The burden of lender's mortgage insurance on homebuyers who can't scrape together a 20 per cent deposit has seen a new lender enter the mortgage market. Tremplin Group offers a novel product that splits a home loan in two, with the second component covering the cost of lender's mortgage insurance (LMI).
Tremplin Group founder Aaron D'Orival said buyers of new homes stood to save up to $50,000. Mr D'Orival said Tremplin Home Access provided up to 95 per cent of a home loan and did not charge LMI like other lenders who required the borrower to pay the insurance if their deposit was less than 20 per cent.
With Tremplin, a first-home buyer with a 5 per cent deposit on a $600,000 house would save $26,000 over a 30-year loan through avoided LMI costs. The rest of the savings came from reduced repayments and interest costs over the life of the loan.
Mr D'Orival estimated the cost of LMI spread over the life of a non-Tremplin loan would add $200 a month to mortgage repayments. LMI covers losses incurred by a bank, not the borrower, in the event of a mortgage default, and is a regulatory and capital requireent by the bank's own lender. A Tremplin mortgage avoids LMI by distributing the risk between two lenders.
The main lender of up to 75 per cent of the mortgage is any one of the major banks which has agreed to the loan if Tremplin stumps up 20 per cent of the required funds. The Tremplin componenet requires interest-only repayments for the first five years, after which it converts to a principal-and-interest loan.
Mr D'Orival said Tremplin's interest costs were competitive, with its current variable rate sitting at 4.9 per cent. He was confident the group would be funding about 1000 mortgages a year by 2021 for buyers with 5 per cent deposits. "Statistically, only three in 1000 mortgages (to high quality borrowers) fall into 90-day arrears before the borrower recommences payment," Mr D'Orival said. "Total defaults are even smaller at just 1 in 1000, so we are not concerned too much about that risk."
The group partners with various developers to give buyers a selection of new homes, mostly apartments. To become eligible for a Tremplin loan, borrowers need to meet strict criteria, including being able to fully document their income.
While first-time home buyers will benefit the most thanks to the $10,000 Victorian Government grant, Tremplin will also lend to second-time or more buyers and investors in residential property. "So long as they can demonstrate a good exit strategy and are not a poor credit risk, there is no reason why we wouldn't extend 30-year home loans to older Australians," Mr D'Orival said.
Loans would be capped at $1 million and like most banks, approvals would take into account a borrower's ability to make repayments even if interest rates climbed beyong 7 per cent. The only application fee payable is to the primary lender and is generally about $550. Tremplin will not levy the fee for its part of the loan, nor charge monthly fees for its secondary account.
This article was found in The Herald Sun, 2nd July 2016, and is written by Olga Galacho.