A Lower LVR means you have a larger deposit and are borrowing less, which banks see as less risky. A higher LVR means you have a smaller deposit and are borrowing more, which is considered riskier.
A Higher LVR - In New Zealand, when you take out a home loan with a high Loan-to-Value Ratio (LVR) – meaning you have a deposit of less than 20% – banks will charge a fee to offset their increased risk.
For loans with less than a 20% deposit, NZ banks use two main methods to charge for the higher risk:
- One-Off Fee (Low Equity Premium - LEP): Used by ANZ . A single fee is added to your loan balance at the start. Your interest rate is not inflated.
- Ongoing Margin (Low Equity Margin - LEM): Used by Westpac, BNZ, ASB, and Kiwibank An extra percentage (e.g .50% 0.75%) is added to your interest rate. This is temporary and can be removed once your equity reaches 20%.
