The last two years of rising house prices and reducing mortgage interest rates would turn the heads of any potential homeowner. All the ups and downs – coupled with the financial uncertainty that a global pandemic brings – may have made you wonder if this really is the best time to buy or not.
If you’ve come to the conclusion that no, climbing the old real estate ladder isn’t the best decision for you right now, then you might be wondering what to do with the hard-earned money you’ve scoured for. . a deposit. Splurging on another big purchase or living big (if only for a brief stay) can be appealing, but there are alternative routes that could leave you in a better financial position for the future.
Here are a few things you might consider doing with your otherwise aimless home loan deposit.
1. Leave it in your super fund
While anyone can make voluntary contributions to their retirement pension to help increase their retirement fund, this is especially relevant for potential first-time home buyers.
Through the First Home Super Saver Scheme (FHSS), people who have never owned a property can contribute up to $ 15,000 per year more to their fund to save a total of $ 30,000 for the purchase of a house (this will increase to a total of $ 50,000 as of July 2022). This is useful because your super money is taxed at a lower rate, and as long as you use the money to buy a property within a year of delivering it, that benefit is transferred to the funds.
Can you leave the savings from the First Home Super Saver program in your super?
So what if you’ve been on this program but changed your mind about real estate goals? The easiest solution if you haven’t already requested that the funds be released is to leave them in your superannuation where they can continue to earn interest on your investments. If you are doing other voluntary super constitutions, just check that it doesn’t push you above the annual voluntary concessional contribution limit of $ 27,500, or you won’t see the same tax benefits.
If you have withdrawn money to buy a property but have stopped looking for a home, you have three options:
- Request an extension from the ATO for more time to secure a property (although there is no guarantee that it will be accepted).
- Re-contribute the funds to your super, keeping in mind that the exact amount you can get back may differ slightly.
- Keep the funds and face the FHSS tax penalties which are equal to 20% of the concessional amount released, essentially canceling out the initial tax savings.
2. Build up cash in your savings account
If you weren’t taking advantage of FHSS, you may have slowly added to your home deposit in a savings account or term deposit. I hope you got a solid return on interest rates, despite the falling savings rates we have fought against for the past 18 months.
Even if you no longer have home ownership as a major short- or medium-term financial goal, it’s still a good idea to top up an emergency savings fund that you can draw on when needed. And if you’re struggling to stay motivated without a clear goal in mind, maybe it’s time to find a new one.
Until you find out what it is, there are a bunch of budgeting and savings apps out there that make contributing to your account easier or more exciting with gamified savings goals, personalized information about expenses and even micro-investment opportunities.
3. Pay off the debt
If you have lingering debt – maybe a car loan or an overdrawn credit card balance – maybe now is a great time to wipe the slate clean. Even if you manage repayments comfortably, it’s likely that you’ll save on interest repayments if you’re able to pay off your debts sooner (just keep an eye out for early exit fees and other conditions).
As an added bonus, debt settlement can improve your credit rating. This is a score that lenders use to judge your suitability as a borrower – that is, how risky or reliable you could be in paying off credit. Having a better credit rating means that if you end up applying for a home loan or any other type of financing at some point, it may be easier for you to get your application accepted by your preferred lender.
Consider the savings that a high-end home loan could offer
In all of these discussions about buying a home (or abandoning that business for now), it’s important to remember that the home loan you take out can make a huge difference to the time it takes. needed to pay off your mortgage. So even though house prices are skyrocketing right now, choosing the right mortgage for your situation is one way to make home ownership more affordable in the long run.
And a seemingly insignificant rate difference can have a huge impact. Let’s take a quick look at the numbers.
Imagine borrowing $ 500,000 to buy a property you plan to live in. You worked really hard and saved $ 100,000 so you could make a 20% deposit on the property.
If you choose the mortgage with the cheapest variable rate in the Mozo database today – Reduce the Super Saver variable for home loans to 1.88% per annum (comparison rate of 1.97% *) – you would pay $ 127,055 interest on a 25-year mortgage.
The average variable rate in our database is currently 3.21% per annum, which equates to $ 227,809 in interest over the same period.
That’s a staggering difference of $ 100,754 – or another full 20% deposit.
Keeping in mind that rates can change over time, this is always a nice little nugget of knowledge to pack away just in case you want to consider hopping on the property train again someday.
Want to try other mortgage loan options? Start by checking out the pricing and features below.
* CAUTION: This comparison rate only applies to the example (s) given. Different amounts and terms will result in different comparison rates. Costs such as redemption or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but can influence the cost of the loan. The comparison rate displayed is that of a guaranteed loan with monthly repayment of principal and interest of $ 150,000 over 25 years.
** The initial monthly repayment figures are only estimates, based on the advertised rate, loan amount and term entered. The rates, fees and charges and therefore the total cost of the loan can vary depending on the amount of your loan, the length of the loan and your credit history. Actual repayments will depend on your personal circumstances and changes in interest rates.
^ See information on the Mozo Experts Choice Home Loan Awards
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