LMI calculator

Why this LMI cost calculator will not print a premium

There is no published universal table for lenders mortgage insurance. The premium is set by the mortgage insurers, and the same borrower with the same deposit can be quoted differently depending on who is lending.

• Which insurer sits behind the lender, and the scale that insurer uses
• The lender itself, and the arrangement it has with its insurer
• The LVR band you land in, not just your LVR
• The size of the loan

Sites that quote a premium anyway are usually showing one insurer's old scale, or an average of several. Either way the number you are shown is not the number you will be charged, and on a cost this size that is not a rounding error.

What lenders mortgage insurance is, and who it protects

Lenders mortgage insurance protects the lender, not you. If you default and the sale of the property does not cover the debt, the insurer pays the lender the shortfall. You pay the premium and you are not the insured party.

It is worth saying plainly because the name misleads almost everyone. It is not income protection, it is not mortgage protection insurance, and it does not pause your repayments if you lose your job. If the insurer pays out, it can still pursue you for the money.

The reason it exists is that a small deposit leaves the lender exposed if prices fall. Above an 80% LVR the buffer between the loan and the sale price is thin, so the risk is insured rather than declined, and the borrower pays for the insurance.

That is also why it is not a penalty. It is the price of buying earlier with less, which is a trade worth making for some households and not for others.

What a lenders mortgage insurance calculator can honestly tell you

Two inputs and a slider. Enter what the property is worth and what deposit you have, then set the LVR you are aiming at.

• Your LVR, as the headline figure
• The loan you would need at that deposit
• Your deposit as a percentage of the property value
• Whether you sit above or below the 80% mark where LMI normally applies
• The deposit required to reach your target LVR
• The gap between the deposit you have and that target

The slider runs from 60% to 95% and starts at 80%, because 80% is the mark that matters to most people. Drag it to 90% if that is where you realistically expect to land, and the target deposit and the gap move with it.

The result panel says outright that it does not price the premium. That figure is quoted by the lender against the insurer's scale once your application is being assessed, and nothing on this page substitutes for it. Everything here is an estimate from the numbers you typed, not an approval.

How LMI is paid, and why it follows the loan

The premium is normally capitalised, which means it is added to the loan balance rather than paid in cash at settlement. That is convenient at the time and expensive afterwards.

A capitalised premium is money you borrow, so you pay interest on it for the life of the loan. It also lifts the balance being repaid, which nudges your LVR the wrong way at the very moment you were trying to bring it down.

Refunds are limited too. A partial refund is generally only available if the loan is discharged within an early window after settlement, and after that period there is nothing to claim. Treat the premium as spent the day it is capitalised.

The routes that avoid LMI entirely

There are three, and only three, that are worth planning around.

1. 1

   A 20% deposit

   The straightforward one. Twenty per cent of the value, measured after transfer duty and settlement costs have come out of your savings, not before.

2. 2

   A guarantor

   A family member offers equity in their own property as additional security, which lowers the LVR on your loan without you finding more cash. It is a real liability for them and it should be treated as one.

3. 3

   A professional waiver

   Some lenders waive the insurance for borrowers in certain occupations, at a higher LVR than they would normally accept. Which occupations, and how far the waiver stretches, differs by lender and is not published in a way you can compare from the outside.

Short of those, the useful move is a small one. On a $600,000 property a deposit of $54,000 is a 91% LVR, and adding $6,000 takes you to $60,000 and 90%. Six thousand dollars looks like nothing against the purchase, and it can move you into a different band entirely.

Bands are the reason a tiny extra deposit is sometimes worth far more than it looks. Landing at 90.1% and landing at 89.9% are not a rounding apart when the pricing is set in steps.

Getting a real number for your situation

The only honest LMI figure is a quoted one. We can get you that, and we can get you more than one, because the same LVR is priced differently across a panel of more than 40 lenders.

How to get an actual LMI figure

• The property value, or the price you expect to pay
• The deposit you will have at settlement, after duty and costs
• Whether the property is for you to live in or to rent out
• The loan term you are after, and whether you want the premium capitalised
• Your occupation, in case a waiver is on the table
• Whether a guarantor is possible, even if you would rather not use one

With that we run the LVR at the lenders whose insurer pricing suits it and come back with the figures they quote, alongside the rate and the fees, so you are comparing the whole cost rather than one line of it.

If the answer is that you should wait three months and cross 80%, we will tell you that too. It is a worse outcome for us and a better one for you, and it is the reason people send us their friends.