What is Lender’s Mortgage Insurance (LMI)?

The cost of the LMI is charged as either extra interest or an additional one-off charge, on top of your mortgage. 

For example:

  • A $500,000 mortgage plus a 0.50% LMI
  • 1% LMI of $500,000 equals $2,500
  • The total loan would be a $500,000 mortgage plus $2,500 LMI, which equals $502,500

LMI may be required if your home loan deposit is less than 20% of your property’s 'lender-assessed value'. This is a value based on your lender’s valuation of the property you want to purchase. Your Lender is required to disclose the amount and % of your LMI in your loan approval before you accept the loan and proceed with the loan. 

The purpose of LMI is to protect your mortgage lender against potential financial loss. If you cannot meet your loan repayments and are unable to come to an agreement with your lender, your property may need to be sold to cover the amount outstanding on your home loan. In some instances, the property is sold for less than the amount you still owe on your home loan, in which case your lender can make a claim with the LMI provider for the money it lost.  

For example: 

  • You default on your home loan and still owe $400,000 on the home. 
  • Your lender then sells the property to recover the amount you owe – but they only manage to sell the property for $350,000. 
  • That means there is a shortfall of $50,000 

In this case, your lender may claim the shortfall from the LMI provider. This doesn’t mean that your debt is absolved. It’s important to note that you’ll still owe the shortfall amount, but you may have to repay that money to the insurer, rather than your original lender. 

More frequently asked questions about home loans

You may find the answer on one of the pages below: