Online lender 86 400 has introduced a new 85% loan-to-value ratio (LVR) tier for owner occupiers making principal and interest (P&I) repayments and waived Lenders Mortgage Insurance (LMI).

For loans under this new tier, homebuyers can borrow with as little as 15% deposit.

Typically, borrowers have to pay LMI if they have a deposit below 20%, which can add thousands to the upfront costs of purchasing a property.  The cost of LMI usually depends on factors including the loan size, mortgage type, and the amount of the deposit.

The new 85% tier will be available under these 86 400 products:

• Own variable-rate home loan
• Own fixed-rate home loan (1-, 2-, 3-, and 5-year terms)
• Neat variable-rate home loan,

The interest rate for the 85% LVR loans starts at 2.04% (2.96% p.a. comparison rate) for a one-year fixed rate under the ‘Own’ home loan and at 2.54% p.a. (2.55% p.a. comparison rate) for the ‘Neat’ home loan.

Travis Tyler, Chief Product & Marketing Officer at 86 400 said the move will shave thousands of dollars of the potential cost of a property.

"We know how tough it can be to break into the housing market and get ahead on your loan, so we’re helping home buyers get on the financial fast-track with smaller deposits or equity and very competitive rates," Mr Tyler said.

The neobank also announced a $2,000 cashback for 85% LVR loan borrowers which will be available for purchases and refinances on loans of at least $250,000, submitted by 30 September 2021, and settled by 30 November 2021.

How much can borrowers save under 86 400’s new 85% LVR tier?

The lower deposit requirement under 86 400’s new loans means borrowers in Sydney will only need a $152,654 deposit for a median priced property, significantly lower than the $203,538 deposit for a 20% LVR.

This also translates to an LMI saving of approximately $10,900.

For buyers in Darwin, which has the lowest median price, borrowers will only need a $72,908 down payment for the purchase of their home.

The higher LVR requirement prevents borrowers from incurring $4,500 LMI for a median-priced property in Darwin.

Lower fixed and variable rates

The lender also lowered a number of its fixed and variable interest rates.

The three-year fixed rate under the ‘Own’ Home Loan is now at 1.85% p.a. (comparison rate 2.55% p.a). This is applicable to owner-occupiers paying principal and interest with an LVR or 20%.

The variable rate for the ‘Neat’ Home Loan was also lowered to 2.09% p.a. (2.10% p.a. comparison rate). This applies to LVRs of 60% and under.