“If an applicant wishes to use the $7000 grant as part of their deposit, they must lodge their application with an approved agent.” Tony Newbury, acting executive director and chief commissioner of State Revenue, New South Wales.
“Provided you are disciplined, the best strategy is to set up an offset account, and channel your grant funds straight into your mortgage.” Warren O’Rourke, general manager, Mortgage Choice
Whichever way you look at it, at $7000 the first homeowner’s grant is a sweet little windfall at the time when you need it most. But how can you make best use of this gift from the government? While there are strict rules on who’s eligible for the grant (see checklist), if you do qualify to receive the cash you can spend it virtually any way you choose.
With housing now more expensive than ever in Australia, most homebuyers depend on the grant funds to finance their deposit, according to Graham Joyce, deputy chief executive of the Housing Industry Association. “For the first homeowner, the grant is almost an imperative for them to be able to get into the market.”
If your savings fall short of your desired deposit, you must tell your financial institution that you will be using the grant funds to make up the remainder, warns Tony Newbury, acting executive director and chief commissioner of State Revenue, New South Wales.
“If an applicant wishes to use the $7000 grant as part of their deposit, they must lodge their application with an approved agent (bank, building society, credit union etc) and make arrangements with them to accept a future grant payment as part of the deposit.”
However, if you have already saved enough for a sizeable deposit, you have a number of alternatives. It may be tempting to put the funds towards stamp duty on either the property or the associated mortgage (check the chart below for how to find stamp duty rates), but that’s not always feasible.
“The timing of the grant payment (which is made on the settlement date) would prevent the grant being available at the time stamp duty is payable as the duty is required to be paid before settlement,” says Newbury.
Effectively this means that if you wish to put your grant towards stamp duty, you must first commit your own funds, and then be repaid after you settle the property. With most homebuyers already financially stretched, one of the below options may instead prove more feasible:
Pay your lawyer – paying your or your lender’s legal fees associated with purchasing the property can save you a big headache at settlement
Put the grant straight into your mortgage. “You could make a repayment in advance, and put the funds straight into the mortgage”, advises O’Rourke. “Or, consider taking out an offset account. You get the benefit of the funds offsetting [reducing] your mortgage, and still have access to the funds if you need them later.”
Repay existing debt – “you could consolidate any outstanding personal loans and credit cards into your mortgage,” says O’Rourke. “You will find that the interest payments are substantially lower. This can make an enormous difference to the monthly household budget.”
Renovate – you could put the grant funds towards a new kitchen or bathroom, or even landscape your new backyard.
Other fees and charges – you could use the grant to cover council rates or, if you’re moving into an apartment, why not use it to pay the strata fees?
Which option is the best use of the grant? “Provided you are disciplined, the best strategy is to set up an offset account, and channel your grant funds straight into your mortgage,” says O’Rourke. But you should also take into account your personal circumstances: “Do a comparative budget. See what the costs relating to the mortgage are, and where you could use the grant,” he advises.
The key consideration is your savings. If you’re short on your deposit, you should probably use the grant to beef it up. If you’ve got your deposit, you need to weigh up whether you will use the grant now (to defray set-up costs like valuation, inspections and legal fees) or put it straight into your mortgage as O’Rourke suggests. Either way, you’ll have the satisfaction of knowing your grant has been put to good use – which is much better than blowing it all on a new home theatre system or gold taps for your bathroom.