Buying with less than a 20% deposit is normal and often sensible. It also costs money in three specific ways, and almost nobody adds them up before they commit.
Cost 1 — the low-equity margin
Below 20% equity, most lenders add a margin to your interest rate, or charge a one-off low-equity premium. Typical margins run from about 0.25% at 15–20% equity up to around 1.5% below 10% equity, though every bank has its own grid.
On a $600,000 loan, a 0.75% margin is $4,500 a year — around $173 a fortnight, on top of the loan itself.
Cost 2 — a bigger loan for longer
A smaller deposit means a larger loan, so more interest across the whole term. The gap between a 10% and a 20% deposit on the same house is often six figures of interest over thirty years — unless you attack the principal early.
The margin usually goes away
Once you cross 20% equity — through repayments, extra payments, or price growth — ask your bank to re-value and remove the margin. They will not offer. You have to ask.
Cost 3 — thin equity if prices dip
With 5% down, a 5% price fall wipes out your equity. That matters only if you need to sell or refinance in the short term, which is why a small deposit suits people who plan to stay put for at least five years.
The other side of the ledger
Waiting to reach 20% has a cost too: rent paid, and a target that moves if prices rise. If saving another 10% takes three years and prices rise 4% a year, you may never catch it.
Run both scenarios properly — the answer is personal, and it changes with your rent, your savings rate and your timeframe.
The short version
- Convert the low-equity margin to dollars per fortnight before deciding.
- Ask for a re-valuation the moment you might be at 20% equity.
- Extra repayments early are the cheapest way out of the margin.
- Compare buying now against waiting — including rent and price movement.
General information for New Zealand first home buyers, not financial or legal advice. Rules and lender criteria change — check anything important with your solicitor, your lender or a mortgage adviser. Sources: Retail bank low-equity margin schedules (typical, varies by lender).