First Home Loan Deposit Scheme warning
Announcement posted by Infochoice 10 Jan 2020
First home buyers participating in the First Home Loan Deposit Scheme (FHLDS) could end up paying up to $5,000 in higher loan repayments each and every year as a result.
The Morrison government’s First Home Loan Deposit Scheme commenced on 1 January and the first two lenders participating in the scheme – CBA and NAB – are now accepting applications from potential first home buyers.
The scheme allows first home buyers to apply for a 5 per cent deposit home loan on the same basis as a 20 per cent deposit loan, meaning home buyers may be able to get into the property market sooner and with less savings accumulated. That can save first home buyers plenty of money and time spent saving for a sizable deposit. The FHLDS also saves participating borrowers the cost of Lenders Mortgage Insurance.
The chief executive of InfoChoice, one of Australia’s leading financial comparison sites, is warning potential first home buyers that they need to factor in higher repayments if they take out a FHLDS loan, as opposed to saving up a 20% deposit and taking out a typical first home loan.
“A smaller deposit means a higher principal loan amount and hence higher monthly repayments,” said Vadim Taube, CEO of InfoChoice.
“Home loan applicants will need to show how they can afford the higher repayments in order to get approved for a FHLDS home loan.
“While loans being offered by Commonwealth Bank and National Australia Bank are very competitively priced, first home buyers need to be aware that they will pay more in repayments for a 95% LVR loan than they will for a typical 80% LVR loan.
“The government’s First Home Loan Deposit Scheme saves buyers the cost of Lenders Mortgage Insurance and the time taken to save up the extra 15 per cent of the house price but monthly repayments could be higher as a result of the smaller deposit,” said Vadim Taube.
“While it isn’t possible to directly compare an FHLDS loan with a non-FHLDS loan, its is possible to conclude that FHLDS borrowers could pay more in monthly repayments than they would if they saved a 20 per cent deposit.”
How much more could FHLDS borrowers pay each month?
Commonwealth Bank’s Extra Home Loan has variable rates for owner-occupiers paying principal and interest starting at 3.22% pa (comparison rate 3.23% pa) with a $600 application fee and $8 monthly fee.
National Australia Bank’s Fixed Choice Package (2 years, P&I) First HomeBuyer Special has a fixed rate of 2.88 per cent pa (comparison rate 4.34 per cent pa) with a $395 annual fee.
Both lenders have other loans available for first home buyers with other rates and fees.
|
| FHLDS borrower
| Non-FHLDS borrower
| Difference
(per month)
| Difference (per year)
|
| Property to be purchased: $600,000 | $600,000 minus 5% = home loan of $570,000 | $600,000 minus 20% = home loan of $480,000 |
|
|
| Monthly repayments: $2,769 | Monthly repayments: $2,332 | $437 | $5,244 | |
| NAB Fixed Choice (2y, P&I) First HomeBuyer Special 2.88%, $395 annual fee | Monthly repayments: $2,668 (first 2 years) | Monthly repayments: $2,246 (first 2 years) |
$422 |
$5064 |
Based loan term of 25 years, repayments may exclude some fees, calculations from the InfoChoice refinancing calculator.
“It’s important for first home buyers to compare deals and costs of loans to ensure they are getting the best value around,” said Vadim Taube.
“And it’s important to factor in the repayments you will have to make if and when the loan is approved.
“The best and cheapest home loan for you may not be the one from the First Home Loan Deposit Scheme lenders,” said Vadim Taube, CEO of InfoChoice.
“There are now 25 home loans for owner occupiers with advertised variable rates under 3.0 per cent pa.”
Compare 1800 home loans from 145 institutions at InfoChoice.
Go straight to the latest rates information from individual banks and other institutions here.
For more information on Savings account rates, data and commentary, please contact:
Jason Bryce, Media Manager on 0428 777 727 jason.bryce@infochoice.com.au
For more comments, please contact: Vadim Taube, Chief Executive on 0403 580 794
* listed on InfoChoice’s database of 1800 home loans and 145 institutions in Australia.
Comparison rate is based on a secured loan of $150,000 over the term of 25 years. WARNING: These comparison rates apply only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and costs savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan
InfoChoice is a leading Australian comparison website for retail banking and personal finance products. We’ve been helping Aussies find great offers on credit cards, home loans, savings accounts, term deposits, personal loans and car loans for over 25 years. Our mission is to help consumers make an informed purchasing by bringing together the most comprehensive list of financial products on the market today.
At InfoChoice, we strive to be:
• Comprehensive. We compare more than 3500 individual products from 145 providers within Australia to offer you the best value.
• Informative. We know how important it is for you to crunch the numbers before buying. Our calculators help you understand the cost of different products over the long term and show you the potential savings.