Gateway Bank to let customers make separate monthly LMI repayments

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on April 27, 2021
Gateway Bank to let customers make separate monthly LMI repayments

In an Australian-first, one bank is letting new customers pay for lenders mortgage insurance in separate monthly repayments when buying a home.

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. 


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers

Lender
Advertised rate Comparison rate* Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
FixedMore details
USE A MARKET LEADING APP TO HELP YOU PAY OFF YOUR LOAN SOONER

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Make up to $20,000 additional repayments per fixed term
  • Redraw available – lets you access any extra loan repayments you’ve made
  • Choose to rate lock for 90 days (fee applies)
USE A MARKET LEADING APP TO HELP YOU PAY OFF YOUR LOAN SOONER

Fixed Home Loan 1 year (Principal and Interest) (LVR < 80%)

  • Make up to $20,000 additional repayments per fixed term
  • Redraw available – lets you access any extra loan repayments you’ve made
  • Choose to rate lock for 90 days (fee applies)
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Variable Owner Occupied, Principal and Interest (Refinance Only)(LVR <75%)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.

Rates correct as of January 25, 2022. View disclaimer.

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: 

Gateway1.JPG

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:


Photo by Andrew Mead on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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