A low equity margin, commonly called a LEM, is an additional interest-rate amount that some lenders may apply when a home loan is high compared with the value of the property. This commonly affects owner-occupied borrowing above 80% loan-to-value ratio, although lender and product rules vary.
Some lenders use the term low equity premium, or LEP, for a similar interest-rate addition. Other lenders may use different standard rates, fees or product-specific charges. The terminology is not consistent across the market. Therefore, it is important to check how the cost actually works rather than relying only on its name.
This guide explains low-equity costs and how they may affect a mortgage. It does not explain how much deposit you need or the different ways you could assemble one. For that information, read our guide to the deposit needed to buy a house in New Zealand.
These terms are connected, but they do not always mean the same thing.
| Term | General meaning |
|---|---|
| Loan-to-value ratio (LVR) | The amount borrowed compared with the lender-accepted value of the property, expressed as a percentage. |
| Low equity | A situation where the borrower’s equity is below the threshold used by the lender for its standard pricing. |
| Low equity margin (LEM) | An additional percentage that some lenders add to the home-loan interest rate. |
| Low equity premium (LEP) | A term some lenders use for additional low-equity pricing. It may describe an interest-rate premium, but terminology varies. |
| Low equity fee | A separate fee that may apply under a particular lender or product. It should not be assumed to work like an interest-rate margin. |
The lender’s current offer, terms and conditions determine what applies. Two charges with similar names may be calculated or reviewed differently.
When a lender applies a LEM, it adds the margin to the home-loan interest rate that would otherwise apply.
For example:
Home-loan rate + low equity margin = the interest rate applied to the loan.
Even a comparatively small percentage can make a meaningful difference on a large mortgage. On a $500,000 loan balance, an additional 0.25 percentage points would equal approximately $1,250 in extra interest over one year if the balance remained unchanged. An additional 0.75 percentage points would equal approximately $3,750 under the same simplified calculation.
These examples illustrate the effect of an interest-rate margin. They are not current lender quotes or standard market rates. Actual repayments depend on the loan balance, term, repayment structure, interest rate and the lender’s current pricing.
Low-equity borrowers may also be ineligible for a lender’s advertised special rate or cash incentive. Therefore, the real cost cannot always be established by looking at the LEM alone.
The terms are sometimes used interchangeably, but they are not standardised across New Zealand lenders.
One lender may call an additional annual interest-rate amount a low equity margin. Another may call a similar interest-rate addition a low equity premium. Other lenders may apply a higher standard interest rate instead of showing a separate margin. A particular product may also involve a fee or insurance-related cost.
For this reason, you should not assume that:
The important question is not simply whether the lender calls the cost a LEM or LEP. You need to establish how it is calculated, how long it may apply and what must happen before it can be reviewed.
When the loan represents a high proportion of the property’s value, the lender has a smaller security buffer. Some lenders price this additional risk through an interest-rate margin, premium, different standard rate or another lender-specific treatment.
Low-equity pricing is separate from the Reserve Bank’s LVR restrictions. The Reserve Bank’s LVR rules limit how much high-LVR residential lending registered banks can make. They do not set the particular interest margin or fee charged to an individual borrower.
Banks and other lenders also apply their own lending criteria. Being within an available high-LVR allocation does not guarantee approval. Similarly, an exemption from the Reserve Bank restrictions does not necessarily guarantee standard lender pricing.
For a broader explanation of regulatory restrictions and lender policy, read our guide to mortgage lending criteria in New Zealand.
Lenders can assess and price low-equity borrowing differently. The differences may include:
| What can vary | Why it matters |
|---|---|
| Terminology | LEM, LEP and low-equity fee may not describe the same type of cost. |
| LVR bands | The size of an additional margin may change at different LVR levels. |
| Interest-rate treatment | A lender may add a margin or offer a different standard rate. |
| Fees | A separate fee may apply under some products. |
| Special-rate eligibility | Low-equity borrowers may not qualify for advertised special rates. |
| Cash incentives | A cash contribution may be reduced or unavailable. |
| Review requirements | A lender may require a valuation or other evidence before reconsidering the margin. |
| Removal timing | Treatment may depend on lender policy and whether the loan is fixed or floating. |
This means the offer with the smallest stated margin is not automatically the least expensive option. The applied interest rate, fees, repayments, incentives and review conditions should be considered together.
An ongoing low equity margin may be reviewed when the lender is satisfied that the borrower’s equity has improved sufficiently. Equity may increase as the loan balance is repaid or if the lender accepts a higher current property value.
However, removal is not necessarily automatic. Calculating an LVR of 80% or below yourself does not require the lender to accept the same property value or remove the margin immediately.
Before ordering a valuation or making changes to your loan, ask:
If the original low-equity cost was a one-off fee rather than an ongoing margin, a later increase in equity would not ordinarily reverse an amount already charged. The individual loan terms must be checked.
Refinancing may sometimes provide another way to review mortgage pricing. However, break costs, legal expenses, valuation costs, cash-contribution clawbacks and the new lender’s criteria should be considered before changing lenders.
Angela Downie, Financial Adviser at Platinum Mortgages, explains further:
I worked with first-home buyers who purchased a new build for approximately $900,000 using a deposit of around $90,000. Their approximately $810,000 home loan represented a 90% loan-to-value ratio, and the lender applied an ongoing low-equity interest margin of 0.75%.
The borrowers initially believed the margin would automatically disappear as they repaid their mortgage and the property increased in value. I explained that their lender would ordinarily need to reassess their equity position and approve the removal—it would not necessarily happen automatically.
Once their position had improved, I arranged a registered valuation. This confirmed that they had reached an 80% loan-to-value ratio, or approximately 20% equity. I submitted the valuation to the lender, formally requested removal of the margin and followed the request through to a decision.
The lender approved the request and removed the 0.75% low-equity interest margin, reducing the interest rate they were paying. This is one reason regular mortgage reviews matter: even when your loan balance and property value have changed, you may need to ask your lender to formally reassess a low-equity charge.
Lenders mortgage insurance is not automatically the same as a low equity margin. It is insurance that protects the lender rather than the borrower and may apply under a particular low-deposit product or lending pathway.
For example, Kāinga Ora First Home Loans have their own mortgage-insurance requirements and eligibility conditions. Those requirements should not be confused with the ordinary low-equity pricing used by an individual bank.
Read our First Home Loan guide for information about that specific programme.
Before comparing low-equity mortgage offers, establish:
Clear answers to these questions make it easier to compare the complete borrowing cost rather than focusing on one percentage or acronym.
Low-equity home loans can be difficult to compare because lenders use different pricing, terminology and review processes. Platinum Mortgages can help you understand how a proposed lender will treat your equity position and what the complete offer may cost.
We can also explain what may be required before an ongoing margin can be reviewed. This gives you clearer information before you decide whether to proceed.
Learn more about how we help with home loans, or contact Platinum Mortgages to discuss your circumstances.
LEM stands for low equity margin. It commonly describes an additional percentage that a lender adds to a home-loan interest rate when the loan is high compared with the lender-accepted property value.
LEP stands for low equity premium. Some lenders use this term for an additional interest-rate premium. Do not assume that it is always a one-off fee because lender terminology and pricing methods vary.
No. A lender might apply a separate margin, use a different standard interest rate, charge a product-specific fee or apply another pricing method. Some lending pathways may also be treated differently.
Not necessarily. The lender may need to review the loan balance and property value. It may also require a valuation. The timing can depend on lender policy, the loan product and whether the interest rate is fixed or floating.
It may improve the calculated LVR, but the lender must accept the revised property value. Ask what type of valuation or evidence is required before relying on an estimated increase.
Platinum Mortgages New Zealand Limited (FSP752271) is a Financial Advice Provider licensed and regulated by the Financial Markets Authority. Angela Downie (FSP742251) is a Financial Adviser at Platinum Mortgages who provides mortgage advice to New Zealand borrowers under that licence and has worked in the financial industry since 2006.
Angela’s experience includes helping borrowers understand how lenders price low-equity home loans and what may be required before an additional margin can be reviewed or removed.
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