What would you rather have? Another trip to Bali? A new big screen TV? Or a new home of your own?
As tempting as is it to consider your tax refund as ‘free money’ for you to go out on a massive shopping spree or have a huge night out with your mates at the pub, this year try to think of a smarter way to use the funds –maybe even put it towards your first home!
According to Bankwest*, the average Australian expects a tax refund of at least $2000. This can go a long way towards a deposit for a new home for first homebuyers who would normally struggle to get that kind of cash together as a lump sum.
Let’s look at how this could work in further detail. If you were saving for a deposit on a $400,000 loan for a home or house and land package from the major banks and lenders, you would require a minimum 5% deposit. In this case, that’s $20,000. Using your tax refund to bolster your savings could significantly bring forward your potential purchase date for your first home.
While a small number of lenders will consider tax refunds as genuine savings, most will still require that the funds are held in savings over three months. A good idea for smart first homebuyers is to put the tax refund straight into a high interest earning savings account.
If you’re eligible for government assisted finance, you would only require a 2% deposit. That equals a deposit of $8000 on the same purchase price of $400,000. Of this 2% deposit, 1% of that is required to be ‘genuine savings’. If you get a tax return of $2000, you’re already half way there to achieving the required genuine savings component of your deposit. (If you’d like to learn more about genuine savings and other ways you can make up a deposit, send us a quick message here.)
In addition, Lenders Mortgage Insurance (usually charged by the main banks and lenders) is not applicable to government assisted finance. If you choose to build, then it’s possible that you may pay as little as $50 per week during the construction phase. Find out more about construction finance here.
At Iconic Home Loans, we specialize in first home buyer and government assisted loans. Talk to us about how much deposit you would need to get into your first home, along with some other smart ways to save. Alternatively, if you already a home owner, consider putting your tax refund into your existing loan as a lump sum. You could reduce the term of the loan and save thousands of dollars in the process, especially if you made a habit of using your refund in this way.
So, think about it. Do you really need another trip to Bali? Don’t splash the cash this year. Think long and hard about what it could mean to you long term if you use your tax refund wisely. Talk to one of our first home buyer experts today to see what you can afford.
* All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.