Calculator
Combination Mortgage Calculator
Combination Mortgage Calculator
First Mortgage (Primary Home Loan)
Second Mortgage / Gap Loan
Typically a family loan, personal loan or equity release bridging the gap between your deposit and the 80% LVR LMI threshold.
0% for an interest-free family loan; ~10–13% for a personal loan.
Combined Monthly Repayment
$4,299.81
Combination Analysis
Capping the first loan at 80.0% LVR with a $37,500 interest-free gap loan avoids roughly $5,100 of LMI. Over the life of both loans the combination saves $50,283.31 compared with one $637,500 loan plus LMI — even after $0 of interest on the second loan.
*LMI premium is estimated from indicative lender tiers — real premiums vary by lender, loan purpose and state. Second-lender servicing and approval criteria apply. Educational only, not financial advice.
What Is a Combination Mortgage?
A combination mortgage stacks two loans against one property purchase — a first mortgage from a bank or mortgage insurer-friendly lender, plus a second loan that bridges the gap between your deposit and the 80% loan-to-value-ratio (LVR) point where lenders' mortgage insurance (LMI) kicks in. For Australian first home buyers with a deposit under 20%, the choice is familiar: pay an LMI premium of many thousands of dollars on the full loan, or borrow the gap from a family member, a personal loan, or an equity release against a relative's home and keep the first loan under 80% LVR. LMI is a one-time insurance premium protecting the lender, not you — it typically runs 1–3% of the loan amount once you cross the 80% threshold, and it is generally added to the loan balance where it itself accrues interest. Because the premium grows with the LVR, even a modest gap loan can erase it entirely if the first loan lands at 80% or below. The trade-off is that the second loan — especially a personal loan — carries its own interest and its own serviceability test. This calculator models both structures side by side so you can see whether the LMI avoided outweighs the interest paid on the gap loan.
The LMI Tipping Point Arithmetic
For each loan the calculator applies the standard principal-and-interest formula: Repayment = P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r the monthly interest rate (annual rate ÷ 12), and n the number of monthly payments. The combination structure splits total borrowing (property price minus deposit) into the first mortgage and the gap loan, then sums both repayments for the combined figure during the overlap years; once the gap loan is repaid, only the first-mortgage repayment remains. Total interest for each loan is the repayments multiplied by the term minus the principal — the standard lifetime-interest calculation. The LMI estimate uses indicative lender tiers: the premium rate rises as the LVR rises (roughly 0% at or under 80%, scaling up to around 3.5% above 95% LVR), applied to the relevant loan balance. Crucially, the combination's first-loan LVR is the first-loan amount divided by the property price — not the total borrowing — which is the reason the structure works: the gap loan sits outside the first lender's LVR calculation. The calculator then prices the counterfactual: one loan for the full amount at the same rate and term, with LMI estimated on that higher LVR, and reports the difference as your net saving.
Expert Insights
The Gap Loan Must Clear Before the 80% LVR Point Matters in Reverse
Lenders assess the combination against both loans, and the second loan appears in your credit file. If the gap loan is a personal loan, expect the lender to apply its own serviceability test at a higher rate, and remember it may cap your borrowing capacity for the first mortgage. Structure the second loan's term so it finishes well inside your income horizon — five years is common — because an open-ended 'whenever you can repay it' family arrangement can stall refinancing later if documentation is thin.
An Interest-Free Family Loan Is Worth Thousands — Get It in Writing
A truly 0% gap loan is the best-case scenario: the LMI premium is avoided and the second debt costs nothing. Banks will still want the arrangement documented — a signed gift letter if part of it is a gift, or a simple loan agreement if it is repayable. Without documentation, lenders may treat the funds as undisclosed debt and either decline or reduce your borrowing. Set terms up front, record repayments, and treat the paperwork as the price of a free LMI escape.
Don't Forget Stamp Duty in the Deposit Gap
First home buyers routinely forget that stamp duty (now free up to state thresholds in several jurisdictions) plus conveyancing and inspection fees can consume $20,000–$40,000 of a deposit before the lender sees a cent. Model the gap loan after deducting those costs from your savings. A combination mortgage sized on the wrong deposit number simply moves the problem: you will hit the LMI threshold again at settlement, or worse, at valuation.
Actionable Tips
- 1
Work Backwards From 80% LVR to Size the Gap Loan
Multiply the property price by 0.8 to get the maximum first-loan amount that avoids LMI, then subtract it from your total required borrowing — that difference is the exact gap loan you need. There is no point borrowing a $100,000 gap loan if $62,000 gets you under the threshold. The calculator does this comparison instantly, so try several gap amounts to find the smallest second loan that flips you under 80% LVR.
- 2
Check Your State's LMI and Deposit Rules Before Structuring
Some states allow LMI to be added to the loan up to 95% LVR, and the federal Home Guarantee Scheme lets eligible buyers purchase with a 5% deposit and no LMI, capped by property price. Verify eligibility before paying a family member or taking a personal loan — a grant or guarantee may achieve the same no-LMI outcome with no second loan at all. The calculator's savings figure is your benchmark: any combination structure must beat simply paying the LMI.
- 3
Compare Against Paying the LMI Up Front Instead
If the gap loan costs 10%+ interest, paying the LMI premium outright may be cheaper across the loan's life — the calculator shows this as a negative saving. Also consider whether the LMI could be added to the loan and paid down with extra repayments in the early years. Run the numbers three ways (gap loan, LMI upfront, LMI capitalised) and only choose the combination structure when the net saving is clearly positive and the second loan fits your budget comfortably.
Real-World Examples
Sarah's Interest-Free Family Loan Saved Her $28,000
Sarah saved a 10% deposit on a $750,000 home in Geelong and her father offered to lend her the remaining gap to reach 80% LVR interest-free. The calculator showed the combination avoiding roughly $28,000 of LMI, while the five-year family loan cost nothing extra. Once the gap loan was cleared, her repayments dropped by over $600 a month — and no insurer had ever been involved. Her brother, who paid LMI on a similar loan two years earlier, still has the premium baked into his balance.
Dane's Personal Loan Gap Turned the Maths Negative
Dane had a 15% deposit on an $850,000 house and planned a personal loan at 12% to bridge the $42,500 to 80% LVR. The model showed the LMI avoided was about $16,000, but five years of 12% interest on the gap loan ran over $15,000 plus monthly repayments he hadn't budgeted for. With lender fees added, the combination was barely better than paying LMI capitalised. He instead capitalised the LMI, kept his buffer, and attacked it with extra repayments in year two.
The Nguyens Used Equity in Mum's Home as the Second Loan
Thanh and Linh had a 15% deposit on a $650,000 unit in Melbourne's west. Rather than a personal loan, Linh's mother released equity against her paid-off home as a zero-interest second security. The first loan landed exactly at 80% LVR — no LMI, no second-mortgage interest, and the equity was repaid via the standard offset-linked repayments the couple made. Their broker's advice: 'The gap loan must be documented, but the economics of a family guarantee beat a personal loan every time.'
Glossary of Terms
- Lenders Mortgage Insurance (LMI)
- A one-off premium protecting the lender (not the borrower) when a home loan exceeds 80% of the property's value — typically added to the loan balance and paid over the loan's life.
- Loan-to-Value Ratio (LVR)
- The size of a loan expressed as a percentage of the property's value or valuation — Australian lenders use 80% LVR as the key LMI threshold.
- Gap Loan
- A second loan (often from family, an equity release or a personal loan) used to push the first mortgage under a key threshold such as 80% LVR, avoiding LMI on the main loan.
Frequently Asked Questions
Everything you need to know about this topic.
Ivy Sinclair-Wren
Financial Chaos Analyst
Ivy Sinclair-Wren is a Financial Chaos Analyst covering investing, AI, wealth psychology, and the emotional consequences of opening finance apps during market crashes. Based in Melbourne, she specializes in demystifying the Australian tax code and helping users navigate the intersection of spreadsheet logic and human irrationality.