4 Booklet 4 of 6 · The deposit
Lenders mortgage insurance: whose safety guard it is
Lenders mortgage insurance, or LMI, protects the lender if a borrower cannot repay the loan. Moneysmart is clear that the borrower gets nothing from it: the cover exists for the lender alone. It usually comes up when the amount borrowed is more than 80% of the property’s value, and it is usually a one-off cost to the borrower.
Identify the part
Who pays, and who it covers
| Question | Answer |
|---|---|
| Who is protected | The lender, if the borrower cannot repay. |
| Who is not | The borrower, and any guarantor. |
| Who pays | Usually the borrower, as a one-off cost. |
| When it is paid | At settlement, or the lender adds it to the loan. |
| When it usually applies | When the loan-to-value ratio is above 80%. |
On insurance more generally, the information statement a borrower receives before a credit contract lists the types of insurance a credit provider can insist on: compulsory third party personal injury insurance, mortgage indemnity insurance, and insurance over property covered by a mortgage. Otherwise, the statement says, taking out insurance is your choice.
Measure twice
The loan-to-value ratio
Lenders call the size of the loan compared with the property’s value the loan-to-value ratio, or LVR. Moneysmart’s own example: borrowing $450,000 to buy a $600,000 home is an LVR of 75%. The lower the LVR, Moneysmart says, the lower the costs and the better the chance of approval.
| Loan | Deposit | Deposit share | LVR | Above 80%? |
|---|---|---|---|---|
| $450,000 | $150,000 | 25% | 75% | No |
| $480,000 | $120,000 | 20% | 80% | No, exactly 80% |
| $540,000 | $60,000 | 10% | 90% | Yes |
| $570,000 | $30,000 | 5% | 95% | Yes |
The arithmetic is LVR = loan ÷ property value. The second row is why Moneysmart describes a 20% deposit as a good savings goal: it avoids needing to pay lenders mortgage insurance. The example ignores buying costs such as stamp duty and legal fees, which Moneysmart counts as extra to the deposit.
Where it shows up
LMI in the paperwork
On the Key Facts Sheet: not included
The model Key Facts Sheet says other set-up fees, such as valuation fees and lenders mortgage insurance, have not been included and “will be determined after application”. So a sheet’s total cost can be lower than what a loan with LMI ends up costing.
In the conveyancing costs
NSW Government guidance lists mortgage insurance among the costs of buying a property, alongside items such as valuation fees and stamp duty and mortgage duty.
At settlement or in the loan
As the table above shows, it is settled on the day or rolled into the loan. Booklet 5 covers settlement day.
Again, if you refinance
Moneysmart warns that switching loans with less than 20% equity in the home might mean paying LMI, which can add to the cost of switching and outweigh the savings from a lower rate. It suggests asking the current lender for a refund of some of the LMI.
Alternative fittings
Schemes that may lower the deposit
Moneysmart describes government programs that can let some buyers purchase with a smaller deposit and may also help them avoid paying LMI. Each has its own eligibility rules.
- Australian Government 5% Deposit Scheme. Eligible first home buyers can buy with as little as 5% down. Housing Australia says that since 1 October 2025 the scheme has had no income caps, no waitlists and no lenders mortgage insurance.
- The scheme’s single-parent pathway. What used to be called the Family Home Guarantee now sits inside the same scheme: single parents or legal guardians of at least one dependent child can buy with as little as 2% down. Housing Australia’s guide explains that the government guarantees the lender, not the buyer, for a shortfall of up to 18% of the property value if the loan defaults and a sale does not cover it.
- A family guarantor. A guarantor uses part of their own property as security for the loan, sometimes covering only part of it, such as the deposit. Moneysmart stresses that the guarantor takes on financial risk.
Read the guarantee too. Moneysmart says a guarantor may have to repay the whole loan plus interest if the borrower cannot, and suggests getting independent legal or financial advice before signing.