First Home Saver Accounts
The recent establishment of First Home Savers Accounts has provided investors looking to purchase their first home with an opportunity to get a return of over 50%pa.
A First Home Saver Account (FHSA) is designed for home buyers who are trying to save for their first home. The FHSA is a commitment to saving as a FHSA must receive minimum contributions over four financial years and can only be used to purchase a home once this condition has been satisfied.
It is important to plan ahead when considering a FHSA. If you buy a home before you satisfy this requirement, your account balance is transferred to your superannuation.
NW Advice Strategy Tip:
The FHSA can be reduced to two years and two days if you make contributions in the following manner:
$5,500 on 30 June 2011
$5,500 on 30 June 2012
$5,500 on 30 June 2013
$5,500 on 1 July 2013
Each contribution receives up to $935 (17%) from the Federal Government
Based upon the above contributions and assuming your account pays interest of 6.0% and tax of 15%, the time weighted return on your savings is in excess of 50%.
Still eligible for nil/reduced stamp duty
The good news does not stop there. Having accumulated a deposit of approximately $27,717, you continue to qualify for any State or Federal Government first home buyer incentive such as nil/reduced stamp duty and the First Home Owner’s Grant.
NW Advice Strategy Tip:
By saving a sizeable deposit, you can avoid mortgage insurance and pay less interest which means you can direct your efforts to reducing your mortgage rather than simply paying the interest on it. It is important to select the right FHSA provider as the interest rates they offer can differ substantially. We are licensed to provide you with advice on the right FHSA. We have presented a simplistic overview of the FHSA. For further information on the FHSA and the important fine print, please go to: www.fido.gov.au/firsthomesaver
An individual can open an account if they:
- are aged 18 or over and under 65;
- have not previously purchased or built a first home in which to live;
- do not have, or have not previously had, a First Home Saver Account; and
- provide their tax file number to the provider.
All views expressed within this article are NW Advice Pty Limited’s.
Disclaimer: The advice provided in this article is general in nature and it does not take into account your needs, objectives or financial situation. You should always take these matters into consideration before making an investment decision.
NW Advice is an independently operated, non-aligned financial planning practice offering fee for service advice. Any opinion and recommendation within this newsletter by NW Advice are independent of our own views and should not in any way be construed as personal advice.