In New Zealand the banks will normally charge a low equity margin on home loans where there is less than 20% equity or deposit.
A low equity margin (LEM) s is basically a higher interest rate charged on your home loan because the banks see lending of more than 80% as a higher risk and there are additional funding costs to the banks. The banks charge a higher interest rate to cover the deemed extra risk and to offset the higher bank funding costs associated with lending with low deposits.
The banks generally scale the margin charged depending on the LVR (loan-to-value-ratio) on your home loan.
Unfortunately this affects first home buyers mostly … often the people that that need to save every dollar that they can!
When people source loans directly from a bank then they will generally just accept what the bank will offer them, often just accepting that this is what they have to pay.
However as professional mortgage advisers we research things like low equity margins so we can offer people good advice and better choices.
You can read more about low equity margins on this website too. READ MORE HERE
You can find a mortgage adviser here too.
