Most first home buyers do not know that Kiwibank and BNZ are the most expensive lenders if you are borrowing over 80%.
Neither Kiwibank nor BNZ disclose their low equity fees on their web sites. On the positive side they are still both lending up to 95%.
If you are borrowing over 80% the rules and costs vary significantly across the different lenders – and that’s where we come in!
The following tables compare different lenders for a property purchase of $380,000 (which is the average for our first home buyers.) The cost shown includes low equity fees and margins, establishment fees, less any contribution the lender puts towards your legal costs. In the current market, if you are borrowing over 80% there is generally no negotiation on rates or fees.
Low equity fees versus margins
BNZ, Westpac and NZF charge a margin that is added to the mortgage. All other lenders charge a one-off fee that can be added to the mortgage or paid up front. Whether it is a fee or margin, these costs increase the less deposit you have. Every circumstance is different – the margin approach becomes more cost-effective for clients that can pay their mortgage off faster – for example sale of a property or waiting on a bonus. The fee approach tends to be more cost-effective if you do not have high surplus funds. It has less impact on servicing (your repayments.)
The easiest thing to do is talk to us about your situation!
With AMP and Kiwibank the 5% deposit must be saved over six months and the criteria are very tight. NZF are more flexible so say “yes” more often, but are a bit more expensive, specifically due to having higher mortgage rates generally. BNZ is still in the game at this level but charges a premium of 1% on the rate. This reduces to 0.75% when the client gets to 90% and 0.50% when the client gets to 85%.
|Term||Bond Fee||Equivalent Financing Rate up to*|
|< 6 months||2.50%||5.00%
|6 - 12 months||3.00%||3.00%|
|12 - 24 months||5.00%||2.50%|
Once you have a 10% deposit, all of the major lenders are in the market. At this level the additional borrowing costs are fairly similar with the exception of Kiwibank, BNZ and AMP. The key challenge at this level is getting approved because the decision criteria used by the banks are pretty tough! At this level Westpac charges a rate premium of 0.50% that reduces to 0.25% at 85% and BNZ charges 0.75% that reduces to 0.50% at 85%. ANZ and National will not let you add the low equity fee to the mortgage.
|Property purchase =||$600,000|
|Guarantee term =||4 months|
|Deposit required =||$60,000|
|Total fee collected =||$1,500 (2.50% of $60,000)|
With a 15% deposit the low equity costs are lower still, but importantly the mortgage term can be extended to 25 years, which lowers your repayments. In terms of low equity margins, at this level Westpac charges 0.25% and BNZ 0.50%.
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You can use a parent as a limited guarantor. This is treated the same as having a 20% deposit so there are no additional costs. We also often use family loans to increase the size of your deposit.
We used a $380k purchase with different deposit amounts and a mortgage rate of 6.25%. The low equity fees were added to the mortgage and included in servicing calculations (but any interest on the fee itself was excluded from the comparison. In real terms the fee-based costs will be slightly understated.) We assumed the client is paying off the mortgage at the contractual minimum. To the extent that a client might pay the mortgage off faster, the low equity margin approach will deliver a lower-cost comparison.
You should talk to your mortgage broker (or us) to work out the best solution for your individual circumstances. The most important aspect of any mortgage over 80% is getting it approved!