Lenders Insurance was established by the Australian Government in 1965 to provide Lenders Mortgage Insurance as a way to help more Australians purchase their own home with a smaller deposit.

More commonly known as Lenders Mortgage Insurance (LMI), is also referred to as: low equity premium; equalisation fee; reduced equity fee; and, low deposit risk fee.

If the Borrower does not have at least 20% deposit plus purchase costs the bank or lending institution requires the Borrower to purchase LMI.

LMI adds no value to the Borrowers except for the fact that it allows them to finance the purchase of a property without providing more than a 20% deposit plus purchase costs.

The mortgage insurance policy protects the bank as the client, with the insurance company only protecting the bank in the event that the now insured secured property sells under the outstanding loan balance.

If the mortgage insurance company is required to pay out a claim to the bank, then the mortgage insurance company can sue the original Borrower for any compensation claim amount plus costs.

Mortgage insurance is an expensive single use policy not transferable between lending institutions and not able to be negotiated or cancelled by the Borrower. If the loan is paid out most of the premium is not refundable to the Borrower.

In addition, the insurance premium is usually capitalised into the overall loan the Borrower must repay and as such the Borrower must pay interest on the premium for the term of the loan which can be up to 30 years.