LMI Calculator Australia

What lenders mortgage insurance is and who it protects

Lenders mortgage insurance, commonly abbreviated to LMI, is a policy that a lender takes out to protect itself against loss where a borrower defaults and the sale of the property does not recover the outstanding debt. The lender is the insured party and is the only party able to make a claim. The cost of the premium is nevertheless passed on to the borrower in almost every case, either as a charge at settlement or as an amount added to the loan.

The policy does not protect the borrower or any guarantor. Where a property is sold for less than the amount owing and the insurer pays the lender, the borrower remains liable for the shortfall, and the insurer may seek to recover that amount directly from the borrower. LMI is therefore distinct from mortgage protection insurance and income protection insurance, which are optional products intended to assist a borrower to meet repayments following illness, injury or loss of employment.

How the LMI calculator works

The calculator requires two inputs, the property price and the deposit. It subtracts the deposit from the price to determine the loan amount, and divides the loan by the price to determine the loan to value ratio, or LVR. Where the LVR is 80% or less, the result is nil, because lenders generally do not require LMI at that level. Where the LVR exceeds 95%, no estimate is shown, because that ratio is above the approximate ceiling that most insurers accept.

Between those points the tool applies an indicative premium matrix with three LVR bands: above 80% to 85%, above 85% to 90%, and above 90% to 95%. Within each band the premium rate also increases with the size of the loan. The selected rate is applied to the whole loan amount, and the result is displayed as a dollar figure and as a percentage of the loan. The calculator also shows the additional deposit that would be needed to bring the LVR down to 80%. The matrix is indicative only and does not reproduce the rate card of any insurer.

How much is LMI: LVR bands and loan size

Two factors determine most of the cost of LMI: the LVR and the loan amount. Premium rates rise at each LVR band, and the rate applies to the entire loan, not only to the portion above 80%. The cost therefore increases sharply as the deposit falls. Actual premiums also vary with the insurer, the lender, the purpose of the loan, the employment type of the borrower and, in some cases, whether the borrower is purchasing a first home.

An illustrative example based on the indicative matrix in the calculator shows the pattern for a hypothetical $700,000 purchase. With a deposit of $105,000, the loan is $595,000, the LVR is 85%, and the estimated premium is $4,165, or 0.70% of the loan. With a deposit of $70,000, the loan is $630,000, the LVR is 90%, and the estimate rises to $11,340, or 1.80%. With a deposit of $35,000, the loan is $665,000, the LVR is 95%, and the estimate is $24,605, or 3.70%.

In that example the deposit falls by $35,000 at each step, while the estimated premium rises first by $7,175 and then by a further $13,265. The additional deposit needed to avoid LMI altogether is $35,000, $70,000 and $105,000 respectively. These figures are hypothetical and are intended to show the shape of the premium curve, not to predict a quotation. The valuation adopted by the lender also matters, because the LVR is measured against that valuation where it is lower than the purchase price.

Why lenders require LMI above 80% LVR

A loan with a small deposit leaves the lender with a thin margin of security. If property values fall, or if a forced sale incurs substantial costs, the proceeds may not cover the debt. The prudential standards of the Australian Prudential Regulation Authority require authorised deposit-taking institutions to set appropriate limits on LVRs and to apply particular scrutiny to high LVR lending. The 80% threshold is an industry convention that reflects this framework, not a rule fixed by legislation, and individual lenders may set their own policies.

Capital requirements reinforce the convention. Under the APRA standardised approach to credit risk, the capital a lender must hold against a residential mortgage rises with the LVR, and a loan that is covered by eligible LMI from an APRA-regulated insurer receives more favourable capital treatment than an equivalent loan without insurance. LMI therefore makes lending at a high LVR commercially viable for many lenders. In effect, the premium is the price a borrower pays for access to a loan before a 20% deposit has been accumulated.

Paying LMI upfront or adding it to the loan

LMI is a single premium that is payable at settlement and covers the life of the loan. Most lenders permit the premium to be capitalised, which means that it is added to the loan balance. Capitalisation preserves cash at settlement, but the borrower then pays interest on the premium for as long as it remains outstanding. The total loan, including the capitalised premium, must generally remain within the maximum LVR that the lender and its insurer are prepared to accept.

As a hypothetical illustration, a premium of $11,340 that is capitalised into a 30 year principal and interest loan at an assumed rate of 6% per annum adds approximately $68 to each monthly repayment. Over the full term, the interest attributable to the premium is approximately $13,100, so that the total cost exceeds twice the original premium. Some states also charge duty on insurance premiums, which may increase the amount payable. The BorrowWise mortgage repayment calculator may be used to compare repayments with and without a capitalised premium. A borrower who pays the premium in cash avoids that interest, but reduces the funds available for the deposit, which may in turn raise the LVR and the premium rate.

How to avoid LMI or reduce the premium

The most direct way to avoid LMI is to contribute a deposit of at least 20% of the property value, in addition to funds for transfer duty and other purchase costs. The calculator shows the additional deposit required to reach that threshold. Where a full 20% is not achievable, a smaller increase in the deposit may still move the loan into a lower LVR band, which reduces the premium rate. The BorrowWise deposit calculator and stamp duty calculator may assist in setting a savings target that allows for all upfront costs.

A family guarantee is another option. A family member, usually a parent, offers equity in their own property as additional security, so that the lender treats the combined security as sufficient without LMI. The guarantor assumes a substantial legal obligation and may be required to pay if the borrower defaults, so independent legal advice is ordinarily expected. Some lenders also waive LMI up to a higher LVR for borrowers in specified professions, or offer discounted premiums to first home buyers.

There is also a trade-off to consider. Saving a larger deposit takes time, and property prices and rents may change during that period. For some borrowers the cost of LMI may be lower than the cost of waiting, and for others the reverse will be true. The outcome depends on individual circumstances and market conditions that cannot be predicted, which is why an estimate of the premium is a useful input to the decision and not an answer in itself.

The Home Guarantee Scheme and buying with a 5% deposit

The Australian Government provides a guarantee that allows eligible buyers to purchase with a small deposit without paying LMI. The program was formerly known as the Home Guarantee Scheme and is now presented as the Australian Government 5% Deposit Scheme. It is administered by Housing Australia. Under the scheme the government guarantees part of the loan to a participating lender, which takes the place of LMI. It is a guarantee and not a cash payment, and the borrower remains responsible for repaying the entire loan.

According to the official scheme website, eligible first home buyers may purchase with a deposit of as little as 5%, and eligible single parents and legal guardians with as little as 2%. Following changes that took effect on 1 October 2025, the scheme has no income caps and no limit on places. Property price caps apply and vary by location, the buyer must live in the property as an owner-occupier, and applications are made through participating lenders and not to Housing Australia directly. These settings were current at 18 September 2026 and are subject to change.

LMI when refinancing, refunds and financial hardship

LMI is generally not transferable between lenders. A borrower who refinances to a new lender while the LVR remains above 80% may be required to pay a new premium, which may outweigh the benefit of a lower interest rate. Refunds of the original premium are uncommon, and where they are available they are usually partial and limited to loans that are discharged within a short period after settlement. The BorrowWise refinance calculator and home equity calculator may assist in assessing whether the LVR has fallen below 80%.

The Insurance Council of Australia advises that LMI insurers maintain financial hardship policies. A borrower who owes a shortfall to an insurer after the sale of a property may be able to arrange a deferral or a payment plan, and is encouraged to contact the insurer as early as possible. A borrower who is experiencing difficulty with repayments before that point may request hardship assistance from the lender. Early contact generally preserves more options than waiting until arrears have accumulated.