A 20% deposit is the comfortable story because it usually avoids high loan-to-value rationing and the extra cost of insuring the lender against you. Plenty of first-home purchases happen with 10% or 5%. The cash you do not put down does not disappear — it is borrowed, often with a tighter policy and a fee whose name sounds like it protects you. It does not. Lenders’ mortgage insurance (LMI) protects the bank.
What LMI is, and who pays
When the loan is a large share of the property value, the bank's loss in a forced sale is bigger. LMI is a premium, usually added to the loan or paid at drawdown, that compensates the insurer (and therefore the bank) if you default and the sale does not cover the debt. You pay for it; you are not the insured party. It is not house insurance, not contents insurance, and not a waiver of repayments if you lose your job. A low-deposit offer that “only” needs 5% or 10% in cash can still cost more over the life of the loan because the extra principal and the premium both accrue interest.
High-LVR lending is rationed, not merely priced
The Reserve Bank's LVR settings limit how much high-ratio lending a bank can write, so even a borrower who can service a 90% or 95% loan may be turned away because the bank is already at its speed limit. That is why two similar applicants get different answers in the same month. A borrowing-range calculator can show that the income supports the loan; it cannot show whether the bank still has high-LVR room. If your deposit is under 20%, assume availability is part of the problem, not only the interest rate.
First Home Loan is a different 5% path
Kāinga Ora's First Home Loan lets eligible buyers purchase with a 5% deposit through participating lenders. Income caps apply: currently $95,000 for a single buyer without dependants, and $150,000for a single buyer with dependants or for two or more buyers. Qualifying loans are treated as exempt from the usual LVR and DTI speed limits, which is the practical reason the pathway exists. It is not the old First Home Grant — that grant closed in 2024 and has not been replaced. LMI still sits in the product; do not skip the lender's explanation of fees because the deposit percentage looks small.
How to compare 5%, 10% and 20% honestly
Use the deposit planner to see the cash gap at each percentage, including the KiwiSaver you can actually withdraw after 3 years and the $1,000left behind. Then put a loan at each size into the repayment calculator at a realistic rate and at a higher stress rate. The 5% path wins on time-to-buy and loses on monthly cost, total interest, and policy friction. The 20% path is the reverse. Neither is “correct” without your timeline, your income caps, and whether a participating First Home Loan lender will take the file. Official eligibility is on Kāinga Ora; FinLab will not guess an LMI premium that is not confirmed against a primary source.