Estimate LMI premium based on LVR.
Estimated LMI
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Loan amount
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Insurance that protects the bank, paid by you
Lenders Mortgage Insurance is one of the more misunderstood costs in an Australian property purchase. It does not protect you. It protects the lender against the risk that you default and the sale of the property does not cover the loan. Yet you are the one who pays for it, usually as a one off premium, when your deposit is small. This calculator takes the property price and your deposit, works out your loan to value ratio, and estimates the LMI premium that the ratio would attract.
The premium is not trivial. On a typical purchase it can run into five figures, which is why understanding the threshold that triggers it can save you a serious amount of money. It is also why so many buyers scramble to find the last few thousand dollars of deposit to get over the line.
The 80 percent loan to value cliff
The number that matters is the loan to value ratio, your loan divided by the property price. Lenders generally require LMI once that ratio rises above 80 percent, which is the same as saying your deposit is under 20 percent. Below that line, no LMI. Above it, the premium climbs steeply as the ratio rises, because a smaller deposit means more risk for the insurer. This calculator uses illustrative premium rates that step up across the loan to value bands, so it is an estimate to plan with, not a quote. Final premiums depend on the insurer, the loan size, and whether you qualify for any first home concessions, so always get the exact figure from your lender.
An $800,000 home with an $80,000 deposit
Using the defaults: an $800,000 property with an $80,000 deposit. That leaves a $720,000 loan and a 90 percent loan to value ratio, which sits in a band attracting roughly 1.4 percent.
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The estimated premium is around $10,080, added to the cost of getting into the home. Notice the shape of the chart: nothing until 80 percent, then a sharp staircase upward. A buyer at 95 percent loan to value pays dramatically more than one at 85 percent, even though the deposit difference is only 10 percent of the price. That non linear jump is why the deposit you scrape together near the threshold is the most valuable money in the whole purchase.
Ways around it, and a capitalisation warning
You can avoid LMI entirely by saving a 20 percent deposit. Failing that, several routes exist. The federal First Home Guarantee lets eligible first home buyers purchase with as little as 5 percent deposit while the government guarantees the balance, removing the LMI. Some lenders waive LMI for certain professions, including doctors, lawyers, and accountants, who are treated as lower risk. A family guarantor using equity in their own home can also push your effective loan to value under 80 percent. My warning: many borrowers capitalise the LMI premium, adding it to the loan rather than paying it upfront, which is convenient but means you pay interest on the premium for the life of the loan, quietly multiplying its real cost.
Guarantor versus the First Home Guarantee
The two most powerful ways to sidestep the premium work very differently. A family guarantor uses the equity in a parent's home as additional security, which lifts your effective security above the 80 percent line and removes the LMI, but it puts the guarantor's property at risk if you default, so it demands genuine trust and clear legal advice. The federal First Home Guarantee instead has the government act as guarantor for eligible first home buyers, letting you buy with as little as 5 percent deposit and no LMI, but places are capped each year and come with income and property price limits. For a first home buyer who qualifies, the scheme is usually the cleaner option, because it avoids exposing a relative's home while still killing the premium this calculator estimates.
Is LMI refundable if I repay the loan early?
Partial refunds were once common but are now rare, and most insurers offer little or nothing if you refinance or sell after the first year or two. Treat the premium as a sunk cost the moment you settle, not a deposit you might get back. This is another reason to weigh whether saving longer for a larger deposit beats paying LMI now.
Does a larger deposit always reduce the premium?
Yes, and often more than you expect, because the rate steps down as you cross each loan to value band. Pushing your deposit just far enough to drop from one band to the next, say from above 90 percent down to 88 percent, can cut the premium by thousands even though the extra deposit is comparatively small. It is worth modelling a few deposit figures here before you commit.