Working in these professions can save thousands on your mortgage

Workers in the medical, legal and education fields are among a growing list of professionals who can save thousands of dollars when applying for a mortgage with a deposit of less than 20 per cent.

A variety of different lenders offer waivers to certain professions on lenders’ mortgage insurance (LMI), which is usually imposed on borrowers with a deposit under that 20 per cent mark. LMI can cost several thousands of dollars and is usually added to the repayments for the duration of the mortgage.

Lenders’ mortgage insurance can cost tens of thousands of dollars, but some professions receive waivers Credit: SMH

Banks offer these waivers to those in jobs that are likely to be secure and pay good incomes. Top of the list is health professionals, though people working in education, law enforcement and the legal and accounting professions are also eligible for waivers from certain lenders.

Sometimes, the waivers are advertised by the lender, but sometimes you have to ask. Sally Tindall, research director at RateCity, says while some banks actively promote these professional waivers, others are “documented in the backwaters of bank websites”.

“It’s a great ‘rabbit out of the hat’ trick brokers and bank lending specialists can pull out for clients as the lure of an exclusive offer can help seal a deal,” she says.

Though the cost of LMI is paid for by the borrower, it protects the lender in case the borrower defaults on their mortgage and the proceeds from the sale of the property do not cover the money owed to the lender.

Those who have a deposit of less than 20 per cent are considered to be at higher risk than those who have more equity in their properties.

The cost of the LMI depends on the value of the property and how much the buyer is under the 20 per cent threshold, whether it is being bought by a first-time buyer and whether the buyer is an owner-occupier or investor. On a typical house purchase in Sydney or Melbourne, it can cost tens of thousands of dollars.

The calculator provided by LMI provider Genworth shows LMI costs $22,000 for a first-home buyer on a purchase of $1 million, with a deposit of 10 per cent on a 30-year mortgage; even higher for non-first-home buyers.

Westpac recently extended its LMI waiver to registered nurses and midwives. The change means eligible registered nurses and midwives with at least a 10 per cent deposit can avoid the additional upfront expense of LMI if they earn over $90,000 a year.

“Nurses and midwives provide an incredible service to our communities, so we are delighted to help them buy a home sooner by waiving thousands of dollars in LMI,” says Chris de Bruin, consumer and business banking chief executive at Westpac.

“These professions also typically attract a larger proportion of women, and we are passionate about helping more women buy their own homes... and build financial independence,” de Bruin says.

The addition of nurses and midwives lengthens Westpac’s already extensive list of eligible health professionals, including dentists, GPs, optometrists and pharmacists, among others, provided they meet minimum income requirements.

A few lenders, such as St George, Bank of Melbourne and BankSA (all owned by Westpac) and BankVic, also offer LMI waivers to first-home buyers.

Tindall says while banks waive the LMI cost for low-risk professions, they may still “slug these borrowers with higher interest rates for having a wafer-thin deposit”.

“While this might seem like a small price to pay to duck LMI, a higher interest rate has the capacity to cause significant financial pain over the longer term,” she says.

There are also low deposit schemes, backed by the federal government, which are distributed through lenders. These allow qualifying first-home buyers to purchase a property with as little as a 5 per cent deposit without having to pay the cost of LMI.

Tindall says first home buyers with small deposits should think carefully about going with a particular bank just because they are offering a free LMI deal, even if that deal is backed by one of the federal government’s low deposit schemes.

Those buying with a small deposit while property prices are falling could find they end up with little or no equity in their loan within months, she says.

One of the federal government-backed schemes, called the Family Home Guarantee (FHG), allows eligible single parents with at least one dependent child can buy a home with a deposit of only 2 per cent, and not pay for LMI.

The low deposit schemes have salary caps for the borrowers and caps on the properties being purchased.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.