The short answer
First-home buyers exploring properties under $1 million can learn how LMI works, how it’s added to your loan, and what it means for your borrowing power.
You can buy without a 20% deposit, but you will usually pay lenders mortgage insurance (LMI), and it is normally added to your loan. In this example, a $950,000 home in Officer with about $180,000 saved leads to a base loan of roughly $831,000, an LMI charge of about $15,000 and a total loan of around $846,000 at about 89% of the property’s value.
What does buying without a 20% deposit look like?
Here is a worked example based on a double-storey family home in Officer, in Melbourne’s south-east, listed around $950,000. The numbers are approximate and for illustration only.
Item | Amount |
|---|---|
Purchase price | $950,000 |
Stamp duty (VIC, approx.) | $52,000 |
Lender, legal and adjustment buffers | ~$9,000 |
Savings contribution | ~$180,000 |
Base loan | ~$831,000 |
LMI (varies by lender) | ~$15,000 |
Capitalised loan | ~$846,000 |
Loan-to-value ratio | ~89% |
What is LMI and why do I pay it?
Lenders mortgage insurance protects the lender, not you, when you borrow more than 80% of the property’s value. Because the lender is taking more risk, it charges a one-off premium. LMI can be paid upfront, but most buyers add it to the loan. That is called capitalising it.
Does LMI cost the same everywhere?
No. LMI is priced by the lender and its insurer, so the same scenario might cost $14,000 with one bank and $16,000 or $17,000 with another. Comparing lenders matters, especially near the 90% mark where premiums step up.
What is the capitalised loan amount?
It is the number you need to pay attention to. Your base loan is what you borrow for the property. The capitalised loan is the base loan plus LMI, and it is what you will make repayments on. In this example that is about $846,000, not $831,000.
Are there ways to avoid LMI?
Possibly. Depending on your situation you might be eligible for:
The federal government’s 5% Deposit Scheme, which removes LMI for eligible first home buyers within price caps
Professional LMI waivers for some occupations, such as doctors, lawyers and accountants
A family guarantee, where a parent’s property secures part of the loan
Eligibility rules and price caps change, so check your options before you start bidding.
What else should I budget for?
On top of your deposit, stamp duty and LMI, leave room for settlement-day costs that buyers often miss: conveyancing, lender application and valuation fees, and adjustments for council rates and water the seller has already paid. We usually allow $5,000 to $9,000 for these on a purchase this size. You will also want a cash buffer after settlement for moving costs, furniture and the first few repayments.
How does a 90% loan affect my repayments?
A bigger loan means bigger repayments. On a capitalised loan of about $846,000, every 0.25% change in interest rates moves the monthly repayment by roughly $130 to $140. Before you commit, run your numbers at a rate at least 3% higher than today’s, because that is roughly how lenders test whether you can afford the loan.
Who is this scenario right for?
Buyers who have a solid income and good savings habits but don’t want to wait years to reach 20%, particularly in a rising market. The trade-off is a higher loan and the LMI cost.
Key takeaways
You can buy under $1 million without a 20% deposit if you can cover LMI.
LMI is usually added to your loan, so focus on the capitalised amount.
LMI varies between lenders, so comparing them can save thousands.
Government schemes or professional waivers may remove LMI completely.
Compare this with buying with a 20% deposit, estimate costs with our stamp duty calculator and borrowing power calculator, and talk to our team about first home buyer loans.
General information only. This article does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and seek personal advice before acting. Elephant Financial Pty Ltd trading as Elephant Advisory is an authorised credit representative (ACR 487962) of Yellow Brick Road Aggregation Pty Ltd (formerly Vow Financial Pty Ltd) (ABN 66 138 789 161), Australian Credit Licence 390261.
Gav is the person you want in your corner when it comes to property finance. After years in banking and motor trade finance, he joined Elephant early and never looked back. He's passionate about combining property and finance to help clients achieve their goals through tailored financial structuring, and he's very serious about snacks at meetings.
