A worked example
Megan is buying an apartment in Brisbane for $650,000. She's saved a $55,000 deposit (8.5% of the property value), so she needs to borrow $595,000. Her loan-to-value ratio (LVR) is 91.5%.
Because her LVR is above 80%, the lender requires LMI. Most lenders use a sliding scale based on LVR and loan amount. At 91.5% LVR on a $595,000 loan, the LMI premium sits around $18,500 to $22,000 depending on the insurer and lender.
Using a typical premium rate of 3.2% on the portion above 80% LVR, we calculate: the loan amount above 80% is $595,000 - $520,000 (80% of $650,000) = $75,000. The premium calculation is more complex than a simple percentage, but for Megan's scenario, the final LMI cost comes to roughly $20,300.
Megan can either pay this upfront at settlement or capitalise it into her loan (borrowing $615,300 total). If she capitalises, she'll pay interest on the LMI amount over the life of her loan, which adds to the total cost.
State-by-state differences
LMI premiums themselves don't vary by state, as they're set by mortgage insurers (QBE, Genworth) based on loan size and LVR. However, the context around LMI does shift:
- NSW and VIC: Higher median property prices mean more buyers hit LMI thresholds. A 10% deposit on a Sydney median house (around $1.1 million) means LMI of $35,000 to $45,000.
- QLD and WA: Lower median prices can make the 20% deposit target more achievable, but mining and resource workers often use LMI to buy investment properties with smaller deposits while cash is tied up elsewhere.
- SA and TAS: More affordable markets mean first home buyers sometimes reach 20% deposits faster, though stamp duty concessions (like SA's $15,000 first home buyer grant) can offset LMI costs if you choose to pay it.
- ACT: The territory's land tax system (no stamp duty, annual land tax instead) changes the upfront cost calculation, making capitalised LMI more common.
- NT: Smaller market, fewer lenders offer premium LMI waivers for professionals (doctors, lawyers) compared to southern states.
Common mistakes people make
- Thinking LMI protects the borrower: LMI covers the lender's risk if you default, not yours. If the bank forecloses and sells your property at a loss, the insurer pays the lender, then pursues you for the debt. You're still liable for the shortfall.
- Not comparing LMI quotes across lenders: The same LVR and loan amount can produce different premiums. One lender might charge $18,000 while another charges $22,000 for identical circumstances, because they use different insurers or negotiate different rates. Always get breakdowns from multiple lenders.
- Assuming genuine savings are mandatory: Most lenders want your deposit to be 'genuine savings' held for three months, but some accept gifted deposits or first home super saver scheme withdrawals (up to $50,000) without penalty. If your deposit is recent, ask about non-genuine savings policies rather than assuming you can't proceed.
- Forgetting LMI is a one-off cost: Unlike mortgage insurance in the US (ongoing monthly premiums), Australian LMI is paid once. If you refinance within two years, some insurers offer partial LMI waivers or transfers, but most people pay again if their new LVR still exceeds 80%.
What this calculator doesn't account for
This calculator estimates LMI based on standard residential owner-occupier loans. It doesn't account for:
- Investment property premiums: LMI for investment loans typically costs 10% to 20% more than owner-occupier loans at the same LVR.
- Profession-based waivers: Doctors, dentists, accountants and other professionals often qualify for LMI waivers up to 90% LVR with specific lenders. These aren't reflected in standard calculations.
- Low-doc or self-employed loading: Non-standard income verification can increase premiums by 20% to 40%.
- Postcode risk: Some regional or remote postcodes attract higher premiums due to perceived resale risk.
- Lender-specific discounts: First home buyers, existing customers, or borrowers with large savings balances sometimes negotiate reduced premiums.
Edge cases and nuances
Guarantor loans: If a parent guarantees part of your loan using their property equity, you might borrow 100% of the purchase price without LMI. The calculator won't flag this option, but it's common for first home buyers whose parents own unencumbered property.
Construction loans: LMI is calculated on the total loan amount, but you draw down progressively during construction. Some lenders charge LMI upfront on the full amount, others only on funds drawn. A $600,000 construction loan might defer $15,000 of LMI costs until practical completion.
First Home Loan Deposit Scheme (FHLDS): Eligible first home buyers can borrow up to 95% LVR without LMI if they secure a spot (30,000 places nationally per year). The government guarantees the gap instead of a commercial insurer. The calculator assumes standard LMI applies and won't show this $0 premium pathway.
Refinancing within 24 months: QBE and Genworth sometimes waive or reduce LMI if you refinance with a different lender using the same insurer within two years. Most calculators don't capture these 'portability' arrangements.
