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NZF moves from LMI to LEM

NZF has switched from charging borrowers with low equity an upfront lenders mortgage insurance (LMI) premium to adding a low equity margin (LEM) to such borrowers' loans.

Tuesday, August 11th 2009, 10:00PM 1 Comment

If there were no difference in cost to the borrower, this looks like a "six of one, half a dozen of the other" proposition which would make little practical difference.

NZF chief operating officer Adrienne Smith says comparing costs of the new LEM system, under which all borrowers pay the same, with the LMI premiums formerly charged is far from simple.

"LMI premiums vary widely, depending on the borrower's circumstances, and can range from 0.5% right up to nearly 4%," Smith says. In some cases the new LEM system will cost more than paying an LMI premium and in other cases less.

Using LEM, all NZF's borrowers with loan-to-value ratios (LVRs) over 80% and up to 85% pay an 0.5% margin over the carded interest rate, those with LVRs between 85% and 90% pay a 1% margin and those over 90% up to 95% pay a 1.5% margin.

After two years, all LEM loans would be reviewed and the premium adjusted appropriately.

"We do believe this is more simple to explain," Smith says. "Some clients still get it into their head that LMI offers them some sort of protection."

The built in review after two years does encourage borrowers to increase their equity to reduce or eliminate their LEM premium, she says. If a property's value has increased over the two years, the borrower can get a new valuation to reduce or eliminate the LEM premium.

"This is the best time to consider this new structure," Smith says. "Interest rates are still very low and, even including the maximum LEM margin, our clients can secure a 95% home loan for one year at 7.55%. A year ago, this would have been considered a very sharp rate indeed."

 

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Comments from our readers

On 12 August 2009 at 3:30 pm Alistair Lumb said:
And if the value of the property decreases ???
Commenting is closed

 

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 4.44 - - -
AIA - Go Home Loans 6.54 4.89 4.95 5.09
ANZ 6.49 5.55 5.55 5.69
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 4.95 4.95 5.09
ASB Bank 6.44 4.89 4.95 5.09
ASB Better Homes Top Up - - - 1.00
Avanti Finance - Near Prime 6.90 - - -
Avanti Finance - Specialised 8.34 - - -
Basecorp Finance ▼7.15 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 5.99 5.69 5.69
BNZ - Mortgage One 6.54 - - -
BNZ - Rapid Repay 6.54 - - -
BNZ - Std 6.44 4.89 4.95 5.09
BNZ - TotalMoney 6.54 - - -
CFML 321 Loans 4.99 - - -
CFML Home Loans 6.70 - - -
CFML Prime Loans 7.20 - - -
CFML Standard Loans 7.99 - - -
China Construction Bank 6.44 4.85 4.95 4.95
China Construction Bank Special 6.44 5.85 5.95 5.95
Lender Flt 1yr 2yr 3yr
Co-operative Bank - First Home Special - 4.85 - -
Co-operative Bank - Owner Occ 5.95 4.95 4.99 5.25
Co-operative Bank - Standard 5.95 5.45 5.49 5.75
Credit Union Auckland 7.70 - - -
First Credit Union Special - 5.29 5.19 -
First Credit Union Standard 6.94 5.79 5.49 -
Heartland Bank - Online 5.99 5.89 - -
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 7.45 5.90 5.80 -
ICBC 6.50 4.85 4.95 5.05
Kainga Ora 6.44 4.89 4.95 5.09
Lender Flt 1yr 2yr 3yr
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 6.35 5.79 5.85 5.95
Kiwibank - Offset 6.35 - - -
Kiwibank Special - 4.89 4.95 5.15
Liberty 6.90 6.80 6.50 6.45
Nelson Building Society 6.94 4.99 4.93 -
Pepper Money Near Prime 6.85 - - -
Pepper Money Prime 6.29 - - -
Pepper Money Specialist 8.30 - - -
SBS Bank 6.49 ▼5.49 5.55 ▼5.69
SBS Bank Special - ▼4.89 4.95 ▼5.09
Lender Flt 1yr 2yr 3yr
SBS Construction lending for FHB 3.94 - - -
SBS FirstHome Combo - 4.29 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 8.64 - - -
TSB Bank 7.19 5.69 5.75 6.09
TSB Special 6.39 4.89 4.95 5.29
Unity First Home Buyer special - 4.29 - -
Unity Special 6.64 4.99 4.99 -
Unity Standard 6.64 5.79 5.79 -
Wairarapa Building Society 6.75 5.09 4.95 -
Westpac 6.59 5.49 5.55 5.59
Lender Flt 1yr 2yr 3yr
Westpac Choices Everyday 6.69 - - -
Westpac Offset 6.59 - - -
Westpac Special - 4.89 4.95 4.99
Median 6.56 4.99 4.99 5.15

Last updated: 10 July 2025 4:59pm

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