Gateway Bank has today announced it is offering borrowers the chance to pay off their lenders mortgage insurance (LMI) premiums differently to how it's usually done.
Currently, LMI premiums can be paid as an upfront one-off payment at settlement or can be added to the loan amount and gradually paid off while accruing interest.
However, Gateway Bank's new product, called Monthly Premium LMI, would supposedly allow first home buyers to potentially get into the market sooner by buying without a 20% deposit while avoiding the often exorbitant upfront costs of LMI.
To do this, the bank's new product will instead let customers pay off their LMI premiums in repayments that are separate to their mortgage - the first of its kind in Australia.
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.06% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% | 4.6 Star Customer Ratings |
| Promoted | Disclosure | |||||||||
5.99% p.a. | 5.90% p.a. | $2,995 | Principal & Interest | Variable | $0 | $0 | 80% | Apply in minutes |
| Promoted | Disclosure | |||||||||
6.09% p.a. | 6.11% p.a. | $3,027 | Principal & Interest | Variable | $0 | $250 | 60% |
| Promoted | Disclosure | ||||||||||
5.69% p.a. | 6.16% p.a. | $2,899 | Principal & Interest | Fixed | $0 | $530 | 90% |
| Promoted | Disclosure |
Gateway Bank CEO Lexi Airey said by partnering with insurer Genworth, it was offering flexibility to customers buying their first home.
“We want to help more Australians achieve their dream of home ownership. It’s no secret that the biggest challenge for most first home buyers is saving for a 20% deposit, not whether they can afford the home loan repayments,” Ms Airey said.
“Because the monthly LMI premium doesn’t affect your LVR, a greater portion of your loan can be used to buy your home.
“It might make the difference between buying your home now, instead of in another year or two.”
How much does LMI cost?
As the table below shows, LMI can be very expensive for would-be buyers:
LMI premiums for first home buyers
|
Estimated property value |
95% LVR LMI cost |
90% LVR LMI cost |
85% LVR LMI cost |
|
$200,000 |
$4,727 |
$3,498 |
$1,550 |
|
$400,000 |
$11,897 |
$8,575 |
$3,777 |
|
$600,000 |
$23,954 |
$13,284 |
$6,463 |
|
$800,000 |
$31,939 |
$17,712 |
$8,617 |
Source: Savings.com.au's Lenders Mortgage Insurance Calculator. Prices including GST but excluding stamp duty. Based on a loan term up to 30 years.
Lenders mortgage insurance is not insurance for the borrower, rather it is paid by the borrower to protect the lender against the risk of potential defaults on the loan.
LMI is often an unpopular cost and one the biggest when buying a home, up there with stamp duty, but Genworth Australia CEO & Managing Director Pauline Blight-Johnston said it plays a critical role in supporting Australians to achieve financial security.
"We are proud to bring innovation and flexibility to people wanting to buy a home with our Monthly Premium LMI solution," she said.
How can Monthly Premium LMI help save money?
According to Gateway Bank, the Monthly Premium LMI can be more cost-effective than the other two mainstream options.
The main reason for this, aside from the premiums not accruing interest, is that customers can stop making these repayments as soon as they own 20% of their property.
So by making extra repayments or a lump sum repayment, having LMI premiums separate to the loan can end up saving a lot of money.
Based on calculations made by Gateway Bank, borrowers with a 10% deposit on a $500,000 property would have to pay $9,644 upfront for LMI, or $0 upfront with Monthly Premium LMI and $182 in monthly repayments.
By using Gateway Bank's product, it can be cheaper to repay the LMI monthly for buyers who intend to upgrade or refinance within about five years or so:
Image source: Gateway Bank
How else can you save on LMI costs?
Aside from saving up for a 20% deposit, which is becoming harder and harder to achieve with rising property costs, there are plenty of ways buyers can avoid LMI completely or reduce what they owe.
Borrowers can be exempt from having to pay LMI by:
- Having a guarantor
- Work in highly-regarded professions like lawyers or engineers (each lender will have different requirements)
- Having an excellent credit history or borrowing modestly and well within their means (this may not be possible all the time)
Meanwhile, LMI premiums can be reduced significantly if:
- Grants like the First Home Loan Deposit Scheme (FHLDS) are used - the FHLDS sees the government pay LMI costs for select borrowers with deposits as low as 5%
- They apply with certain lenders, like St. George which reduces LMI premiums to $1 for first home buyers or ME Bank which reduces LMI premiums by 25%
Photo by Andrew Mead on Unsplash
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