Could a First Home Saver Account work for You
To assist with the affordability of home ownership in Australia, the government is encouraging savings towards a larger deposit. The essence of the idea is that the government will contribute an extra amount that is a percentage of your savings each year.
These accounts have a few rules so it's important to make sure they are right for you.
Unlike other savings accounts, a first home saver account can only be used when you are saving to buy or build your first home.
Each year the government will make a 17% contribution on the first $6,000 you deposit each year. This means that if you deposit $6,000 in one financial year, you will receive $1,020 from the government.
Some of the main features of these accounts are:
The interest you earn on the account is only taxed at a rate of 15%.
You have to save at least $1,000 each year over at least 4 financial years before you can withdraw the money. These 4 years do not need to be consecutive.
The maximum account balance is capped at $90,000 but this cap will be indexed in future years. After your savings reach this level, only interest and earnings can be added to the balance.
The money has to be used for your first home. If it is not, it is added to your super and you can't access it until you are retired or can meet another condition of release.
If you buy your first home before the 4 year period is up, you can withdraw the money in your account at the end of the 4 year period to put towards your mortgage. You will not be able to make any more deposits once you have built or bought a property.
Is it right for you?
Make sure you think hard about your future needs before opening a first home saver account. If, for example, you decide in 3 years that you'd rather move overseas or put the money into a new business, you won't be able to immediately withdraw the money from your account. The money will be transferred to your super and you won't be able to access it until you are retired or can meet another condition of release.
Consider all your savings options. You may prefer opening a different kind of savings account that is more flexible than a first home saver account.
Saving with your partner
First home saver accounts can only be opened by an individual, so if you are saving with a partner you should each open an account. You will only have to wait until one of you reaches the 4-year savings mark to withdraw from both accounts, provided your house is bought in both your names. If you both have accounts, you will also both be eligible for the government contributions.
You may use your first home saver account to buy a property with a partner who has previously owned a home as long as you are a registered owner and this is your first home.
Case study: Alex and Tony
Alex and Tony each have their own first home saver account. Alex has been saving at least $1,000 each year for 5 years while Tony has only had his for 2 years. But because Alex's account has been open for 5 years, they satisfy the 4-year rule. They can combine their savings to buy their home.
For more information about these types of facilities, please speak to your financial planner
The risks of only having one account
Opening one first home saver account with someone can be risky. Think about what will happen if the relationship ends and you decide not to buy a house together. If the account is in your name, how will you repay the money they have saved? If the account is in their name, how will you get your money back?
First home saver accounts can be a really good way to maximise your savings for your first home. Make sure you understand all the rules of these accounts to decide if they are right for you.
For more information about these types of facilities, please speak to your Mortgage Broker.
Taurus Mortgage Services Pty Ltd, is available to assist you raise a Competitive and appropriate Mortgage Facility to finance the purchase of your new home.
Contact - Gordon Hatch on (02) 9411 4161 or email gordon@taurusfinancial.com.au for a free no obligation Mortgage Assessment.