Lenders Mortgage Insurance (LMI) is an insurance policy protecting the lender, not the borrower, if a buyer defaults on their loan. It’s typically required when borrowing more than 80% of a property’s value, meaning your deposit is less than 20%.
As of December 2025, LMI is still a common requirement for many buyers in Melbourne, particularly first home buyers and those entering the market in the Eastern Suburbs where property values remain relatively high. Currently in Melbourne, a median dwelling value of around $823,495 means a 20% deposit is a significant sum. Consequently, many buyers require LMI. The cost of LMI varies based on the loan amount, deposit size, and lender, but can range from 0.5% to 2% of the loan amount, and is usually capitalised – added to your loan. We’re seeing in 2026 that buyers are factoring this cost into their overall affordability calculations. It’s important to realise that while LMI allows buyers to enter the market sooner, it doesn’t protect *them* if they experience financial hardship. Fletchers agents frequently encounter buyers who are weighing up the benefits of a smaller deposit versus the cost of LMI, and the impact on their overall financial position.
Understanding LMI is a key part of the home buying process, and it’s a factor many Melbourne buyers consider when determining their property search criteria and budget.