Low equity margin home loans explained.
If your deposit is less than 20%, a low equity margin (LEM) will apply. Here we explain what this means and how it works.
How it works.
When you take out a home loan and borrow more than 80% of the property’s value1, a low equity margin (LEM) applies. This is a percentage amount, typically between 0.25% and 1.5% per annum, that is added to the interest rate on your home loan. It reflects the extra risk involved to the lender. This margin stays in place for as long as you have less than 20% equity in your home.
In time, the amount you’ve borrowed will fall below 80%. This will happen when you’ve paid off part of the loan, your property’s value has risen, or a combination of the two.
To check whether you no longer need to pay the low equity margin:
- You may choose to pay for a re-valuation of your property if you think the value has increased
- You can also divide the total value of your home loan, by the total value of your property. Then multiply the answer by 100.
Take the total value of the property: $850,000
Minus the total value of the home loan: $620,000
Divide $230,000 by the total value of the property: $850,000
The equity in this home is: 27%.
Get a review.
If the result of your calculation is less than 20% it means that you need to borrow more than 80% of the property’s total value. In this case, it’s important that you get in touch with us so we can arrange a review.
- When you come along for your review you'll need to bring the latest valuation report for your property, such as a registered valuation or government valuation
- Once we confirm that your borrowing is less than 80% of the property’s value, the low equity margin could be removed
- If you’re on a floating rate, the margin will be removed immediately (provided it has been applied for at least six months)
- If you’re on a fixed rate, the margin will be removed the day after the end of the fixed rate term.
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Things you should know.
1 Lending criteria, and terms and conditions apply. An establishment fee may apply. An additional fee or higher interest ate may apply to home loans if the application is accepted but does not meet the standard lending criteria.
2 Conditional approval requires a credit check and confirmation of the details provided in your application. Other conditions may also apply depending on the nature of your application.