How LMI Is Calculated in Australia: Premium, LVR Bands and What Triggers It
Most guides tell you LMI costs “a few thousand to tens of thousands” and leave it there. This one shows you the two numbers that set the price, and the one thing that can make a difference of thousands of dollars: which side of a line your deposit lands on.
The short answer
LMI is calculated from two numbers: how much you are borrowing as a percentage of the property’s value, and how big the loan is in dollars. The insurer looks those two numbers up on a price list and applies the rate it finds to your loan. Because that price list is built in bands rather than a smooth scale, the premium jumps sharply at certain points, above all at 80 per cent and 90 per cent, instead of creeping up evenly as your deposit gets smaller.
What Is LMI, and Who Does It Protect?
LMI stands for lenders mortgage insurance. The name is the most useful thing about it, because it tells you who the insurance is for.
It is not insurance for you. ASIC’s Moneysmart puts it in one line: “LMI does not benefit the borrower, it only protects the lender.”
Here is what that means in practice. If you borrow with a small deposit and later cannot repay the loan, the lender sells the property. If the sale does not cover what you owe, the insurer pays the lender the shortfall. The insurer can then come after you for the amount it paid out. So you pay the premium, the lender gets the protection, and you still owe the debt.
That surprises a lot of people, so it is worth separating LMI from two products it gets confused with:
- Mortgage protection insurance pays your repayments if you lose your income. That one is for you. It is a different product you buy separately.
- Home and contents insurance covers the building. Also for you, also separate, and usually a condition of the loan.
LMI is a one-off cost, not an ongoing one. You pay it once, at the start. There is no monthly premium and nothing to renew.
You pay the premium. The lender gets the protection. You still owe the debt.
When Do You Have to Pay LMI?
The trigger is a single number called your LVR, which stands for loan to value ratio. It is simpler than it sounds.
LVR is the size of your loan divided by the value of the property, as a percentage. Borrow $560,000 against a $700,000 property and your LVR is 80 per cent. That is the whole calculation.
As a rule, if your LVR is above 80 per cent, LMI applies. Moneysmart states it the same way: “If your LVR is above 80%, you may need to pay lenders mortgage insurance.” Another way of saying it: if your deposit is less than 20 per cent, expect a premium.
| Your deposit | Deposit in dollars | Your LVR | LMI? |
|---|---|---|---|
| 20% | $140,000 | 80% | No |
| 15% | $105,000 | 85% | Yes |
| 10% | $70,000 | 90% | Yes |
| 5% | $35,000 | 95% | Yes, unless a scheme or guarantee applies |
The trap: it is the lender’s value, not your purchase price
This is the detail that catches the most people, and it catches them late.
LVR is worked out on the lender’s valuation of the property, not on the price you agreed to pay. The lender sends its own valuer. If that valuer comes back lower than your contract price, your deposit has not changed but your LVR has gone up.
Say you buy at $700,000 with $140,000 saved. On paper that is a 20 per cent deposit and no LMI. If the valuation comes back at $680,000, you are now borrowing $560,000 against $680,000, which is an LVR of 82.4 per cent. The premium appears, and it appears after you have signed the contract.
On a fast-moving market, or on anything unusual about the property, this is the single most common way a carefully planned LMI-free purchase stops being one.
How LMI Is Calculated: The Two Numbers
Once LMI applies, the premium comes from two numbers and nothing else:
- Your LVR. How far above 80 per cent you are borrowing.
- Your loan amount. How many dollars you are borrowing.
The insurer keeps what is effectively a price list. LVR runs down one side in narrow bands. Loan size runs across the top in wider ones. Your two numbers point at one square on that list, and the percentage in that square gets applied to your loan.
So the sequence is: work out your LVR, find your loan size, read the rate, multiply. That is the calculation.
A few things people expect to matter, which do not go into it:
- Your interest rate. No effect. LMI is priced off the property and the loan size, not off the deal on top of it.
- Your credit score. Not a direct input. Your credit history affects whether the insurer will cover the loan at all, not what the square says once it does.
- How long you take to pay the loan off. No effect. The premium is set once, at the start.
Some things do move you to a different price list altogether, rather than a different square on the same one. Buying to invest rather than to live in is priced differently from owner-occupied lending. Low doc lending, used by some self-employed borrowers, runs on its own list with much tighter limits. Some property types and some postcodes are restricted or loaded.
Why two lenders quote you different LMI on the same house
Because the price list belongs to the insurer, and lenders do not all use the same insurer or the same arrangement. Two lenders can look at an identical property, an identical deposit and an identical loan amount and return different premiums.
This is also why an online LMI calculator gives you an estimate and not a quote. It has to assume an insurer and an arrangement. The real number only exists once a specific lender is on the file.
Why the Price Jumps at 80% and 90%
Here is the part that actually saves people money, and almost no guide explains it.
The price list is built in bands. Inside a band the rate does not move. Cross from one band into the next and it steps up.
That means the premium does not climb evenly as your deposit shrinks. It sits flat, then jumps, then sits flat again. And the biggest jumps sit at the roundest numbers: 80 per cent, 85 per cent and 90 per cent.
LMI is not priced on a slope. It is priced on a staircase, and all the money is in the steps.
Two borrowers can be almost identical and pay very different premiums:
- Borrower A is at 89.9 per cent LVR.
- Borrower B is at 90.1 per cent LVR.
Same house, same week, a couple of thousand dollars between their deposits. But they are on opposite sides of a step, and B can pay thousands more for the same cover.
Flip that around and you get the useful version:
Extra deposit is not equally valuable. It is worth almost nothing in the middle of a band and a great deal right at the edge of one. Going from 88 per cent to 87 per cent may change very little, because both sit inside the same band. Going from 90.2 per cent down to 89.9 per cent can change the premium a lot, because it crosses a step.
So the number to aim at is not a round figure that feels tidy, like “I’ll save 15 per cent”. It is the step immediately below wherever you currently sit. Clear that, and the next few thousand dollars of saving does very little until you approach the next one.
If you want the reason the bands exist
You do not need this part to use the advice above. It is here because it explains why the steps sit where they do, and it is the reason no amount of shopping around removes them.
Banks are required to hold capital against every mortgage they write. How much depends on the LVR of the loan, and the rule that sets it, APRA’s Prudential Standard APS 112, is itself written in bands rather than on a sliding scale. LMI reduces the amount the bank has to hold, but only above 80 per cent, and only in fixed steps.
| LVR band | With LMI | Without LMI |
|---|---|---|
| 70.01% to 80% | 35% | 35% |
| 80.01% to 90% | 40% | 50% |
| 90.01% to 100% | 55% | 70% |
Two things fall out of that table. At 80 per cent and below, LMI makes no difference to the bank at all, which is exactly why nobody asks you to buy it there. And the cover is worth most to the lender in the highest band, which is where you are charged most for it.
The regulator watches this line closely enough to carve out a reporting band one percentage point wide. Lenders must report new loans separately for LVRs between 80 and 81 per cent, because that is where loans bunch up against the threshold. This is not a rare situation either: in the March 2026 quarter, 30.7 per cent of all new home loans funded by Australian banks were written at an LVR of 80 per cent or above.
Not sure which side of a step you are on?
Send us the price you are working to and the deposit you have. We will tell you your LVR, which band it falls in, what the next step down is worth in dollars, and whether a low valuation could push you across one after you sign. Usually 15 minutes on the phone. No obligation, and no fee at any point.
Four Ways to Avoid Paying LMI
All four are real. None of them is free, and the cost of each one is easy to miss because it does not show up as a line on a settlement statement.
1. Save a 20 per cent deposit. The direct route, and the only one with no conditions. What it costs you is time, and in a market that is rising, time has a price. Waiting a year to avoid a premium is a bad trade if the house gets more expensive by more than the premium while you wait.
2. Use the Home Guarantee Scheme. The government guarantees part of the loan, which is why eligible buyers can borrow with a much smaller deposit and pay no LMI. There are price caps on what you can buy and conditions on who qualifies, both set by the administering body, and both change. Our first home buyer loans page sets out the current rules as they actually read.
3. Use a guarantor. A family member, usually a parent, offers equity in their own property as extra security. That lifts the total security value and brings your LVR back under the line. It removes the premium by moving the risk onto someone else’s home. See guarantor home loans for how it is set up and how the guarantee is later released.
4. Qualify for a profession-based waiver. Some lenders waive LMI above 80 per cent for people in particular occupations. The eligible lists differ sharply between lenders and change without notice, so we do not publish them. Worth knowing: for most high-earning professionals the real constraint is how much they can borrow, not the deposit, so the waiver solves the smaller half of the problem. That argument is on our medical and professional home loans page.
One thing to know before you refinance
LMI is not portable. The policy belongs to the lender, not to you. If you move to a different lender while you are still above 80 per cent, you will generally pay a fresh premium rather than carry the old one across.
Some insurers refund part of the original premium if you refinance quickly, but the window is short and the rules are the insurer’s rather than anything set in law. If you are thinking about refinancing, ask your current lender in writing what the refund position is before the new application goes in, not after.
GST, Stamp Duty and Adding LMI to Your Loan
The rate from the price list is not quite the number that reaches you. Two taxes and one decision sit in between.
GST applies at 10 per cent, because LMI is general insurance.
Stamp duty on the premium depends on which state you are buying in, and this is where New South Wales buyers do better than everyone else. NSW exempts LMI from insurance duty outright, under section 259(1)(n) of the Duties Act 1997, for premiums paid on or after 1 July 2017. The ACT scrapped insurance duty altogether in 2016. Everywhere else, duty of between 9 and 11 per cent is added.
| Where you are buying | Duty on the premium | Worth knowing |
|---|---|---|
| New South Wales | None | Exempt under the Duties Act 1997, for premiums paid from 1 July 2017 |
| Australian Capital Territory | None | Insurance duty was abolished across the board in 2016 |
| Victoria | 10% | Victoria is phasing out duty on business insurance, but mortgage insurance is expressly left out, so this is not falling |
| Queensland | 9% | Charged on the premium after GST is added |
| Western Australia | 10% | Charged on the premium after GST is added |
| South Australia | 11% | The highest rate in the country |
| Tasmania | 10% | Tasmania uses the words “mortgage insurance” for a different product, a life cover, taxed at 2%. That lower rate does not apply to LMI |
| Northern Territory | 10% | Standard general insurance rate |
Two buyers with identical numbers, one in Penrith and one in Adelaide, do not pay the same for the same cover. No LMI calculator we have looked at accounts for this, and it runs in the New South Wales buyer’s favour.
Paying it upfront or adding it to the loan
Moneysmart describes the two options plainly: “You pay the lenders mortgage insurance at settlement, or your lender adds it to your loan.”
Adding it, called capitalising, is what most people do. It means you do not have to find the cash on top of your deposit, but it has a catch that matters because of the steps.
Adding the premium makes your loan bigger. A bigger loan against the same valuation is a higher LVR. So a loan set up at 89.5 per cent can land above 90 per cent once the premium goes on top, and 90 per cent is the most expensive line on the list.
Whether that actually happens comes down to two questions, and both are the lender’s policy rather than any published rule:
- Is the premium priced on your LVR before the premium is added, or after?
- Does the lender’s maximum LVR count the added premium, or not?
If you are sitting anywhere near a step, get those two answers in writing before the application goes in.
How Intellect Finance can help
What we do on a file like this is unglamorous and specific. We work out where your LVR really lands once a realistic valuation is assumed instead of the contract price. We tell you the step immediately below you and what clearing it is worth in dollars. We check, lender by lender, whether the premium is priced before or after it is added to the loan, because that one question is where quotes diverge. And where a scheme place, a guarantor or a waiver is genuinely on the table, we compare it against simply paying the premium, rather than assuming avoiding LMI always wins.
What we will not do is tell you whether paying LMI is a good idea in your circumstances as an investment call. That depends on your own numbers, your timeframe and your view of the market, and where it crosses into financial strategy it belongs with a licensed financial adviser rather than a credit licensee. We also cannot negotiate the premium. The price list is the insurer’s.
A home loan for a property you will live in is regulated consumer credit under the National Consumer Credit Protection Act 2009, and Best Interests Duty applies. We charge you nothing on any loan type, with no arrangement fee and no clawback recovery fee. Penrith based since 2005, holding Australian Credit Licence 390611.
Read Intellect Finance’s Google reviews
Many of these came from buyers working with a deposit under 20 per cent, who wanted the numbers explained before they committed to anything.
These reviews reflect other clients’ experiences. They are not a promise of any particular outcome for your loan, which will always depend on your circumstances and the lender’s assessment.
Frequently Asked
LMI Questions, Answered Simply
The things buyers ask us most often once they realise a premium is coming.
What does LMI stand for?
LMI stands for lenders mortgage insurance. It is insurance the lender takes out to protect itself if you cannot repay your loan and the property sells for less than you owe. You pay for it, but it covers the lender, not you.
How is LMI calculated in Australia?
It is calculated from two numbers: your LVR, meaning your loan as a percentage of the property’s value, and your loan amount in dollars. The insurer looks both up on a banded price list and applies the rate it finds to your loan. Because the list is banded, the premium jumps at certain LVR points rather than rising smoothly.
How much does LMI cost?
There is no single published price. Each insurer keeps its own price list, lenders use different insurers and different arrangements, and the same deposit and loan can produce different premiums at different lenders. The two things that move it most are your LVR band and the size of the loan.
Is LMI worked out on the property price or the loan amount?
Both, doing different jobs. The property value sets your LVR, which decides which row of the price list you land on. The loan amount decides the column, and is the figure the rate is then applied to. Importantly, the value used is the lender’s valuation, not the price on your contract.
Is LMI cheaper with a 15 per cent deposit than a 10 per cent one?
Yes, usually by a lot, because 85 and 90 per cent LVR sit in different bands. The saving is not spread evenly across that extra 5 per cent though. Most of it lands at the moment you cross a band boundary, with comparatively little gained on either side of it.
Do I pay stamp duty on LMI in New South Wales?
No. NSW exempts lenders mortgage insurance from insurance duty under section 259(1)(n) of the Duties Act 1997, for premiums paid on or after 1 July 2017. The ACT abolished insurance duty entirely in 2016. Every other state and territory adds duty of between 9 and 11 per cent to the premium.
Can I add LMI to my home loan instead of paying it upfront?
Usually yes, and most people do. Be aware it makes the loan bigger, which raises your LVR. If you are sitting just under a band boundary such as 90 per cent, confirm in writing whether the lender prices the premium before or after it is added, because it can push you into a more expensive band.
Is LMI refundable if I sell or refinance?
Sometimes, partly, and only within a short window after settlement. Refunds are governed by the insurer’s own policy rather than by law, and they vary. Because the policy belongs to the lender rather than to you, refinancing to a different lender while above 80 per cent generally means a new premium, not a transfer.
Does LMI protect me if I cannot repay my loan?
No. Moneysmart says it directly: LMI does not benefit the borrower, it only protects the lender. If the property sells at a loss after a default and the insurer pays the lender, the insurer can then seek that money from you. The product that protects your repayments is mortgage protection insurance, which is separate.
The bottom line
Most articles about LMI argue about whether it is worth paying. That is the less useful question. The premium comes off a price list with hard edges, and nearly all the money is in the edges. Knowing you are at 90.2 per cent rather than 89.9 is worth more than any general opinion about the product, because it is the one thing you can still do something about in the week before you apply.
The uncomfortable part is that avoiding LMI is not automatically the right call, and plenty of advice treats it as though it were. Waiting two years to save a full deposit has a cost. A scheme place comes with price caps that may rule out the house you actually want. A guarantor arrangement puts a family member’s home behind your loan. Those are all real prices. They just never appear as a line item, which is why the premium attracts all the resentment and the alternatives get a free pass.
Four answers will move your number more than anything else: the lender’s valuation rather than your contract price, the step immediately below you rather than a round figure, whether the premium is priced before or after it is added to the loan, and whether your state adds duty. None of them requires an opinion about whether LMI should exist.
Joseph Sukkar
Joe has spent more than 25 years arranging home loans in Australia, a large share of them for buyers working with a deposit under 20 per cent, where the way two lenders treat the same LVR decides what the loan costs. Intellect Finance charges clients no fee on any loan type. More about the team.
Sources
ASIC Moneysmart, lenders mortgage insurance glossary definition and the save for a house deposit guide, for what LMI is, who it protects, the 80 per cent threshold and the two ways it is paid. moneysmart.gov.au
APRA, Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk, Attachment A, effective 1 July 2025, for the LVR band capital figures and the LMI eligibility test at paragraph 15. apra.gov.au
APRA, Reporting Standard ARS 223.0 Residential Mortgage Lending, form ARF 223.0 item 11, for the LVR bands lenders must report new loans against, including the separate 80 to 81 per cent band. apra.gov.au
APRA, Quarterly Authorised Deposit-taking Institution Property Exposures, March 2026 quarter, released 29 June 2026, for the share of new loans funded at an LVR of 80 per cent or above. apra.gov.au
NSW legislation, Duties Act 1997 section 259(1)(n), and Revenue NSW, insurance duty exemptions, for the NSW exemption of LMI from insurance duty. revenue.nsw.gov.au
ACT Revenue Office, tax reform, for the abolition of ACT insurance duty on 1 July 2016. revenue.act.gov.au
State Revenue Office Victoria, insurance policies current rates and the abolition of duty on business insurance premiums, for the 10 per cent rate and the exclusion of the mortgage class from the phase-down. sro.vic.gov.au
Queensland Revenue Office, insurance duty rates, and RevenueWA, self-assess and pay insurance duty, for the Queensland and Western Australian rates and their GST-inclusive base. qro.qld.gov.au
RevenueSA, general insurance rates, State Revenue Office Tasmania, rates of duty and types of insurance, and NT Government, examples of duty and rates, for the remaining state and territory positions. revenuesa.sa.gov.au
Australian Taxation Office, GST and insurance, for the treatment of general insurance as a taxable supply. ato.gov.au
Important disclosures, general advice warning and licensing
General information only. This article is general information only and does not constitute financial, credit, legal or tax advice. It does not take your personal or financial circumstances into account. Before acting on any information here, consider whether it is appropriate to your objectives, financial situation and needs.
Illustrative figures. The deposit and LVR figures shown on a $700,000 property are arithmetic examples chosen to show how the ratio works. They are not quotes, and they are not predictions about any property. Substitute your own numbers.
Premium figures. This article publishes no LMI premium rates. Premium price lists belong to the mortgage insurers, differ between insurers and between lenders, and change. Any premium quoted to you will come from a specific lender on a specific file, and that is the only figure to rely on.
Tax and duty. Intellect Finance is not a registered tax agent. The GST and state insurance duty positions summarised here come from the sources listed above as at the date checked, and they change. Confirm the current position with your accountant or the relevant revenue office.
Legal. Guarantees, security arrangements and title are legal matters. Anyone considering acting as a guarantor should obtain independent legal advice before signing.
Government schemes. Home Guarantee Scheme eligibility, price caps and conditions are determined by the administering body and the participating lender, not by Intellect Finance, and the figures change.
Regulatory settings. APRA capital and reporting standards are prudential requirements imposed on lenders. They create no entitlement for any borrower and they change. Reviewed 14 September 2026.
Lender policy varies and changes. Descriptions of common practice are general observations, not any lender’s policy. This page publishes no interest rates and names no lenders. No broker can guarantee approval, pricing, a valuation outcome or a timeframe.
Best Interests Duty. A home loan for a property you will live in is regulated consumer credit under the National Consumer Credit Protection Act 2009, and Best Interests Duty applies.
What we charge you. Nothing, on any loan type. No arrangement fee for residential, commercial, corporate, asset, SMSF or personal lending, no fee for complex or specialist lending, and no clawback recovery fee if a loan is discharged early. Lenders pay us a commission on settlement, disclosed to you in writing in our Credit Guide before we provide credit assistance.
About the reviews shown. The reviews displayed on this page are genuine reviews published by clients on Intellect Finance’s Google Business Profile, shown live via a third-party reviews widget. They reflect those individuals’ own experiences and are not a promise of any particular outcome.
Intellect Finance Pty Ltd holds Australian Credit Licence 390611 and is a member of the MFAA and AFCA. Lending criteria, fees and terms apply. Article checked 14 September 2026.
Next Reads
If You Are Buying With Less Than 20 Per Cent
Deposit Under 20 Per Cent
Find out what your deposit is actually worth
Bring the price you are working to and the deposit you have. We will work out your LVR, tell you which band it falls in, what the next step down would save you, and where a low valuation could catch you out. If the honest answer is that waiting three months is better economics, that is what we will tell you. Penrith based since 2005, clients Australia-wide. No fee on any loan type. ACL 390611.
General information only. This page publishes no LMI premium rates, and any premium quoted to you will come from a specific lender on a specific file. No broker can guarantee approval, pricing or a valuation outcome.
Intellect Finance Pty Ltd | Australian Credit Licence 390611 | MFAA Member | AFCA Member