Whose cover it is
Moneysmart is plain about it: LMI protects the lender if a borrower cannot repay, and it does not benefit the borrower. It is usually a one-off cost, payable when the amount borrowed is more than 80% of the property’s value. That points to why a premium paid on the first loan does not settle the question for a second one: the cover was bought to protect the first lender, and a new lender making a new loan asks the question again. The ACCC lists an LMI premium at the new lender among the costs some borrowers may face when they switch.
The equity a new lender counts
Equity here is the gap between the property’s value and what is owed on it. Two things can move it between the first loan and the refinance. The first is the loan itself, paid down over the years or not. The second is the value, and in a refinance it is the new lender that orders a property valuation; the ACCC sets that out as one of the steps in switching.
Values do not only rise. In 2023, APRA wrote that some borrowers trying to refinance with another lender may have less equity in their property after housing prices fell, and may no longer meet standard loan criteria as a result. The same letter is the subject of page 6.
If the first loan came through the 5% Deposit Scheme
Under the 5% Deposit Scheme, formerly the Home Guarantee Scheme, the Australian Government gives a participating lender a guarantee so a buyer can borrow with a small deposit, and Housing Australia says that since 1 October 2025 the scheme has carried no LMI. Housing Australia’s information guide for first home buyers sets out when that guarantee stays in place, and what happens on a refinance.
| Refinancing with | What the guide says |
|---|---|
| Another Participating Lender | The loan may keep the benefit of the scheme, subject to conditions: the loan amount cannot go up, the term cannot be extended, and nothing else can change that would affect eligibility. |
| A lender that is not a Participating Lender | The loan loses the benefit of the scheme. |
The guide also lists, in this order, the events that end the guarantee:
- it turns out the loan was never eligible for the scheme;
- the owner stops living in the property without an exemption, in which case the lender may require LMI or other significant costs;
- the property is rented out;
- the loan is fully repaid, which includes refinancing with a lender outside the panel of Participating Lenders;
- the scheduled repayments bring the principal down to 80% or less of the property value (prepayments that can be redrawn do not count);
- more is borrowed against the property from the Participating Lender; or
- the home is sold.
Its warning follows: if the scheme stops covering a loan while the loan is still above 80% of the property value, the lender may impose LMI or other costs under its own policies and loan conditions. Read together, a refinance with a lender outside the panel ends the guarantee, and if the balance is still above 80% of the property value at that point, the guide’s warning about LMI or other costs applies.
The premium already paid
No official page this guide has found sets a rule for getting part of the first premium back. Moneysmart’s switching page raises it only as something a borrower who moves can ask about on the current loan, with no promise that anything will be returned; the answer rests with the insurer and lender concerned.
Putting it in the sum
An ASIC senior executive made the same point in 2021: before switching, consider whether LMI or other costs, such as discharge and loan arrangement fees, may be payable, because together they can outweigh the benefit of a lower rate. Moneysmart’s mortgage switching calculator treats up-front costs such as an early termination fee, an application fee and other switching costs as added to the new loan at the start.
Next: the serviceability buffer. Back: break costs on a fixed loan, or the six pages.