Turn your Tax Cuts into Mortgage Magic

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The new tax cuts set that have taken effect this month are generating a lot of buzz. But beyond just putting more money in your pocket, these cuts could be a game changer for homeowners looking to reduce the term of their mortgage and lower the amount of interest paid.

Here’s how you may leverage the upcoming tax changes to your advantage:

Understanding the tax cuts

The stage 3 tax cuts primarily benefit middle income earners with the 32.5% and 37% tax brackets merging into a single 30% bracket. This means that if you earn between $45,001 and $120,000, you’ll be paying a lower tax rate, resulting in more disposable income. The top tax threshold is also being raised, meaning those earning above $200,000 will also see some tax relief.

The average Australian taxpayer earning $92,000 annually is set to receive an extra $161 per month.

While this might not seem like a life changing amount, did you know that by simply redirecting it towards your mortgage you could make a difference to your loan term and interest payments?

The power of small, consistent contributions

While $37 a week might not seem like much in the grand scheme of things, it may work wonders when applied consistently to your mortgage.

Every extra dollar you pay towards your loan helps to chip away at the principal balance by reducing the amount of interest accrued over time.

How much could you save?

The amount you save will depend on your income, but it could be noticeable.

Check out our table of the potential additional money hitting your bank account each month.

Source: Treasury.gov.au
Everyone is a winner – provided you apply these savings directly onto your mortgage.

Turning your tax savings into mortgage magic

Instead of splurging on a holiday or new gadgets, consider redirecting your tax savings on to your mortgage. Here’s how:
1. Increase your regular repayments
A small increase in your regular repayments may make a big difference over time. Even an extra $50 or $100 a month may significantly reduce your loan term and the total interest paid.

Let’s look at some examples.

 

2. Make lump sum payments
If your tax refund is sizeable this year, consider making a lump sum payment towards your mortgage. This may shave years off your loan term and save you a considerable amount in interest.

3. Refinance to a lower rate
Use the opportunity to review your current home loan and potentially refinance to a lower interest rate. This could further amplify the savings from your tax cuts.

We can also help you explore refinancing options and navigate the complexities of the mortgage market.

Additional considerations

  • Offset account
    If you have an offset account linked to your mortgage, depositing your tax refund into this account may further reduce your interest payments.
  • Debt consolidation
    If you have other debts, such as credit cards or personal loans, consider consolidating them into your mortgage. This could help you save on interest and simplify your repayments.
  • The mortgage cliff
    If you’re nearing the end of a fixed rate loan period, the tax cuts could help offset the potential increase in repayments when you switch to a variable rate.

While the July 2024 tax cuts might not result in a massive windfall for the average Australian, they do offer an opportunity to make a positive impact on your mortgage.

By consistently redirecting your tax savings towards your home loan, you can gradually reduce your loan term and reduce your interest payments.

It’s important to remember that every little bit counts. Even small, consistent contributions can make a big difference over time and bring you closer to financial freedom and a mortgage-free future.

Remember, feel free to reach out for us to create a plan that suits your individual circumstances.