Lenders Mortgage Insurance (LMI) is an insurance premium paid by the borrower to protect the lender against loss if the borrower defaults on the loan and the property sale proceeds do not cover the outstanding debt. It is not insurance that protects the borrower — the benefit flows entirely to the lender.
When LMI applies. LMI is required when a borrower’s deposit is less than 20% of the property’s purchase price — i.e. when the Loan-to-Value Ratio (LVR) exceeds 80%. For investment properties, this means a deposit below 20% will typically trigger LMI.
Cost of LMI. LMI premiums are calculated as a percentage of the loan amount and vary by LVR and loan size. For a $600,000 investment loan at 90% LVR (10% deposit), LMI could cost $15,000–$25,000. This can be capitalised onto the loan (increasing the loan balance) or paid upfront.
LMI for investment properties. Most lenders apply higher LVR thresholds for investment loans than for owner-occupier loans. Some lenders limit investment loan LVR to 80% before LMI applies; others allow 90% LVR with LMI.
Avoiding LMI. Investors who use equity from an existing property as their deposit — rather than cash savings — can access investment property without requiring LMI, provided the combined LVR across both properties remains below 80%.
Professional package exemptions. Some lenders offer LMI-free loans at LVRs of up to 90% for qualified professionals (doctors, lawyers, accountants) under specialist lending programs.
