transferable to other financial institutions. You may be entitled to a partial refund of the LMI premium if you meet these conditions.

If your settlement or drawdown date was on or after 10th June 2024, you’ll be refunded:

  • 40% of your LMI premium if you repay and close your home loan within 12 months of the date of settlement or drawdown.

You won’t be refunded any of your LMI premium if you repay and close your home loan after 12 months of the date of settlement or drawdown.

If your settlement or drawdown date was between 25th November 2019 and 9th June 2024, you’ll be refunded:

  • 40% of your LMI premium if you repay and close your home loan within 12 months of the date of settlement or drawdown.
  • 20% of your LMI premium if you repay and close your home loan between 12 and 24 months after the date of settlement or drawdown.

You won’t be refunded any of your LMI premium if your drawdown or settlement date was before 25th of November 2019. If you wish to refinance to another lender, you may need to pay LMI again with your new lender if you do not meet their minimum deposit requirements.

What if I’m unable to make my home loan repayments?

If you are unable to make your loan repayments and default on your home loan, your property may be sold to cover the outstanding loan amount. If the property is sold for less than the outstanding loan amount, your lender will incur a loss and submit a claim to the LMI provider. The LMI provider pays your lender this amount (subject to the LMI policy) and the LMI provider or their authorised third-party debt collector may then seek to recover this amount directly from you as the borrower, or any guarantors.

For example:

Peter and Emma buy a home valued at $750,000. LMI is required and included (or capitalised) into the loan amount of $700,000. Unfortunately, Peter and Emma are unable to meet their loan repayments and default on their loan. The property is sold for a loss at $650,000. The outstanding loan balance at the time of sale is $725,000 made up of the original loan amount, unpaid interest that has accumulated during the default period and other fees/charges associated with the sale. This means there is a shortfall of $75,000 (being the difference between the outstanding loan balance of $725,000 and the sale proceeds of $650,000). In this case, the LMI provider would, pay your lender the shortfall. The LMI provider may then seek repayment of this amount from Peter and Emma.

LMI versus Mortgage Protection Insurance (MPI)

LMI should not be confused with Mortgage Protection Insurance (MPI). MPI covers you if you’re unable to meet your mortgage repayments due to unemployment, death or disability. MPI protects you, whilst LMI protects the lender.

LMI: Key takeaways

  • Lender’s Mortgage Insurance (LMI) is a one-off upfront payment or is added to the loan amount typically when the borrower doesn’t have a 20% home loan deposit. This insurance safeguards the lender in case the loan is not fully repaid.
  • Early home purchase: LMI allows borrowers to purchase a home sooner. However, if the borrower decides to switch lenders, they may be required to pay for LMI again. Refunds are generally partial and depend on the settlement or drawdown date.
  • Variation in LMI charged: The LMI premium is variable and depends on the value of the property and the type of loan. This information is provided during the loan application process.
  • Exemptions: Certain professionals or first-time home buyers may be eligible to waive the LMI premium, subject to specific eligibility criteria.
  • Distinction from Mortgage Protection Insurance (MPI): It’s important to note that LMI is different from Mortgage Protection Insurance (MPI). While LMI protects the lender, MPI provides coverage for the borrower in cases of unemployment, death, or disability.

Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/home-loans/lmi
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
© 2025 National Australia Bank Limited (“NAB”). All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.