Low equity margin and low equity premium in NZ

Low equity margin vs low equity premium

Which one you get, and how much it is, depends on the bank and on how far above 80 percent you are borrowing. Banks publish their low equity charges on their own websites, and they change, so compare them as part of the full offer.

• Low equity margin: a percentage added to your interest rate, charged for as long as your loan stays above the bank's threshold. It is ongoing, so it adds up over time.
• Low equity premium or fee: a one-off charge, usually added to the loan or paid at settlement. It is a fixed cost, paid once.

Why do banks charge it?

The smaller your deposit, the bigger the bank's loss if it has to sell the house for less than the loan. The Reserve Bank's LVR rules also limit how much of this lending each bank can do, so it is a scarce product. The margin or fee is how the bank prices both.

How do you get the low equity margin removed?

Get your loan back below 80 percent of the property's value. You can do that by paying the loan down, or by showing the property is now worth more, usually with a registered valuation. Most banks do not remove it automatically, so ask.

• Check your bank's threshold and process. Ask what evidence it accepts for a new value.
• Work out the LVR yourself first: loan balance divided by current value. The deposit calculator shows the same ratio.
• Weigh the cost of a registered valuation against the margin you would save.
• If you are near the end of a fixed term, refixing or refinancing is a natural point to have it reviewed.

Is a low deposit loan worth the extra cost?

That depends on what waiting costs you. Saving to 20 percent avoids the charge, but takes time, during which you pay rent and prices may move either way. A low equity margin on a large loan is a real cost, and the repayment calculator shows what an extra fraction of a percent costs in dollars a fortnight. This is general information; whether to borrow at a high LVR is a decision for you or a licensed adviser.