If you don't have a 20% deposit for a house purchase, all banks will add some serious additional costs to your repayments - but a few add a lot less than others

Fixed mortgage interest rates are at all-time lows.

But all the action is focused on 'special' interest rate offers. That means only clients with at least 20% equity qualify for these rates.

If you don't have 20% you are left with standard carded rates, with most banks adding a "low equity" premium or margin.

So the difference can blow out sharply. For example, BNZ may be offering a very competitive one year fixed rate of 2.79%, but they haven't been lowering their standard rate at the same pace as their 'special' declined. And on top, they will add a "low equity premium" to the standard interest rate.

So if you have a loan-to-value ratio (LVR) of 84%, for example, the rate you will pay them is 4.10%, a full 131 basis points higher than the 'special' offer. If your LVR is 87%, for example, the penalty is 171 bps.

It is similar to other main banks, like Westpac, but the exact amounts differ.

These large gaps have opened up because some banks have chosen not to index their standard rates down as the 'special' offers fell.

In this way, they are making a deliberate decision to seek clients with the best financial status. That helps improve the resilience of their overall loan portfolio, and protects it from potential risks in the future if economic conditions sour. That is a rational strategy for a conservative banker. The bank's depositors will approve.

But it also opens up competitive opportunities for other bankers who don't see the risks that way. ANZ and ASB, for example, have both taken their standard rates down as their 'specials' fell. There is also variation between banks' low equity charges.

Update: [This para has been changed since original publication to make it clear that ANZ charges a one-time fee, and not an interest rate margin.] ANZ is the only bank to apply a set fee that is a percent of the loan amount. Presumably it can be capitalised into the loan amount and paid off over time. The standard interest rate applies, and the cost to the borrower will be different if you pay it in cash at the front end, or you capitalise it. Other banks, like ASB, that add the cost as a margin to the interest rate charged. It is then up to you as borrower to contact your bank to have that rate premium removed when you are no longer in a LVR penalty situation.

Still others don't charge low equity premiums at all, preferring to price the added risk in the difference between 'special' rates and standard. Kiwibank and TSB are like this.

In Kiwibank's case, it can also come with a twist (*). They will give low equity borrowers their hot 'special' rates if they enrol in the Government's First Home Loan programme. A 1% lenders mortgage insurance fee is payable to Kāinga Ora which can be capitalised into the loan amount. If you don't qualify, Kiwibank's standard rates apply. And it turns out that can be a better deal for borrowers in a low equity situation.

TSB doesn't apply a low equity premium either. But they are explicit in that they have limited capacity for this type of exposure, and if you get accepted you have a very good deal too.

Here is an analysis for one year rates.

	1 year	Spcl/Std	1 year	with low equity premium
	Special	margin	Standard	premium	85% LVR	premium	90% LVR
as at May 25, 2020
	%		%		%		%
ANZ [see update explained above]	2.99	+0.50	3.49	+0.25	3.74	+0.75	4.24
	2.85	+0.50	3.35	+0.30	3.65	+0.75	4.10
	2.79	+0.96	3.75	+0.35	4.10	+0.75	4.50
	2.65	+0.75	3.40	0.0*	3.40	0.0*	3.40
	3.05	+1.10	4.15	+0.25	4.40	+0.75	4.90
Cooperative Bank	3.09	+0.50	3.59	+0.20	3.79	+0.50	4.09
	2.99	+1.86	4.85	+0.50	5.35	+0.50	5.35
	2.79	+0.80	3.59	0.0	3.59	0.0	3.59

And here is the same analysis for a two year fixed situation. It reveals different bank strengths and weaknesses in terms of low equity interest rate costs. Maybe somewhat surprisingly, ASB shows up well here, although Kiwibank's different approach also stays strong.

	2 year	Spcl/Std	2 year	with low equity premium
	Special	margin	Standard	premium	85% LVR	premium	90% LVR
as at May 25, 2020
	%		%		%		%
ANZ [see update explained above]	3.25	+0.50	3.75	+0.25	4.00	+0.75	4.50
	2.69	+0.50	3.19	+0.30	3.49	+0.75	3.94
	2.99	+1.00	3.99	+0.35	4.34	+0.75	4.74
	2.79	+0.75	3.54	0.0*	3.54	0.0*	3.54
	2.99	+1.10	4.09	+0.25	4.34	+0.75	4.84
Cooperative Bank	3.35	+0.50	3.85	+0.20	4.05	+0.50	4.35
	3.05	+2.00	5.05	+0.50	5.55	+0.50	5.55
	2.99	+0.80	3.79	0.0	3.79	0.0	3.79