Westpac subsidiary St. George Bank is slashing lenders’ mortgage insurance (LMI) down to $1 for eligible first home buyers.
Individuals applying for their first home loan are able to put down a deposit of just 15 per cent of the property (with a loan-to-value ratio of up to 85 per cent), without having to fork out tens of thousands in LMI.
To be eligible, the maximum loan size would be $850,000 for a maximum property value of $1 million, and it would have to be an owner occupier home loan with principal and interest repayments.
What’s lenders’ mortgage insurance?
LMI is insurance that protects your lender if you can’t make your mortgage repayments, and usually applies to borrowers with deposits under 20 per cent. Those with deposits of over 20 per cent, or loan-value ratios of 80 per cent, can usually avoid paying LMI.
Normally, LMI is tens of thousands of dollars – for instance, a $700,000 house with a 5 per cent deposit would see you borrow 95 per cent – and leave you with a $665,000 mortgage, according to Finder.
But your estimated LMI cost would be $29,990, meaning St. George Bank’s $1 offer would save Australians thousands.
A 15 per cent saving on a property to the value of $800,000 would mean a deposit of $120,000 – but that’s still an estimated LMI of $8,840, according to Finder.
St George general manager Ross Miller said in-house research showed one of the first hurdles for first home buyers was the time it takes to save for a deposit.
“We are seeing many pain points experienced along that savings journey, including giving up holidays, reducing entertainment expenses, having to move back home with parents, moving in with friends or even leaning on family members to help top-up savings,” he said.
“By reducing the expense of LMI, first time purchasers may be able to afford a property that meets their needs sooner and save thousands of dollars.”
According to St George research, the Covid-19 pandemic has made a third of first home buyers want to save more quickly for a home.
“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.”
Comparison site Canstar’s finance expert Steve Mickenbecker said St. George’s offer was “generous”.
“The St. George move competes head on with the government’s First Home Loan Deposit Scheme, which also aims to relieve the deposit burden and save on costly lenders mortgage insurance,” he told Yahoo Finance.
“The St George offer is positioned to include larger loans, up to $850,000 compared to the government scheme which hits its maximum property price cap at $700,000 for Sydney. The St George offer also targets the lower risk end of the market, requiring a minimum deposit of 15 per cent compared to 5 per cent.”
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