Special Interest Rates & Low Deposits – Like Oil & Water

Special low interest rates and low deposits on home loans

So you’ve seen that flash hot interest rate somewhere, whether it be online, on the back of a bus, or maybe even on TV.

(The new) rate… is 2.99%! – Or something to that effect.

Or the news is notorious for saying that interest rates have dropped colossally to all time news.

We get it, it excites people who want a home loan. In fact with the Reserve Bank of New Zealand removing LVR restrictions, and the media and various sources saying this could bring a storm of low deposit lending, the situation gets even more confusing.

However the devil is in the detail – as the saying says.

If you read these ads, these typically only apply to ‘special interest rates’.

A special interest rate you may ask, what’s that?

Take a look at KiwiBank’s website – screenshot below.

If you thought everyone is getting a super hot special deal – that isn’t right. When you read the small print of this bank – you need 20% equity


So what is equity?

As KiwiBank described it, “Take away the amount still owing on your home loan – and any other debts you may have secured against it – from the property’s current market value. This is your equity.”


What could that look like?

Say you are putting in a 10% deposit against a $700,000 house. So for example, a $70,000 deposit against a $700,000 – for a start that is 10% of the property purchase price. If the property’s market value held up at $700,000 – you could say you have 10% equity in the house. (Subject to further criteria, but this is a high level explanation).

On top of that, you need to consider that you may be having other debts against the home loan. And the property’s market value could be lower than the purchase price.

So if the property was valued up at $680,000 – you’d have $70,000 against $680,000 which is even lower than 10% equity!


What if the registered valuation comes in higher than the market value?

So property buyers may ask; what happens if your property somehow values higher, say at $720,000? Although you may have $20,000 more in equity theoretically, this does not translate to the bank having the same view necessarily. Generally a no go, sorry. You aren’t going to get more credits for that right away.

Why? Because if you’re buying a property. Banks typically use the lower of the valuation or the purchase price.

And chances are, you’re still well far short of the 20% equity requirement.

Note: You may be able to apply to re-value the property, a number of  months after the property was purchased. But again, if you’re far from the 20% equity requirement, they aren’t going to magically apply.

Don’t forget the low equity margin or low equity premiums

Under 20% equity? Banks typically also charge a low equity margin or low equity premium on top of the interest rate. Or add it to the loan.  GoodReturns explains this more in an article where it says:

“Banks routinely charge borrowers with less than 20% equity an additional “low equity premium”, “low equity margin”, or upfront fee as a condition for lending to high-LVR home buyers.”


However, don’t let these put you off – it’s more about being mindful of them

Interest rates have been at remarkably low levels. As such, the ‘non special rates’ or the standard rates have also come down a lot! For many people, they find that buying now, rather than not buying at all, is much better than renting. After all, you can then be on the pathway to paying off a mortgage, and gaining your share or equity in the house.

As your equity in the house grows, and you may improve it and ultimately re-value it, your equity can then ‘grow’. And you could later on get the lower ‘special’ interest rates. 


Looking for an alternative? Can you avoid the low equity margin?

So if this doesn’t sound overly appealing, what can you do? Just Financial may be able to help with an alternative lending solution that may have interest rates that don’t have an added low equity margin. However this is very specific and the criteria is challenging, some circumstances may qualify.


Need help with a home loan?

If you need help with a home loan, feel free to contact Just Financial. Also if you’ve owned your home for some time, you may be eligible to benefit from the standard rates to the special rates. Learn more by contacting Just Financial.

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