Low-Equity Premium Calculator NZ

This calculator estimates the low-equity premium, or LEM, that banks charge on a New Zealand mortgage when you buy with less than a twenty percent deposit, a cost many first home buyers do not see coming. Lenders treat a small deposit as higher risk, so they add a premium to compensate, usually as a margin on top of your interest rate and sometimes as a one-off fee. The size of the premium steps up as your deposit shrinks: it is often modest between eighty and eighty-five percent loan-to-value, larger between eighty-five and ninety, and larger again above ninety percent, with the margin commonly falling somewhere between a quarter and one and a half percent a year on the loan. You enter your loan amount, the property value, and the margin rate your bank applies, and the calculator works out your loan-to-value ratio, shows which band you fall into, and calculates the extra cost in dollars per year and per month. Use it to understand the true cost of buying with a low deposit, to compare lenders, and to see how much you would save by getting your deposit to twenty percent. The premium usually drops away once your LVR falls below eighty percent, so ask your bank to review it as your equity grows. Estimate only, not advice.

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Loan amount

Property value

LEM margin

$4,050

extra cost a year from the low-equity premium

Your LVR90%

Band85-90%

Per month$338

Banks set their own bands and margins; some charge a one-off fee instead. The premium usually ends once your LVR falls below 80%. Estimate only, not advice.

How it works

Your loan-to-value ratio is the loan divided by the property value. The annual low-equity premium is the loan amount times the margin rate, and dividing by 12 gives the monthly cost. The calculator also shows which LVR band you are in: 80 to 85, 85 to 90, or above 90 percent, since the margin typically rises with each band.

Worked example

A 540,000 dollar loan on a 600,000 dollar property is a 90 percent LVR. At a 0.75 percent margin, the premium is about 4,050 dollars a year, or roughly 338 dollars a month, until your equity grows enough to drop below 80 percent.

Related calculators

All-In Cost to Buy: total cash.
LVR Calculator: loan-to-value.
Mortgage Repayment: repayments.
House Deposit Savings Calculator: reaching 20%.

Frequently asked questions

What is a low-equity premium?

A low-equity premium, or LEM, is an extra cost banks charge when you borrow with less than a 20 percent deposit, to compensate for the higher risk. It is usually a margin added to your interest rate, and sometimes a one-off fee instead.

How much is the low-equity premium?

It rises as your deposit shrinks. The margin is often small between 80 and 85 percent LVR and larger above 90 percent, commonly somewhere between 0.25 and 1.5 percent a year on the loan. Each bank sets its own bands and rates.

How do I get rid of it?

The premium usually stops once your loan-to-value ratio falls below 80 percent, through repayments and rising value. You can ask the bank to review and remove it once you have enough equity, which can save a meaningful amount each year.