There is a very common misconception that Lenders Mortgage Insurance (LMI) is designed to protect both the lender as well as the borrower in the event of a loan default. The reality of this is that in case of a loan default, LMI covers the lender for any shortfall. Basically, LMI, as required by Australian banks, is charged to borrowers who have less than a 20% deposit of the property purchase price. It is an additional cost outside of the standard fees and charges related to purchasing. As LMI is aimed at compensating lenders and investors for loss due to loan defaults, borrowers/ purchasers need to ensure that they are happy to pay these rates, as they can be quite expensive for riskier loans.