Should I use my KiwiSaver towards my first home?

If you are looking to buy a first home, then chances are you’ve looked into using your KiwiSaver to form part of your deposit. But this isn’t always the best move long term. Let’s dive into why.

Whether you should use your KiwiSaver for a first home or save it for retirement depends on factors such as:

• How much you already have saved for a deposit
• Your current age and KiwiSaver balance
• Your long-term financial goals

While many Kiwis choose to withdraw their KiwiSaver for a home, there are cases where holding onto it for retirement may be the smarter option.

Generally, if a client doesn't need to access their KiwiSaver to reach the minimum deposit requirements, we recommend you don’t use your KiwiSaver for a first home. The reason for this is that the compounding interest working against you for a mortgage is currently <6.00%, and compounding investment returns working for you in a solid KiwiSaver performer is 10.00%+. The difference of 4.00% compounding over decades equates to $100,000’s in your favour over the long term to the value of KiwiSaver.

It takes 10 years for compound interest in KiwiSaver to start to work its magic, so going back to the minimum of $1,000 in your account after 5-10+ years can have a significant impact on your returns.

However, sometimes it simply needs to be used, and that’s where we strategize over your contributions to cover the shortfall over the long term. For example, withdrawing $50,000 from KiwiSaver may result in $250,000 less over the term of your investment. We will sit down with you and work out how we can pull that back so that it doesn’t negatively impact your retirement over the long term.

It’s important to remember that KiwiSaver is ultimately designed to help you save for your retirement, with potentially a short-term goal of assisting with your first home. The long-term goal, however, remains retirement, so even if you choose to use your funds for a home, KiwiSaver isn’t to be disregarded afterwards.

If you’re unsure about what’s best for your situation, our Loan Market Queenstown team can help crunch the numbers and provide expert advice on both lending and KiwiSaver to help you make an informed decision. Get in touch with us today for an obligation-free chat—we’ll help you make the best financial decision for your future.