Gateway Bank to let customers make separate monthly LMI repayments

author-avatar By 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

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 which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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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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