The Kāinga Ora First Home Loan Fee: What You Need to Know
Disclaimer: The below guide is general in nature and provides an indication only. Please seek individual financial advice to see how this applies to your situation. Our experienced advisers are on hand to help at no cost to you (T’s and C’s apply).
Saving a 20% deposit for your first home can feel like an impossible task. For a typical entry-level home, that can mean scraping together well over $120,000 in cash.
This is where the Kāinga Ora First Home Loan scheme steps in. It allows eligible first-home buyers to purchase a house with a deposit as low as 5%. However, this low-deposit entry ticket comes with a specific cost attached: a 1.2% Lender's Mortgage Insurance (LMI) premium.
If you are looking at using the First Home Loan scheme, here is how that fee works, who it actually protects, and why it might still be a very smart financial move.
What is Lender's Mortgage Insurance (LMI)?
When a bank lends you money with only a 5% deposit, they are taking on a higher level of risk. If the housing market drops and you can't pay your mortgage, the bank could lose money if they have to sell the house for less than the loan amount.
To mitigate this risk, Kāinga Ora acts as an underwriter. They tell the bank: "Approve this 5% deposit loan, and if the borrower defaults, we will insure your losses."
To fund this safety net, Kāinga Ora charges a 1.2% LMI premium.
The Big Misconception: Who does LMI actually insure?
The biggest misunderstanding about Lender's Mortgage Insurance is the name itself. Because you pay the fee, many buyers assume the insurance protects them if they lose their job or get sick.
This is entirely incorrect. LMI provides absolutely zero protection to you as the borrower. It exists solely to protect the lender (the bank) in the event that you default on your mortgage. You are paying the premium so the bank feels safe enough to lend you the money.
How is the 1.2% fee calculated and paid?
The 1.2% premium is calculated on your total loan amount, not the purchase price of the house.
The good news? You do not need to come up with this extra cash out of your own pocket on settlement day. The bank capitalizes the fee—meaning they simply add the cost to your total mortgage balance. You then pay it off gradually alongside your normal mortgage repayments over the 30-year life of your loan.
Why a First Home Loan can still make perfect sense
Paying an extra fee to the government might sound frustrating, but utilizing the First Home Loan scheme is often a highly strategic move:
If you get a standard low-deposit loan directly through a bank, they will usually charge you a "Low Equity Margin" (an extra interest rate penalty added to your mortgage rate every single year). Because Kāinga Ora underwrites the First Home Loan, participating banks typically offer you their lowest "Special" interest rates. The interest you save by getting the better rate can often outweigh the cost of the one-off 1.2% fee.
Property markets rarely stand still. Paying a 1.2% fee to get into the market today with a 5% deposit is often far cheaper than trying to save an extra $90,000 over five years while house prices potentially increase and leave you behind.
Estimate Your Loan & Fee
Use our calculator below to get an indication of how much you can borrow with your current deposit, and exactly how the 1.2% Kāinga Ora fee is added to your mortgage.
