Lender’s mortgage insurance (LMI) can be one of the most expensive additional costs associated with a home loan, but one lender is swimming against the tide and changing the way buyers pay it.
From today, Gateway Bank mortgage customers with a deposit of at least 5 per cent will be offered a choice between standard LMI payment (add cost into loan or pay upfront) or instead pay a Monthly Premium. Gateway Bank has partnered with leading LMI provider, Genworth, to make this offer possible.
This Monthly Premium is to be paid off on an ongoing basis until the borrower’s loan-to-value ratio (LVR) drops below 80 per cent. This is the standard point at which customers would not need to pay LMI.
Traditionally, if a customer capitalised LMI into their loan, this would increase the loan amount, as well as the total interest repayments.
How does this LMI payment change work?
According to its website, the benefits of Gateway Bank's LMI payment method include:
- Purchasing property sooner, without having to save up for additional LMI cost.
- Payments cease once LVR drops below 80 per cent.
- Monthly Premiums terminate if customer refinances (but if LVR still above 80 per cent, customer will need to purchase LMI again).
However, the homeowner will need to demonstrate that they are able to service both the mortgage repayments and the Monthly Premium amount.
In an interview with The Adviser, CEO of Gateway Bank, Lexi Airey, said: “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 per cent deposit, not whether they can afford the home loan repayments.
“Because the monthly LMI premium doesn’t affect [the] LVR, a greater portion of [the] loan can be used to buy [a] home. It might make the difference between buying [a] home now, instead of in another year or two.”
"The benefit for brokers is that Monthly LMI premiums potentially allow more borrowers to either: get into the market sooner; or to borrow a bit more for a better property because they don't have to capitalise the upfront LMI into the loan," said Ms Airey.
Who else is offering LMI deals?
In terms of similar home loan deals in the market, currently St. George is offering customers reduced LMI up to $1 for eligible customers. This offer is for customers with home loans with LVRs up to 85 per cent, with a loan size maximum of $850,000.
Otherwise, the home loan market is still hot for cashback offers – the majority of which are available to refinancing customers. For refinancers looking to potentially pay LMI again, a cashback deal may help to reduce this cost.
Keep in mind that there is more to a home loan than an upfront offer like restructured LMI or cashback. You will still want to consider the interest rate, fees, features, and much more before applying.