12 May 2026 – 2-minute read

Lenders Mortgage Insurance helps those providing the loan cover any shortfall if a borrower defaults on their home loan and the proceeds from the subsequent property sale are not enough to pay off the loan.

It’s organised by the lender but is paid for by the person taking out the loan. That person (and/or any guarantor they have) is still liable to pay any shortfall to the insurer if a claim is made by the lender.

Key take-outs

• Lenders Mortgage Insurance (LMI) insures against loss in property value if a loan defaults and the property has to be sold
• The lender is covered by the insurance while the borrower pays the LMI premium
• LMI is generally required if the purchase deposit is less than 20%
• The Australian Government 5% Deposit Scheme may help avoid the need for LMI for eligible applicants.

Questions answered

• When is Lenders Mortgage Insurance (LMI) required?
• How much is LMI?
• Who pays for LMI?
• How is LMI paid?
• Can I avoid paying LMI?
• What if I'm already paying for Mortgage Protection Insurance?

When is Lenders Mortgage Insurance required?

Saving the lump sign required to put down a deposit on a home can be very challenging, even if your income is sufficient to cover the home loan repayments. Lenders will generally expect you to have access to a deposit of 20% of the purchase price – but there may be ways that you can get a loan with a smaller deposit.

If you apply for a loan with Westpac, we may agree to a lower percentage if you pay for Lenders Mortgage Insurance. That’s because it reduces our risk should problems occur paying back the outstanding loan balance.

EXAMPLE:

• You want to buy a home worth $1,000,000
• Typically, we’d require you to have a 20% deposit ($200,000)
• You’ve only saved $100,000, but your financial situation means you can afford to pay off a loan of $900,000
• Lenders Mortgage Insurance may enable us to lend you what you need for your dream home.

You may also be asked to pay for LMI if you're refinancing, restructuring a home loan, or topping one up, where the limit of the loan is greater than 80% of the value of the security.

How much is Lenders Mortgage Insurance?

The cost of LMI is calculated based on the size of the loan amount and it’s percentage of the security value. It’ll vary, so it's best to speak to your lender to understand the process in more detail.

Who pays for Lenders Mortgage Insurance?

The cost of the Lenders Mortgage Insurance premium is passed on to you, the home buyer, as part of your home loan. As the financial institution providing the loan, Westpac does not receive a commission from the LMI provider.

How is Lenders Mortgage Insurance paid?

Lenders Mortgage Insurance is taken out by Westpac where your loan requires it to meet our credit underwriting standards.

The insurance premium is usually a one-off charge and can be included either in your upfront costs and paid immediately, or added to your loan repayments so that it's spread out over the term of the loan. Find out about these options by speaking to your home loan specialist.

Can I avoid paying Lenders Mortgage Insurance?

If you’re unable to raise a 20% deposit, but you meet certain criteria, you may be able to avoid paying LMI. The Australian Government 5% Deposit Scheme, formerly called the Home Guarantee Scheme, is a government initiative designed to help eligible first home buyers, and single parents and legal guardians buy their own homes faster with a smaller deposit. Changes to the scheme from 1 October 2025 waived the need for LMI for participants.

For more information visit the First Home Buyers website.

You may also qualify for an LMI waiver under certain special packages based on your profession, so it's best to speak to your lender.

What if I'm already paying for Mortgage Protection Insurance?

Lenders Mortgage Insurance should not be confused with Mortgage Protection Insurance, which is an insurance option to cover your mortgage and/or your mortgage repayments in the event of death, disability, unemployment or reduced income. Find out more about mortgage insurance by speaking to your lending specialist.