Gateway Bank is the first lender to offer Genworth’s monthly premium lenders mortgage insurance, giving borrowers the option of paying upfront or monthly.
Genworth piloted the “first to market” product last year and is now rolling it out to the market.
Monthly premiums address a longstanding criticism of LMI. Borrowers typically pay their full LMI premium upfront by having the premium capitalised and added to the loan.
If they refinance and change lenders they will pay LMI all over again, adding to the cost of their property purchase.
In 2011, the government proposed to make LMI policies transferable from one loan to another. The insurance industry opposed the plan, saying loan refinancing did not involve a like-for-like risk transfer. Nothing ever came of it.
Genworth said other benefits of monthly LMI are that it will reward borrowers who pay down their loans faster, reduce barriers to refinancing and reduce the cost of entry into the residential property market.
Gateway provided a couple of scenarios, comparing the cost of upfront and monthly LMI options. A borrower purchasing a A$500,000 property with a 5 per cent deposit would pay $14,504 for LMI upfront or $360 a month.
A borrower purchasing a $500,000 property with a 10 per cent deposit would pay $9644 for LMI upfront or $180 a month.
Those numbers suggest that monthly LMI would work well for a borrower looking to sell or refinance after four or five years, or a buyer who wants to avoid LMI having an impact on their loan-to-valuation ratio.
Gateway Bank chief executive Lexi Airey said in a statement: “Because the monthly LMI premium doesn’t affect your LVR, a greater portion of your loan can be used to buy your home.
“The biggest challenge for most first home buyers to savings a deposit. Monthly LMI might make the difference between buying now or waiting another year or two.”