Mortgage Deposit: Can I Take Out a Loan to Increase It?
Getting a deposit together for a home is one of the toughest parts of buying—especially if you’re aiming for the gold standard of 20%. It’s tempting to think, “What if I just borrow a bit to top up the difference?” After all, a 20% deposit unlocks better interest rates, avoids low equity fees, and reduces your overall repayments. So what’s the harm?
Unfortunately, when it comes to mortgage applications in New Zealand, borrowing for your deposit can cause more problems than it solves.
Why 10% and 20% Matter
In most cases, banks require a minimum 10% deposit for existing homes and ideally 20% to get access to the best lending terms. That 10%–20% difference can be significant.
For example, on a $500,000 home:
A 10% deposit means you borrow $450,000
A 20% deposit means you borrow $400,000
That $50,000 difference in borrowing can mean thousands saved per year. In the first year alone, you could save around $10,000 in interest and fees. Over time, that adds up to a massive difference in cost.
Can I Borrow the Deposit from a Finance Company?
Here’s the bottom line: banks will not accept borrowed funds as part of your deposit.
Every major bank in New Zealand wants to see that your deposit is made up of:
Genuine savings (built up over time)
Gifts from family (with a signed gift declaration)
KiwiSaver withdrawals
First Home Grants (if eligible)
What they don’t want to see? Personal loans, credit cards, or finance company borrowing.
Why? Because one of the key things banks assess is how you acquired your deposit. Not just to comply with anti-money laundering laws, but to understand your financial habits. Borrowing your deposit tells the bank two things they don’t like:
You haven’t been able to save the deposit despite having income
You’re taking on more debt to get into debt
That’s a red flag.
But Isn’t Property Safer Than a Business?
Some argue it makes sense to borrow a deposit, just like people borrow to start a business. A house, after all, is a tangible, stable asset.
While that may be true, the bank’s issue isn’t with the security of the property—it’s with your ability to manage repayments. Loans from finance companies or credit cards usually come with short repayment terms (typically 3–5 years), which can put strain on your cash flow. Add in a mortgage, and your monthly outgoings could quickly become unmanageable.
Even if you claim you can afford the repayments, the bank is likely to respond with: “If your income is that strong, why couldn’t you save the deposit?”
What Are My Options If I’m Short on Deposit?
If you're close—but not quite there—there are still some bank-approved strategies to bridge the gap.
1. Boost Your Savings
This might sound obvious, but even a few more months of disciplined saving can make a difference. Banks usually require three months of savings history to prove you’ve built the deposit yourself. If you're short $5,000–$10,000, a short-term savings plan may be all you need.
2. Accept a Gift from Family
This is one of the most common ways first home buyers fill a deposit gap. A parent or close family member can gift money towards your deposit, and banks are generally happy with this—as long as:
The gift is non-repayable (i.e. not a loan)
It’s documented with a gift declaration
Some lenders may ask the gifter to sign a form confirming that they don’t expect the money back.
3. KiwiSaver and First Home Grants
If you’ve been contributing to KiwiSaver for at least three years, you may be eligible to withdraw your KiwiSaver funds and/or apply for a First Home Grant of up to $10,000. This can be a huge help in getting you over the deposit line.
4. Look into New-Build Options
Some new-build properties qualify for lower deposit thresholds, with banks sometimes lending up to 90% or more depending on the property and lender. This can reduce the pressure on your deposit requirements.
A Quick Word on Hiding Loans
Let’s be crystal clear: taking out a personal loan to use as a deposit and trying to hide it from the bank won’t work. Banks request full bank statements for at least three months before your application. If they see a sudden deposit followed by a new loan balance, they will almost certainly ask questions—and potentially decline your mortgage.
The Verdict
Borrowing to fund your mortgage deposit is not an acceptable strategy in New Zealand. It may seem like a shortcut, but it will almost always backfire when your mortgage application is assessed.
If you’re short on deposit:
Delay the application and save more
Ask for family help if available
Explore KiwiSaver and First Home Grant options
Talk to a mortgage adviser—they’ll help you navigate the best path forward
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