Rushing to buy your first home? Lynne Blundell investigates how you could save over $41,000 despite missing out on the Boost.
October 2, 2009
If you are buying your first home you’re no doubt keen to get the Federal Government’s First Home Owners Grant (FHOG) as well as the First Home Owners Boost (FHOB). With the cut-off date for the Boost fast approaching (December 31, 2009) you may be stressing about missing out.
But before you race out and sign up to the first home loan you find just so that you make the deadline, take some time to shop around – it could save you a great deal of money and heartache.
The national FHOG of $7,000 was introduced in 2000 and is funded by the various states and territories. In 2008 the Labor Government added to this grant, introducing the FHOB as part of its stimulus package.
As a result, first home buyers flocked back to the housing market for the first time in many years.
In the first round of boosts, eligible first home owners buying an existing home could receive an extra $7,000 – a total of $14,000 when added to the existing FHOG. Those buying or building a new house could get up to an extra $14,000 – totaling $21,000 when
From October 1, 2009, the boost funding has reduced to $3,500 for those buying an existing house ($10,500 inclusive of the FHOG) and to $7,000 for those buying or building a new home ($14,000 inclusive of the FHOG). The boost will stop on December 31, 2009.
The extra funding from the government has been a great help to many first home buyers. But it is important not to become overly focused on this extra sum of money to the exclusion of other factors when buying.
Finding the right loan is almost as important as finding the right home – it will impact on you for many years to come.
Consider the two couples in the following scenarios. Both couples need a home loan of $300,000 and are eligible for a FHOG of $7,000 as well as the $3,500 Boost.
The cutoff date for the boost is only weeks away and both couples are keen to make the deadline. But their approach is very different.
Tom and Emma want to buy their home before the FHOB cuts off in December. They have found their dream home so they go to their existing bank and ask about loans.
Because they only have a few weeks before the cut-off date for the boost they don’t spend any time comparing what other loans are available. They are relieved when their bank approves a loan and they sign up to a $300,000 variable interest home loan with an advertised interest rate of 5.81 percent p.a.
However the real rate – or comparison rate, which includes costs for ongoing fees – is actually 5.85 per cent. Their payments are $1,905 per month and $571,647 over 25 years.
Elena and Joe have also found their dream home and they know the first home owners boost is about to cut off in a couple of weeks. They are keen to get the extra $3,500 and realise they might miss out if they spend too much time comparing home loans.
However, they aren’t happy with what their existing bank is offering so they spend some time comparing home loans and talking to lenders.
They find a home loan offering 5 percent p.a. variable interest with no upfront or ongoing fees. They do miss the FHOB deadline, but because of the competitive rate of their loan they have saved thousands of dollars.
Their monthly payments are $1,754, a saving of $151 per month and over $45,000 less over 25 years compared to Tom and Emma. Even without the extra $3,500 from the Boost they are still $41,500 in front.
While there is no doubt the government grants to first home owners have been a boon to many, the extra money should be kept in perspective. Paying off a home loan is a long term commitment. By taking the time to not only find the right home but to compare home loans and lenders, you will have avoided a great deal of future stress and saved yourself much more than $3,500.
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