ASB has announced that it will now offer the Kāinga Ora First Home Loan.
They now join Westpac, Kiwibank, SBS Bank, The Co-operative Bank, and some credit unions and building societies who already are part of this scheme.
The First Home Loan is designed for people who can afford regular mortgage repayments but are finding it difficult to save a 20% deposit. Instead of the standard deposit, eligible buyers can purchase their first home with just 5%, with the loan underwritten by Kāinga Ora – Homes and Communities.
Eligible borrowers who have been contributing to KiwiSaver for at least three years may also be able to withdraw their savings to put towards their home purchase. And will also be eligible for ASB’s First Home Buyer cashback offer.
That ASB cashback offer is at least $5000 for loans of $200,000 or more.
But some of this will be required to pay a one-off Lenders Mortgage Insurance (LMI) fee of 1.2% of the loan amount that you'll need to pay when you drawdown your new home loan. Alternatively, you can add this to your home loan instead. This LMI applies to all financial institutions in the Kāinga Ora scheme.
The LMI protects the bank. It is different to 'mortgage insurance' that protects borrowers in the event that their circumstances changes, and the loan repayment goes into default.
Update: An earlier version of this story mistakenly noted that a low equity interest rate margin applies. It doesn't.
The bottom line is that even with this 'new' offer, first home buyers face having to pay lenders mortgage insurance.
To compare the effective mortgage rate you will actually pay, this calculator will be helpful.
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