Low equity margin home loans explained.
If you’re buying your own house and your deposit is less than 20% of the value of the property, 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 your deposit is less than 20% 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 equity in your property will increase above 20%. This will happen when you've paid off some of the loan, your property's value has risen or a combination of the two.
To check if you still 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 subtract the value of your home loan from the value of your property, then divide this by the total value of your property. 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 more than 20% equity, it means you are borrowing less than 80% of the property's total value and you might not need to pay the low equity margin. 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 equity is more than 20% 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 in place 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 Eligibility criteria, lending criteria, terms and conditions apply. An establishment fee may apply.