St.George offers $1 LMI for first home buyers

St.George offers $1 LMI for first home buyers

What can you buy for one dollar? A fun size chocolate bar? A scratchie? Half a kilo of supermarket-brand flour? Now the almighty dollar will also be able to cover the cost of Lenders Mortgage Insurance (LMI) for first home buyers taking out a home loan from St.George Bank with a 15 per cent deposit.

From 13 July 2020, St.George Bank is offering to let first home buyers who are borrowing up to $850,000 for a property worth up to $1 million take out LMI for the princely sum of just $1.

  • What is LMI? Lenders Mortgage Insurance is typically required for any home loan with a deposit of less than 20 per cent. LMI covers the lender (and not the borrower) against the risk of the borrower defaulting on their mortgage. Most lenders pass the cost of the LMI policy on to the borrower – the lower your deposit, the more you may have to pay in LMI charges.

To put this in perspective, according to the RateCity LMI calculator, applying for a $1 million home loan with a 15 per cent deposit ($150,000) would typically require you to pay approximately $11,305 in LMI charges.

According to St.George, this offer was introduced partially to account for how Australian first home buyers are re-evaluating their home ownership plans following the COVID-19 pandemic.

“Australians have spent more time at home than ever before during the COVID-19 restrictions, and we are seeing a bigger trend in how the nation is re-evaluating their current living situation. For example, three quarters of people would now prefer to live in a house over an apartment.”

“First home buyers are calling for new ways to achieve their home ownership dreams sooner, and this option is designed to help make that goal within closer reach, particularly with the added benefit of a record low interest rate environment.” - St.George general manager, Ross Miller

The introduction of this offer follows several weeks of Australian banks, including St.George and its parent company Westpac, slashing fixed and variable interest rates as they compete more and more fiercely for business from Australia’s home buyers, many of whom have taken a pandemic-related financial hit.

This offer is available now from St.George, and it is understood it should also be available from affiliated banks BankSA and Bank of Melbourne by the end of July 2020.

How could a smaller deposit affect your home loan?

Even without considering the potential cost of LMI, a smaller deposit can make a big difference to the cost of a home loan. For example, if you used the St.George offer to buy a $650,000 property with a 15 per cent deposit instead of a 20 per cent deposit, you would need to pay $32,500 less upfront. That’s less money you have to save, so you can potentially buy your first home sooner, before property prices can change further.  

The government’s First Home Deposit Scheme (FHDS) also lets borrowers apply for home loans with smaller deposits, going as low as just five per cent. That said, there are a limited number of places in this scheme, and there are many other terms and conditions to consider, such as both partners having to be first home buyers to apply for a joint home loan under the scheme, while the St.George offer only requires one partner to be a first home buyer.

However, it’s also important to remember that while a smaller deposit means paying less up front for a home loan, it also means borrowing more money to buy your house. A larger loan means higher repayments, so your mortgage may cost more, both from month to month an in total over the long term

To use the earlier example of buying a $650,000 property with a 15 per cent deposit instead of a 20 per cent deposit, you would need to pay $32,500 less upfront. However, your mortgage repayments would be $145 extra a month and you would pay $19,820 in extra interest to the bank over 30 years. 

Monthly repayments and interest paid on a $650K property

  20% deposit  15% deposit  Difference 
Property value  $650,000  $650,000  $0
Deposit $130,000 $97,500 $32,500
Loan size $520,000 $552,500 $-32,500
Rate 2.64% 2.69% -0.05%
Monthly repayments $2093 $2238 -$145
Total interest paid over 30 years $233,364 $253,184 -$19,820

This is based on taking out St George’s basic home loan at a rate of 2.69 per cent with a 15 per cent deposit for an owner-occupier paying principal and interest, compared to a 2.64 per cent rate with a 20 per cent deposit. Calculations are based over 30 years and do not include fees or stamp duty. Assumes LMI is $0.

If you can afford to save up a larger deposit up front, you may be able to put yourself in a position to pay less for your mortgage in the long run. But paying a lower deposit with the help of banks, the government, or a guarantor may make it much easier to take your first steps onto the property ladder. Be sure to compare your options before making a decision, and if you’re not sure what may be right for you, consider getting help from a mortgage broker or other finance professional. 

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.