'Home Loan Updates'

“Borrowers often are focussed on getting cheap rates rather than effective loan terms, which often stops them from achieving the outcomes they needed the loan for.” Said Harry Pontikis at a recent Master Builders Trade Night.

Getting the right loan to achieve the outcomes required should be the primary focus of all borrowers, and then focussing on the most competitive pricing and fee structure.  Many brokers are being led to provide loans which quote cheap interest rates but do not offer features which the borrowers require in the future – features like offset facilities, redraw function, construction capabilities for the future of even the ability to split the loan into various accounts.  “The most common mistake made by brokers” according to Harry, “is offering borrowers very low interest rate and no fee loans under magnificent terms but not taking into account the borrower’s propensity to keep the property for a period of time.”  Therefore, if the borrower was to sell within a few years of taking out the loan, or to refinance to another product, they would be faced with hefty exit fees, therefore negating any previous interest rate savings.

Builders, Property Developers and other people in the building industry have often got ‘stung’ by using brokers who do not have an expertise in the building and finance industry, therefore getting stuck with loans which do not allow them to use their loan facility to build, sell and then rebuild.  The only advice Harry has is to use a main stream lender who specialises in building or alternatively, a broker who is well known and recognised in the building industry as a ‘ broker of choice.’

Q. What is it meant to do?

A. It’s an attempt to provide a tax - effective way to help save a deposit for first home buyers.

Q. Who is eligible?

A. Australian Residents aged from 18 – 64 who haven’t previously purchased or built their first home.

Q. How does it work?

A. You’ll have to make an initial contribution of at least $1,000 and then be able to contribute up to $10,000 per year.

The Federal Government will then make an additional contribution , paid directly into the account, that will vary from 15 to 30% of contributions, depending on the account holder’s marginal tax rate.

Q. How will it be taxed?

A. There is no tax on contributions. Interest earned will be taxed at 15% and withdrawals will be tax free if the money is used to build or buy a first home to live in.

Q. What are the terms and conditions of this scheme?

A. You have to save at least $1,000 per year and leave your money in the account for at least 4 years.

When it’s time to purchase your home, you’ll be able to withdraw the full amount and close the account.

Q. What if your circumstances change and you don’t want to use the money to purchase or build your first home?

A. You can transfer it into your superannuation
you can access the money in case of hardship, terminal illness or on compassionate grounds. But you’ll have to transfer the balance into your super and use the early release provisions that apply for super funds.

An Example:
An average income couple that can save 10% of their income each year will be able to to save a deposit of $85,000 ‘after 5 years of discipled savings.”

The Treasurer Wayne Swan also estimates that people would save up to $14,000 more that they would have otherwise saved in the above example.

First Home Saver Accounts
Maximum Annual government contributions

*based on 2008 – 2009 tax scales