August 31, 2009
If you thought saving a deposit for your first home loan will take longer than four years, than compare First Home Saver Accounts and you may find yourself mowing your own lawn much sooner than you thought. Jack Han investigates.
Saving for a home loan is the hardest step to owning your first home, and with the government boosts reducing by October and ending in December, many first home buyers will miss out on the grants.
However, the introduction of First Home Saver Accounts can boost your savings goal to owning your first home.
Lending criteria has tightened this year and most institutions will expect a proven genuine savings of 5 percent of a mortgage, which means you need to show regular savings for your deposit stored away for at least six months. This does not include government contributions such as the First Home Owners Grant.
On top of this, lenders generally require a 10 percent deposit, as well as funds for a number of upfront fees such as application fees and lenders mortgage insurance.
So for the average home loan of $270,000, a first home buyer will need to have saved at least $40,000 for a 10 percent deposit.
First Home Saver Accounts are the answer to many Australians first home savings goal. However, with strict conditions they may not appeal to everyone.
These accounts can speed up your savings process by combining a high interest rate, a low 15 percent tax on interest earnings and bonus government contributions to maximise your savings potential every year.
They are only for Australians between 18 and 65 years old who plan to buy their first home in four years time or more. For savings of up to $5,000 per financial year, the government will contribute 17 percent each year, which is up to $850.
Here is the catch: the only way you can make a withdrawal is if you directly use it as a deposit to buy or build your new home after four years. Otherwise, you can transfer it into your superannuation fund.
Let’s compare the benefits of a First Home Saver Account to today’s highest online savings account.
Max wants to save at least $25,000 in four years towards purchasing his first home. He contributes $5,000 per year into today’s best online savings account, UBank’s USaver account with an interest rate of 5.11 percent p.a.
After four years, Max would not have reached his goal as he would have saved about $22,233 including total interest of about $2,233.
However, if Max opens an ME Bank First Home Saver Account, with an impressive 6 percent p.a. interest rate, after four years his savings would total about $26,381 which would include $3,400 of government contributions.
His total interest earned would be $4,148 more than the UBank savings account as his effective rate would be 12.84 percent p.a. However, if he needed to withdraw some funds in an emergency, he would only have the flexibility with the UBank account.
First Home Saver Accounts are changing the way Australians save for a first home. If you’re determined to reach your first home loan deposit in 4 years or longer, comparing savings accounts online can add thousands of dollars to your investment and turn your first home dream into reality.