To use kiwisaver or not

[Nectar]

Hi all

We are about to buy our first home and are considering whether or not to use our kiwisaver funds. Without kiwisaver we have a good cash deposit (roughly 50%) and plan to pay off the mortgage as quickly as we can.

However we can access another $60k from our kiwisaver now that otherwise we won't get for another 30-35 years. We don't plan to rely on kiwisaver for our retirement.

Has anyone else been through this thinking or have views on what we should do?

Thanks in advance
Nec

[artemis]

What would be the downside of using KS for your own house? It gives you flexibility as you then have equity available to draw on. Or a good buffer / low repayments if circumstances change. And you can build KS again if you want to, but in any case it is usually worthwhile doing at least the minimum.

[Jerk]

There's no benefit of having money in kiwisaver versus having the same non kiwisaver fund. The benefit is when you put it in via the employment and govt matching/credits. Even if you wanted to keep it in Kiwisaver, you can get a free 5k (10k if you're both in) and put the same amount back into kiwi saver, after purchasing, if you wanted.

[Nectar]

So the only downside is differential between the return on the ks fund and interest on the mortgage

[Jerk]

So the only downside is differential between the return on the ks fund and interest on the mortgage

Well that's the "down side" of paying a deposit of more than the minimum.

[marklowes]

Also if you are don't withdraw KS you likely won't be able to touch it until 65, more likely late 60s 70 if you're young now, dunno the chances of dying before 70 but I'd rate that as not insignificant.

And its not just mortgage rate being better than KS return to make it work, by withdrawing you now have that cash in play, as equity, to leverage into more property, business, etc, all things you're more likely to want to do before 70

[Nectar]

Also if you are don't withdraw KS you likely won't be able to touch it until 65, more likely late 60s 70 if you're young now, dunno the chances of dying before 70 but I'd rate that as not insignificant.

And its not just mortgage rate being better than KS return to make it work, by withdrawing you now have that cash in play, as equity, to leverage into more property, business, etc, all things you're more likely to want to do before 70

Thanks those are good points!

[Anthonyacat]

In short, pull the money out of Kiwisaver.

It gives you more options. One option for example would be to pay the extra $60k deposit, then ask the bank for $60k increase to your loan, and invest this right back into Kiwisaver. This would give you the exact same income, but now you have $60k of deductible debt.

There are of course other, better options, but that one highlights the complete lack of downside.

[Nick G]

It's a home so no tax deductions but the theory is right for a rental.

For a PPOR I would pull it out and have in an offset account instead of less debt. The same goes for any capital you have beyond the 20% deposit. You get the same benefit but increased flexibility.

[Anthonyacat]

In my above example there's certainly a tax deduction. It would come about by borrowing to invest. In this case, investing in Kiwisaver.

Doubting your solution of putting it in an offset account would be allowable by the Kiwisaver people. They want it used for the purchase. Of course, you could use the Kiwisaver money for the purchase, and use a different $60k an an offset account...

Regardless of the purpose for borrowing, I'd consider making the minimum possible deposit and borrowing the maximum amount your bank will lend, simply to bump up any cashback incentive. You can always leave the money sitting in an offset account, or simply pay the loan down a couple weeks later.

[Nectar]

In my above example there's certainly a tax deduction. It would come about by borrowing to invest. In this case, investing in Kiwisaver.

Doubting your solution of putting it in an offset account would be allowable by the Kiwisaver people. They want it used for the purchase. Of course, you could use the Kiwisaver money for the purchase, and use a different $60k an an offset account...

Regardless of the purpose for borrowing, I'd consider making the minimum possible deposit and borrowing the maximum amount your bank will lend, simply to bump up any cashback incentive. You can always leave the money sitting in an offset account, or simply pay the loan down a couple weeks later.

Great ideas thanks. Out of interest what is the cashback incentive?

[Anthonyacat]

It's like an anti-application fee. For the last 5 years or so (maybe a bit longer) the banks have been paying people to take out mortgages.

It's dropped a lot in the last few months, but last year you could count on around 1% of your loan back in cash. I've just borrowed $500k from ASB and got $1,800. In the process of borrowing another $480k from Westpac who are giving me $2,800. Talking to BNZ about another $300-400k, but they're dragging their feet and won't tell me what they'll give me.

Kiwibank currently offers a holiday to a pacific island, I think. ASB used to offer a TV. But mostly it's cash. And generally speaking, the more you borrow, the more cashback.

[Nectar]

It's like an anti-application fee. For the last 5 years or so (maybe a bit longer) the banks have been paying people to take out mortgages.

It's dropped a lot in the last few months, but last year you could count on around 1% of your loan back in cash. I've just borrowed $500k from ASB and got $1,800. In the process of borrowing another $480k from Westpac who are giving me $2,800. Talking to BNZ about another $300-400k, but they're dragging their feet and won't tell me what they'll give me.

Kiwibank currently offers a holiday to a pacific island, I think. ASB used to offer a TV. But mostly it's cash. And generally speaking, the more you borrow, the more cashback.

Thanks

Do you use a broker or do you just go direct to the banks?

[Anthonyacat]

Used to go direct. Currently using a broker. But some banks don't work with brokers, so at some point may need to approach direct again. Then again, this most recent purchase may be enough for a while. Am satisfied with 'enough', not much desire to build an empire.

[PTILoveYou]

Like others have commented, I would strongly suggest you use your KS money for deposit.

Saves interest costs and allow you to pay off mortgage a lot quicker.

Also so having equity in your own home gives you far better control and options in how you invest your equity in the short medium long term future.

Having KS managed by someone else is risky in terms of control.

PS use a mortgage broker to help you.