28 Mar 2024
4 lenders mortgage insurance myths exposed

4 lenders mortgage insurance myths exposed

  • Lenders’ mortgage insurance (LMI) could help borrowers get onto the property ladder sooner
  • While LMI protects the lender, it can be an attractive inclusion to a home loan, to borrowers without a 20% deposit saved
  • LMI is usually rolled into the home loan itself so there’s often no upfront cost for borrowers

Lenders’ mortgage insurance (LMI) could help borrowers own a home sooner, as it may help people buy a home with less than 20% deposit.

There are many myths around LMI, so before you apply for a home loan, we’re here to bust some of those myths.

Myth 1: LMI only benefits the lender

If you’re shopping around for a home loan, paying for insurance that protects the lender – and not you – might seem like a waste of money.

But it can benefit home buyers too, as LMI allows lenders to offer home loans to borrowers who haven’t saved the full 20% deposit.

LMI can help you get onto the property ladder sooner

Without the protection of LMI, lenders would be likely to reject home loan applications where the borrower does not have a 20% deposit.

The cost of LMI can usually be incorporated into the loan itself, so there’s often no upfront cost to borrowers.

“By covering the lender’s risk, LMI allows more people to get a home loan that may otherwise be unachievable,” says Pat Priest, General Manager of LMI at QBE Insurance.

Myth 2: It’s harder to get a loan approved with LMI

Some borrowers are nervous about applying for a loan if they know they’ll need LMI. After all, isn’t a lender is more likely to turn them down if they appear to be a greater risk?

Not necessarily.

LMI may minimise a risk to the lender. That’s why it may improve the chance of an application being approved, as the lender has an added layer of protection.

That said, you’ll still need to show you are a suitable applicant with a good credit rating, regular savings, and the ability to pay the loan.

Close-up of woman signing document

Myth 3: All mortgages are the same

Buying your first home can be complicated. Banks and loans are often full of jargon which can be confusing for the borrower.

That means some first home buyers might assume mortgages – and LMI – are all created equal.

But that’s not the case.

For example, according to the 2022–2025 Housing Outlook: Green Edition, commissioned by QBE, some lenders have launched green home loans.

Sometimes these loans give borrowers access to discounted interest rates if they buy, build, or renovate an eco-friendly home.

Every lender has different criteria of what makes an eco-friendly or green home loan, so it’s important to consider criteria for individual lenders to understand these loans.

Loans for an eco-friendly house may include installing solar panels, solar hot water, or long-term battery storage.

How much is LMI?

While many things affect the cost of LMI, the key factors are the size of the mortgage and deposit. The more you’re borrowing and the less you have saved, the greater a risk you may appear to be to a lender.

Myth 4: I can’t pay LMI again for future loans

LMI isn’t just for first home buyers.

If you refinance or take out a mortgage again in the future, you may need to pay LMI if you don’t have 20% of the home’s value in equity or savings.

Some lenders might ask for LMI to be included as part of the refinancing process. But they might waive part of the premium if you already have a loan with them.

Put simply, there are pros and cons to applying for a home loan with LMI and everyone’s circumstances are different. It’s worth weighing up the benefit of having a home loan without the added expense of LMI, versus getting into the property market sooner.


This advice is general in nature and has been prepared without taking into account your objectives, financial situation or needs and may not be right for you. You must decide whether or not it is appropriate, in light of your own circumstances, to act on this advice. To decide if QBE’s products are right for you, please ensure you obtain and consider the Policy Wording or Product Disclosure Statements and Target Market Determinations, available online at QBE.com/au. Insurance issued and underwritten by QBE Insurance (Australia) Limited (ABN 78 003 191 035, AFSL 239545).