Wednesday, July 15, 2009

Do your sums on FHOG

The Boost to the First Home Owners Grant has been extended until 30 September, 2009. After that it reduces by half until 31 December 2009. In the New Year, the grant returns to an ongoing amount of $7000 for both new and established homes for those buyers who are eligible.

However, being eligible for the grant doesn’t necessarily make buying a house achievable. Prior to the announcement of its extension, we were inundated with calls from customers who wanted to take advantage of the government’s generous offer, particularly for the $21,000.00 for the purchase of a new dwelling. While the $21,000 is still up from grabs for those whose construction commences on or before September 30, it might not be enough to get you into a home on its own.

This is largely because lending has changed significantly over the past several months. In the current environment, the great majority of banks will only lend you 90 per cent of the value of the property you are considering for purchase. This means you have to come up with the other 10 per cent yourself. In some circumstances you can still borrow 95 per cent but even 5 per of an average property is still a lot of money.

The other stumbling block is the fees. While state governments have come to the rescue on stamp duties (for example: first home buyers are virtually exempt from transfer and mortgage duties on homes under $500,000 in Queensland) there is still the matter of mortgage insurance. To get a loan where the borrowing amount is greater than 80 per cent of the purchase price, you have to get your loan mortgage insured and this comes at a cost - the lower the LVR the cheaper the premium. However, as we’re talking 95 per cent, these premiums are at the upper end and even with the discounts some insurances offer first home buyers, the amount can be several thousand dollars.

The last hurdle you need to overcome is the requirement to provide evidence of genuine savings. This means you have to demonstrate to a bank that the money you are contributing as 5 per cent has been saved over a period of time – usually 6 months.

Table 1. Estimate of Savings Required – Established Home

Purchase Price $350,000.00
Lenders Mortgage Insurance (approx)* $ 6,949.00
Government Fees (estimate) $ 676.00
Legal/Conveyancing (allow say,) $ 1,000.00
A Total Costs to Purchase $358,625.00

Borrowings from Bank @ 95% $332,500.00
First Home Owners Grant $ 14,000.00
B Total Funds Available $346,500.00

A - B = Your contribution (savings) $ 12,125.00

After December this year when the FHOG reduces, this same scenario will be $7,000.00 dearer. Trying to do the same thing with only a 90 per cent loan will be even more difficult. You should note that there are conditions surrounding your circumstances in qualifying for a 95 per cent LVR loan apart from the obvious issues of affordability.
In summary, if you are nearly in a position to buy your first home it might make sense to explore your options sooner rather than later. However, don’t put yourself in a situation where you can't afford your new loan just for the sake of the extended first home owners grant.

* Lenders Mortgage Insurance will vary depending on bank and Mortgage Insurer

Sunday, July 12, 2009

Be climatesmart

Over the last several quarters we’ve been getting electricity bills that are enough to make you cry. Despite our best efforts, we’ve had little luck in reducing our electricity costs. We’ve installed energy saver light globes in all our lights; turned off the second fridge in the office. Reduced the amount off time the pool filter runs but we still can’t seem to make any significant impact in amount of each bill.

Recently we had an electrician come and conduct and audit out as part of the Queensland Government’s “climate smart home service”. He checked a number of things as well as looking at previous electricity bills. For me however, the most significant aspect of the audit was the provision of a wireless energy monitor. It shows how much energy we’re using in a very meaningful way – in dollars and cents.

The monitor tells you how many cents per hour its costing you to run your house based on the electricity you use. When we’re not doing anything significant with electricity it shows a cost of around 12 to 15 cents per hour. Turn an electric kettle on and that goes to 55 cents per hour. Electric irons, hair driers, clothes driers, anything that uses an element to create heat really adds up.

Now we already knew this and always tried to keep the use of such things to a minimum. But when you can see the meter ticking on the energy monitor it becomes very motivating to turn the offending item off and in some cases not to use it in the first place.

It’s also helped my boys understand the cost of electricity and they’ve really got on board and are trying to keep the use of electrical appliances to a minimum. My youngest boy rang me the other day to tell me the monitor was showing an increase from 18 cents to 57 cents and he couldn’t work out why. He said he wasn’t using anything that he could account for. We soon figured out it was the instant electric water heater in the office switching on as its store off water was being re-heated. We’ve yet to figure out how we can reduce the cost of this, we’re experimenting with the temperature at present.

If you know any money saving tips through more efficient use of electricity please don’t hesitate to share them with us. We’ll be glad to put them into effect. In the meantime, I urge you to have an audit arranged for your own home. In the interest of saving some money and reducing your carbon footprint go to climatesmarthome