How Is LMI Calculated, and Why Does It Jump at 95%?

The short answer

Lenders Mortgage Insurance (LMI) is a one-off premium charged when you borrow more than 80% of a property's value. It is calculated as a percentage of your loan amount that rises with your Loan-to-Value Ratio (LVR). It jumps sharply between 90% and 95% LVR because insurers price the last few percent of deposit as much riskier: the premium rate roughly doubles across that band, and it is applied to a slightly larger loan, so a 5% deposit can cost noticeably more than double a 10% deposit. LMI protects the lender if you default, not you.

How LMI is calculated

LMI is set by insurers (in Australia, principally Helia and QBE) and passed on through your lender, so exact premiums vary. The mechanics, though, are consistent:

• Trigger: LMI generally applies when your LVR is above 80% (loan ÷ property value). At 80% or below, it is zero.
• Rate by LVR band: insurers use a premium-rate matrix. The rate climbs through bands (roughly ≤85%, ≤88%, ≤90%, and ≤95%) and rises steeply at the top.
• Loan size matters: larger loans attract a higher percentage rate as well, so the matrix is two-dimensional (loan size × LVR band).
• Premium = rate × loan amount. It is a single upfront cost, not annual.

True Loan estimates LMI exactly this way: a premium rate (% of loan) selected by loan-size and LVR band, zero at or below 80% LVR, with the option to capitalise it into the loan. For more on the ratio itself, see what is LVR and how to calculate it.

Because the rate steps up at each band boundary, a small change in deposit can push you into a higher band and lift the percentage applied to the whole loan. That step is the "jump".

Worked example: $600,000 property, 90% vs 95% LVR

Using True Loan's indicative LMI rates for a property valued at $600,000:

Deposit	LVR	Loan amount	LMI rate	Estimated LMI
$60,000 (10%)	90%	$540,000	1.79%	$9,666
$30,000 (5%)	95%	$570,000	2.64%	$15,048

Check the maths: $540,000 × 1.79% = $9,666; $570,000 × 2.64% = $15,048. Halving your deposit from 10% to 5% adds roughly $5,380 in LMI. The loan itself grew by only $30k; the bulk of that extra cost comes from the rate jumping from 1.79% to 2.64%. (A $600,000 loan at exactly 90% LVR would be ~1.79% × $600,000 ≈ $10,740.)

If you capitalise the premium, that extra cost is added to your loan and you pay interest on it for the life of the mortgage, so a $15,048 premium financed at 6% over 30 years costs far more than $15,048. You can model that exact effect in True Loan.

The no-LMI alternative for first home buyers

If you are a first home buyer, the federal First Home Guarantee can let you buy with as little as a 5% deposit and pay no LMI: the government guarantees the gap to 20%, so the lender doesn't require insurance. From 1 October 2025 the scheme removed place limits and income caps and lifted property price caps (e.g. $1.5m for Sydney/NSW capital and regional centres, $950k Melbourne/VIC, $1m Brisbane/QLD and the ACT). You may also be able to build your deposit through the ATO's First Home Super Saver scheme (up to a $50,000 lifetime release, max $15,000 per year, plus deemed earnings). See how the First Home Guarantee 5% deposit works.

Model this in True Loan

To see your own LMI and how it flows into total cost, open True Loan and set:

• Property value and Deposit: the calculator derives your LVR and shows the LMI estimate (zero at ≤80%).
• Capitalise LMI: toggle this to compare paying it upfront against adding it to the loan and paying interest on it.
• Interest rate and loan term, so the capitalised-premium interest is reflected in total cost.

Then use Compare to run a 90% LVR scenario against a 95% LVR scenario side by side, and watch upfront LMI, total interest and funds-at-settlement change. If you want to test how a sustained Offset balance or an Extra repayment ($/month) chips away at a capitalised premium, set those two inputs separately; they are not the same field. See also how much LMI is on a $600k loan with a 10% deposit.

Common questions and mistakes

Is LMI annual or one-off? One-off. It is charged at settlement (or capitalised), not yearly.

Does LMI protect me? No. It protects the lender if you default. You pay it, but the cover is theirs.

Why does 5% deposit cost more than double 10%? Two effects stack: the premium rate roughly doubles across the band, and it applies to a larger loan.

Can I avoid it? Reaching ≤80% LVR avoids it entirely; first home buyers may qualify for the First Home Guarantee; some lenders waive it for certain professions or with a guarantor. Exact eligibility varies.

Is capitalised LMI free? No. You pay interest on it for the loan's life. Model both ways in True Loan.

---

Figures here are estimates based on True Loan's indicative LMI rates and AU 2025-26 settings; real premiums are set by insurers and lenders and will differ. This is general information, not financial or credit advice. Check official sources such as moneysmart.gov.au, Housing Australia and the ATO before deciding.