When you're buying your first home or entering the market with a smaller deposit, you might come across the terms Low Equity Premium (LEP) or Low Equity Margin (LEM). These are extra costs that banks may charge when you have less than a 20% deposit—essentially because there’s more risk involved for them.
We're here to help make these terms easy to understand and explain how they could impact your loan structure.
What’s the Difference Between a Low Equity Premium and a Low Equity Margin?
Low Equity Premium (LEP)
This is a one-off upfront fee charged by some banks when you have under a 20% deposit. It’s based on a percentage of your loan amount—typically around 0.75%. That could be anywhere from $4,000 to $7,000 or more, depending on how much you’re borrowing. Once paid, the premium doesn’t get refunded, even if your equity increases later.
Low Equity Margin (LEM)
This is a temporary increase to your interest rate, rather than an upfront fee. It’s added to your interest rate and generally stays in place until your equity reaches 20%.
With a 10% deposit, the margin is usually around 0.75%.
With a 15% deposit, it’s often closer to 0.25%.
The margin applies for as long as your loan is considered "low equity"—which could be six months, two years, or longer depending on how your loan is structured and how quickly your equity grows.
When Do These Apply?
These costs usually apply if you’re borrowing with less than a 20% deposit, which is common for first home buyers. Some lenders also have their own variation of this, such as Lender’s Mortgage Insurance (LMI) for First Home Loans, which works in a similar way—adding a cost to your loan to account for risk.
Which one is right for you will depend on your individual circumstances. Some clients benefit more from paying an upfront LEP, while others prefer the flexibility of a temporary LEM.
Can You Get Rid of a Low Equity Margin?
Yes! A Low Equity Margin can often be removed once your equity reaches 20% or more. To do this, you’ll usually need to show the bank:
A registered valuation showing the property has increased in value
Proof of lump sum repayments
Or a change in your financial position (like an inheritance or a significant paydown)
Once the bank is confident you’ve crossed that 20% threshold, they’ll often remove the margin—bringing your interest rate down to the standard level.
Unfortunately, a Low Equity Premium can’t be refunded, which is why we take the time to work through which option is better for you from the start.
If you're still in the early stages and just want to understand your options, we’d love to help. This is a key part of the advice we provide—and the best part? It doesn’t cost you anything.