Low Equity Margins and Fees: What They Are and How to Get Rid of Them
Borrow more than 80% of a home's value and most lenders charge extra, either on the interest rate or as a one-off fee. It isn't permanent. Here's how it works and how to get it removed.
What you're being charged for
A loan above 80% of the property's value is riskier for a lender. If prices fall and the house has to be sold, there's less of a cushion. Lenders price that risk in one of two ways.
| Type | How it works | Worth knowing |
|---|---|---|
| Low equity margin | An addition to your interest rate, bigger the smaller your deposit. | Ongoing, but stops once you ask and qualify to have it removed. |
| Low equity fee or premium | A one-off charge, a percentage of the loan, paid upfront or added to it. | Paid once. Usually not refunded if your equity improves quickly. |
Which you get depends on the lender. Names vary too: low equity margin, low equity premium, low equity fee. Each lender publishes its own scale, usually in bands such as 80 to 85% and 85 to 90%.
What it adds up to
On a typical first home loan the cost runs to a few thousand dollars over the first couple of years. We don't quote the scales because they change, but the pattern holds: a 10% deposit costs noticeably more than a 15% deposit, and 5% more again.
That's why the gap between 79% and 81% matters so much. If you're a few thousand dollars short of 20%, finding it, through a gift, a slightly cheaper house or a few more months of saving, can be worth far more than the amount itself.
How to get it removed
A margin doesn't come off automatically. You have to ask, and show the loan is now at or under 80% of the home's value. There are two ways to get there.
- Pay the loan down. Ordinary repayments plus any extra you can manage.
- Show the property is worth more. If values have risen or you've renovated, a new valuation may put you under 80% without paying off another dollar.
Ask your lender what evidence it accepts. Some want a registered valuation. Some accept an online estimate. Check before paying a valuer, and make sure the valuation is ordered the way the lender requires.
Timing the request
The neatest moment is when a fixed term ends, because you're renegotiating the rate anyway. But if you cross 80% mid-term, ask then. Many lenders will remove the margin from a fixed loan without breaking the term. Others make you wait. Either way, the request costs nothing.
Loans that avoid it
KΔinga Ora First Home Loans carry an insurance premium in place of a lender's margin. Some lenders reduce or waive margins on new builds. And a family guarantee that brings the loan on your own property down to 80% avoids it altogether. We compare the total cost of each route, since the cheapest headline rate isn't always the cheapest loan.
This article explains how New Zealand lenders generally assess these situations. It is general information, not personalised financial advice, and lender policy changes often β check your own position with a registered adviser. Official sources: Reserve Bank of New Zealand for lending policy and the OCR, and Sorted.org.nz for independent government-backed money guidance.
Low equity margins: common questions
Paying a low equity margin?
Tell us your balance and what you think your home is worth. We'll check whether you can get the margin removed, with your lender or another.
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