Common Mistakes When Borrowing Over 80% LVR

LMI is a one-off premium paid when you borrow more than 80% of a property's value.

The cost is calculated on a sliding scale based on your loan amount and loan to value ratio, and it protects the lender if you default on your mortgage. It does not protect you. Understanding how the premium is calculated, when you can avoid it, and how to structure your application when a larger deposit isn't available makes the difference between paying thousands unnecessarily and securing the property with a manageable upfront cost.

When LMI Applies and How the Premium Is Calculated

LMI applies to residential loans where the LVR exceeds 80 per cent. The premium is a cost borne by the borrower and is calculated on a sliding scale based on the loan amount and LVR. A buyer purchasing at an 85% LVR will pay a lower premium than a buyer at 95% LVR, even if the loan amounts are similar. The premium is a one-off cost, typically added to your loan amount rather than paid upfront in cash, though some lenders allow you to pay it separately at settlement.

Consider a buyer purchasing an apartment in New Farm near the river precinct. If the property is valued at the current median and the buyer is borrowing at 90% LVR, the LMI premium could be several thousand dollars. That same buyer borrowing at 82% LVR would pay a significantly lower premium, and at 80% LVR or below, no premium at all. The difference between an 80% and 82% LVR can be substantial in dollar terms, which is why buyers who are close to the 80% threshold should consider whether they can increase their deposit slightly to avoid the cost entirely.

Some lenders also charge stamp duty on the LMI premium in certain states, though Queensland does not impose this additional charge. The premium itself is not refundable if you refinance or pay down your loan quickly after settlement.

The Australian Government 5% Deposit Scheme and How It Removes LMI

Eligible first home buyers can purchase with a deposit of as little as 5% of the property value. Housing Australia provides a guarantee to the participating lender of up to 15% of the property value for first home buyers, enabling borrowers to reach a combined deposit and guarantee of 20% without paying LMI. This scheme has been operative since October 2025 and removes the need for lenders mortgage insurance entirely, provided you meet the eligibility criteria and purchase within the applicable price cap.

In QLD, the price cap is $1,000,000 in capital cities and regional centres and $700,000 in other areas. New Farm falls within the Brisbane capital city area, so the $1,000,000 cap applies. Both the purchase price and the lender's assessed value must be at or below this cap. If the property you are purchasing exceeds the cap, you will not be eligible for the scheme and will need to pay LMI if borrowing above 80% LVR.

Applications for the Australian Government 5% Deposit Scheme are made through a panel of participating lenders and cannot be made directly to Housing Australia. Not all lenders participate, and not all participating lenders offer the same loan features or interest rates. Some participating lenders may offer offset accounts and redraw facilities, while others do not. The scheme can be used with variable, fixed, or split rate loan structures, depending on the lender.

The scheme cannot be combined with Help to Buy, but it can generally be used alongside state grants and stamp duty concessions. In Queensland, eligible first home buyers purchasing a new home valued under $750,000 can access a $15,000 grant, and a full transfer duty concession applies with no price cap for new homes. These concessions can be used in addition to the 5% Deposit Scheme, reducing the upfront cash required further.

How Lenders Assess Serviceability When LVR Is Above 80%

APRA requires all ADIs to assess new borrowers' capacity to service a home loan at an interest rate that is at least 3.0 percentage points above the loan product rate. This buffer applies to all new home loan applications, but it becomes more restrictive when your LVR is high because the loan amount you are servicing is larger relative to your deposit.

A buyer borrowing $900,000 at 90% LVR needs to demonstrate serviceability on that full amount at a rate 3.0 percentage points above the actual interest rate. If the variable rate on the loan is 6.2%, the lender will assess whether you can afford repayments at 9.2%. That assessment takes into account your income, existing debts, living expenses, and any other financial commitments. If you have a car loan, credit card limit, or personal loan, those commitments reduce your borrowing capacity, and at higher LVRs the margin for error is smaller.

In New Farm, where many buyers are purchasing apartments or townhouses in the inner-city market, the combination of a high purchase price and a smaller deposit can push serviceability to its limit. Buyers who are self-employed or on contract income may face additional scrutiny, as lenders typically require two years of financials and may apply a discount to declared income if it is variable or commission-based.

Another factor that affects serviceability at high LVR is rental income. If you are purchasing an investment property and relying on rental income to service the loan, lenders will typically only recognise 80% of the projected rent in their assessment. For an apartment in New Farm that could rent for $650 per week, the lender will assess serviceability using $520 per week. If your other income sources are limited, this reduction can affect whether the loan is approved.

Fixed, Variable and Split Loan Structures When Borrowing Above 80%

The loan structure you choose affects both your repayments and your flexibility, particularly when your LVR is above 80%. A variable rate allows you to make extra repayments and redraw funds without penalty, which can be useful if your income is irregular or if you want to reduce your loan balance quickly to remove LMI on a future refinance. A fixed rate provides certainty over your repayments for a set period, but most fixed rate loans restrict extra repayments to a capped amount each year and do not allow redraw.

A split loan combines both structures, allowing you to fix a portion of your loan for rate certainty while keeping the remainder on a variable rate for flexibility. In a rising rate environment, a split loan can limit your exposure to rate increases without locking you into a fixed rate entirely. In a falling rate environment, the variable portion allows you to benefit from rate cuts immediately.

When your LVR is above 80%, the interest rate you are offered may be higher than the rate available to borrowers with a 20% deposit. Some lenders apply a rate loading for loans above 90% LVR, while others price all loans above 80% LVR at the same rate. This variance between lenders makes rate comparison particularly important when your deposit is smaller, as a 0.2% difference in rate can translate to hundreds of dollars per month on a loan of $800,000 or more.

Some lenders also restrict access to certain loan features when LVR is above 90%. Offset accounts, for example, may not be available on all loan products at 95% LVR, and interest-only repayments are rarely offered above 90% LVR for owner-occupiers. If these features are important to you, confirming their availability before submitting your application is necessary.

What Happens to LMI If You Refinance or Sell Early

LMI is a non-refundable premium. If you refinance your loan to a different lender six months after settlement, the LMI premium you paid at the original settlement is not refunded or transferred. You will need to pay a new LMI premium to the new lender if your LVR is still above 80% at the time of refinancing. This can make refinancing costly in the short term, particularly if your property value has not increased and your loan balance has not reduced significantly.

Some lenders offer LMI portability, which allows you to transfer your existing LMI premium to a new property if you sell and purchase within a set timeframe, usually 12 months. Not all lenders offer this feature, and the terms vary. If you are purchasing in New Farm and expect to upgrade or relocate within a few years, confirming whether your lender offers LMI portability may save you from paying the premium twice.

If your property increases in value or you make additional repayments that reduce your LVR below 80%, you do not receive a refund of the LMI premium. The premium was paid to protect the lender at the time of settlement, and that protection remains in place for the life of the loan regardless of how the LVR changes over time.

Selling the property also does not result in a refund. The LMI premium is considered a cost of obtaining the loan, not a cost tied to the property itself. If you are weighing up whether to pay LMI or delay your purchase to save a larger deposit, the fact that the premium is non-refundable should factor into your decision, particularly if you are uncertain about your medium-term plans.

Borrowing Capacity and Deposit Requirements for New Farm Buyers

New Farm is an established inner-city suburb adjoining the Brisbane River, with a mix of heritage homes, modern apartments, and proximity to the CBD, James Street retail precinct, and New Farm Park. The local market includes a high proportion of apartment stock, particularly near the river and along Brunswick Street, as well as freestanding homes and townhouses in the more residential pockets toward Merthyr Village and the western edge near Teneriffe.

Buyers in this area are typically professionals, downsizers, or investors attracted to the suburb's walkability and access to dining, retail, and the ferry network. Many are purchasing with smaller deposits, either because they are first home buyers entering the market or because they are reallocating equity from an existing property and prefer not to liquidate other investments.

When borrowing above 80% LVR in New Farm, your borrowing capacity is determined by your income, existing debts, and the lender's serviceability assessment. The deposit you have available determines your LVR, and your LVR determines whether LMI applies and at what cost. If you are purchasing an apartment at the suburb's current median or above, a 10% deposit may still result in an LMI premium of several thousand dollars, and a 5% deposit will result in a higher premium unless you are eligible for the government guarantee scheme.

Buyers should also account for the other costs at settlement, including stamp duty, legal fees, building and pest inspections, and any strata levies or adjustments. These costs typically add several thousand dollars to the upfront cash required, and they must be paid in addition to your deposit and any LMI premium. A loan repayment calculator can help you model the ongoing cost of the loan, but it will not show the full upfront cash requirement unless you include settlement costs and LMI in your calculations.

Call one of our team or book an appointment at a time that works for you. We work with buyers across New Farm and can help you understand your borrowing capacity, compare loan options, and structure your application to minimise upfront costs where possible.

Frequently Asked Questions