Low equity premium NZ: what it is when your deposit is under 20%

What is a low equity premium?

Equity is the part of the home you own, so a 10% deposit means 10% equity. A smaller cushion leaves the lender less protected if prices fall, so many charge extra until you reach 20%. It is the bank's charge, not a government fee, and it is common: in August 2026, 50.5% of first-home loans approved were low-equity, averaging $636,000.

How do banks charge it?

Each bank sets its own tiers, usually smaller near a 20% deposit and larger near 5%. Some build the cost into a higher base rate instead of showing a separate premium. It is charged on the loan, so it falls as the balance falls, and the lender can give you the figure in writing.

How does it drop away?

It usually ends when your equity reaches 20%, through repayments or a rise in the home's value. Say you buy a $500,000 home with a 10% deposit of $50,000, so the loan is $450,000. You need $100,000 of equity to reach 20%, a gap of $50,000. Lenders have their own steps for removing it, and some want a new valuation.

How does it compare with the First Home Loan?

The government-backed First Home Loan uses a different charge: Kāinga Ora's page says its borrowers pay a 1.2% Lender's Mortgage Insurance premium, up front or added to the loan. Ask the lender what else applies. On a $500,000 home the loan is $475,000 at a 5% deposit against $450,000 at 10%, so they are different costs on different loans. See the First Home Loan page.

Ways people reduce or avoid it

• A bigger deposit from savings, KiwiSaver or a gift.
• Repaying faster, or waiting for equity to build.
• A family guarantee, which carries real risk for the guarantor, so independent legal advice is usual.
• The First Home Loan, if you are eligible.

Low-deposit approvals are also rationed, because banks may put only 25% of new owner-occupier lending above 80% of value. On the $720,000 median first-home price, a 20% deposit is $144,000.

Questions about low equity premiums