Home loans

What is a low-equity margin?

Last verified · Methodology

What it means

Banks price high-LVR lending higher because a small deposit leaves less room if prices fall. Most New Zealand banks add a low-equity margin to the interest rate, or charge a one-off low-equity fee, when the LVR is above 80%. The size varies by bank and by how far above 80% you are, and it is set by the bank rather than by regulation.

The margin usually comes off once the loan falls to 80% LVR or below, either because you have paid it down or because a new valuation shows the home is worth more. It pays to ask your bank how to have it removed when you refix.

Example

As an illustration, a $637,500 loan over 30 years at 5.5% costs $1,669.80 a fortnight. If a 0.25 percentage point margin took the rate to 5.75%, the fortnightly repayment would be $1,716.22.

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Related terms

LVR (loan-to-value ratio)LVR is the size of your home loan as a share of the property's value. Banks limit owner-occupier lending above 80% LVR, so most need a 20% deposit.Fixed-rate home loanA fixed-rate home loan locks the interest rate for a set term, usually 6 months to 5 years. When it ends you refix or roll to the floating rate.Break feeA break fee is what a bank charges if you repay or change a fixed-rate home loan before the term ends and wholesale rates have fallen since you fixed.
Low-equity margin: common questions

A low-equity margin is extra interest, or a one-off fee, that a bank charges when your deposit is under 20% and the loan is above 80% LVR.

Not quite. It does the same job of covering the bank's extra risk, but in New Zealand it is usually built into your rate or charged as a fee rather than sold as separate insurance.

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