Given up on purchasing property in 2021? What to do with your home deposit

The last two years of housing price rises and home loan interest rate reductions would make any prospective homeowner’s head spin. All the ups and downs – coupled with the financial uncertainty which a global pandemic brings – may have left you wondering if now is really the best time to buy or not. 

If you’ve come to the conclusion that no, getting on the old property ladder isn’t the best move for you at the moment, then you might be wondering what to do with the hard-earned cash you’ve been squirreling away for a deposit. Splurging on another major purchase or living large (if only for a brief sojourn) might be appealing, but there are alternative routes that could leave you in a better financial position for the future.

Here are a few things you might consider doing with your otherwise aimless home loan deposit. 

1. Leave it in your super fund

While anyone can make voluntary contributions to their superannuation to help boost their retirement fund, this is particularly relevant for potential first home buyers. 

Through the First Home Super Saver Scheme (FHSS), people who haven’t previously owned property can contribute up to $15,000 a year extra to their fund to save a total of $30,000 towards buying a home (this will rise to a total of $50,000 from July 2022). This is helpful as money in your super is taxed at a lower rate and, so long as you use the cash to purchase property within a year from when it’s released to you, that benefit is passed on to the funds.

Can you leave First Home Super Saver Scheme savings in your super?

So, what if you’ve been participating in this scheme but have changed your mind about property goals? The easiest fix if you haven’t already requested the funds to be released is to leave them in your superannuation where they can continue to earn interest on your investments. If you’re making other voluntary super constitutions, just check that it doesn’t push you over the annual voluntary concessional contribution cap of $27,500, or you won’t see the same tax benefits.

If you did take the money out to purchase property but have called a halt to house hunting, you’ve got three options:

• Request an extension from the ATO for more time to secure a property (although there isn’t a guarantee it’ll be accepted). 
• Re-contribute the funds to your super, bearing in mind the exact amount you can pop back in may differ slightly. 
• Keep the funds and face the FHSS tax penalties which are equal to 20% of the concessional amount released, essentially negating the original tax savings.

2. Build up cash in your savings account

If you weren’t taking advantage of the FHSS, you may have been slowly adding to your home deposit in a savings account or term deposit. Hopefully you’ve been earning a solid interest rate return, despite the declining savings rate environment we’ve been battling over the last 18 months.

Even if you no longer have home ownership as a major financial goal in the short-to-medium term, it’s always wise to add to an emergency savings fund you can call on should the need arise. And if you’re struggling to stay motivated without an obvious goal in mind, perhaps it’s time to figure out a new one.

Until you find what that is, there are a bunch of budgeting and savings apps that make contributing to your account easier or more exciting with gameified savings goals, personalised spending insights and even micro investment opportunities.

3. Pay down debt

If you have lingering debt – perhaps a car loan or an overdrawn credit card balance – now might be the perfect time to wipe the slate clean. Even if you were managing repayments comfortably, it’s likely that you’ll save on interest repayments if you’re able to pay down debt sooner (just keep an eye out for early exit fees and other conditions). 

As a bonus, clearing debts can improve your credit rating. This is a score you’re given which lenders use to judge your suitability as a borrower – i.e. how risky or reliable you might be in paying back credit. Having a better credit rating means that if you do end up applying for a home loan or any other kind of financing at some point, you may find it easier to get your application accepted by your preferred lender. 

Consider the savings a top home loan could offer

In all of this talk about buying a home (or calling it quits on that endeavour for now), it’s important to remember the home loan you take out can make a huge difference over the time it takes to repay your mortgage. So, even if property prices are surging right now, choosing a great home loan for your circumstances is one way to make home ownership more affordable in the long-term.

And a seemingly measly rate difference can make a considerable impact. Let’s take a quick look at the figures.

Imagine you’re borrowing $500,000 to purchase a property you plan to live in. You’ve worked mighty hard and saved up a whooping $100,000 so you can make a 20% deposit on the property.

If you chose the mortgage with the cheapest variable rate in the Mozo database today – Reduce Home Loans’ Super Saver Variable at 1.88% p.a. (1.97% comparison rate*) – you’d be paying $127,055 in interest over a 25-year mortgage.

The average variable rate across our database is currently 3.21% p.a., which equates to $227,809 in interest over the same period.

That’s a staggering $100,754 difference – or another entire 20% deposit.

Keeping in mind that rates can change over time, it’s still a nice little knowledge nugget to have stored away just in case you want to consider jumping on the property train again one day.

Feel like having a squiz at other home loan options? Start by checking out the rates and features below.