.Opportunity to maximise your first home desposit withdrawn
Stop Press: The federal government has proposed the following changes to first home saver accounts in the Budget:
- Existing account holders will not be eligible for a government contribution on personal deposits after the 2013-2014 financial year.
- First home saver account will be abolished on 1 July 2015, at the same at tax and social security concessions will cease and an restrictions on withdrawals will be removed.
- Accounts opened after 7:30pm Tuesday 13 May 2014 will not be entitled to any government contribution.
The great Australian dream of owning your own first home has slipped further out of reach for many Aussies, as house prices continue to climb and bigger deposits and bigger mortgages are needed. So it’s no surprise that first home buyer numbers have hit a 20-year low.
But with a bit of budgeting and long-term planning, there is a potential way out of the rut. First Home Saver Accounts (FHSA) add a government contribution to your savings and offers bonus tax advantages.
The downsides of First Home Saver Accounts are:
- You’ll need to save across four financial years before you can use the money as a deposit for your first home.
- If you decide you don’t want to buy a home, you’re obliged to park the money you’ve saved in your superannuation account rather than spend or invest it as you wish.
The good news is that in 2011, the rules for First Home Saver Accounts were changed to allow people who buy a home within the first four years to keep the account for the rest of the qualifying period and then transfer the funds to their mortgage rather than to their super.
ANZ and Commonwealth Bank no longer offer First Home Saver Accounts. But there are a range of credit unions and other mutual financial institutions helping first home buyers to accelerate their deposit by offering competitive First Home Saver Accounts. See account providers and interest rates comparison for more.
Low-deposit – and even no-deposit – loans have made a comeback after being scaled back during the GFC. But they can spell trouble when interest rates rise. And lender’s mortgage insurance can add thousands to your loan costs, making the first step even harder.
Mortgage insurance is a bad deal for borrowers:
- It's usually required if you put down less than 20% of the total mortgage.
- It protects the lender if you default on the loan and your home is sold for less than your loan amount.
- It does not absolve you from the debt – the insurer can come after you.
- There is no refund if you switch lenders.
Making a larger deposit can make a big difference. Depending on the amount you borrow, an extra $5000
deposit can potentially save you up to $3000
in mortgage insurance (see below).
Mortgage insurance for a $400,000 home