While most banks apply a low equity margin to home loans where the deposits are less than 20%, ANZ has charged low equity premiums which are a one-off fee rather than an ongoing margin added to the interest rate that you pay.
One of the problems with the fee was that with loans where there was just a 10% deposit (where the lending was 90%) the fee had to be paid – it could not be added to the loan.
This was very significant to many first home buyers as they were using all of their savings to make up the deposit, and therefore they had no money available to pay the low equity fee.
It was one of the reasons that advisers struggled to recommend ANZ for first home buyers.
Today ANZ have changed their policy and will now allow the low equity premiums (which are a one-off fee) to be added to the loan amount even if this means the overall lending exceeds 90%.
They finally heard what mortgage advisers had been saying!
From today (24th February 2020) they will allow low equity premiums to be capitalised into the loan.
For example: Where there is new lending of $450,000 against a property value of $500,000 the lending is 90.00% of the property value (90% LVR) and would therefore attract a 0.75% low equity premium (LEP) so that equates to $3,375. Although the total LVR would be greater than 90% when the LEP is capitalised (90.68% LVR), the LEP remains unchanged at 0.75%.
Of course this means that the loan will be slightly larger, but it take the pressure off your cashflow at a time when every dollar counts.
What’s Best – Low Equity Fee or Low Equity Margin?
There are pro’s and con’s for each and it’s something that your mortgage adviser can discuss with you.
The low equity fee is a one-off fee that is paid and therefore no able to be recovered.
The low equity margin is a higher interest rate that is applied to a loan and therefore can cease once you have increased the equity in the property. Using the same figures as the example above the 0.75% low equity margin would be added to your interest rate and therefore you will be paying $281.25 extra interest every month, which means over 12-months you would incur the same total extra cost of $3,375.
So the question becomes; “how long will it be until I have more equity in my property?”
If you have purchased below the real value, plan to renovate, have some money coming or expect the the market to increase quickly then maybe a low equity margin will be better for you
Or another question may be; “is there another bank that offers more favourable terms?”
Your advise can discuss options with you. ANZ currently charge a low equity premium of 0.75% for loans over 85% and up to 90% but have a reduced low equity premium of 0.25% for loans over 80% but up to 85%. Some other banks have a flat low equity margin of 0.50% for all loans over 80% and up to 90%.
There is no one scenario that suits everyone and is another good reason to get professional advice before making any decision like this.