Gateway Bank introduces monthly LMI option for low deposit home buyers

couple-sitting-on-couch-looking-at-LMI

There’s a common conundrum for many first time home buyers in Australia: save up for a 20% home loan deposit or purchase sooner with the added cost of lenders mortgage insurance (LMI).

It’s not an easy choice, particularly when LMI can cost thousands or tens of thousands of dollars - an expense which borrowers are typically required to either pay upfront or have ‘capitalised’ (added on to) their loans.

Customer owned lender Gateway Bank might have a more ‘flexible’ solution for their mortgage customers though, with yesterday’s announcement that it will now allow borrowers to pay their LMI premiums in monthly instalments.

According to Gateway, this is the first time an Australian bank has put this option on the table, and while it doesn’t do away with lenders mortgage insurance altogether, it could allow first time buyers to buy sooner, without that sizeable upfront cost.

“We want to help more Australians achieve their dream of home ownership,” says Gateway Bank chief executive, Lexi Airey. “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.”

“So, we partnered with Genworth, our LMI provider, to offer our customers who are buying their first home the flexibility to pay for LMI monthly.”

“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.”

So what are the actual benefits? As Airey alluded to, there are a couple of potential advantages to the monthly LMI structure:

  • No impact on LVR: Unlike lenders mortgage insurance which is capitalised into the loan, Gateway says monthly LMI premiums won’t impact a borrower's loan-to-value ratio (LVR). That could help prospective buyers save up for a deposit faster - potentially up to 95% of the property’s value.
  • Payments stop at 80% LVR: Again, unlike LMI which is capitalised into the loan and paid off over time, monthly LMI premiums are paid separately. So once a borrower's LVR falls below the 80% threshold, monthly premium payments will stop.

As the chart below shows though, the benefit of the monthly LMI structure will likely be greatest for mortgage holders who are able to pay down their loan quickly.

Upfront vs Monthly LMI cost comparison
Upfront vs monthly LMI cost comparison. Source: Gateway Bank

Today’s announcement from Gateway is a timely one given that first time buyers are taking out home loans in near-record numbers.

The latest figures from the Australian Bureau of Statistics (ABS) show that 16,117 first home loan commitments were made in February which - while a slight drop on January’s figure - represent a 65.8% increase on the February 2020 number.

First home buyers have also continued to take advantage of the First Home Loan Deposit Scheme (FHLDS), with the federal government having recently reissued 1,800 spots for buyers looking to purchase an existing home.

RELATED: Do you have a 5% deposit ready? This home loan might work for you

Ready to make your first property move? Find a mortgage to suit your needs by comparing options from a range of lenders over at our first home loan comparison hub, or get started straight away by checking out the hot offers below.

Compare home loans - rates updated daily

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure.
  • placeholder
    Mozo Experts Choice 2021
    Smart Booster Home Loan

    2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.variable for 24 months and then 2.25% p.a. variable
    2.21% p.a.
    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    UHomeLoan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.
    fixed 3 years
    2.24% p.a.
    Go to site
    Details
  • Hot DealFor a chance to win $100K towards your home loan, apply with Athena before Oct 31 & approved by Dec 15 (Please read the full T&C's)
    placeholder
    Mozo Experts Choice 2021
    Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.
    Go to site
    Details
  • placeholder
    Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.
    Go to site
    Details
  • placeholder
    Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    2.09% p.a.
    fixed 3 years
    2.32% p.a.
    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    Variable Home Loan Special

    Owner Occupier, Principal & Interest, LVR <70%

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    2.02% p.a.
    Go to site
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.