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Homeowners can save up to $50,000 on their mortgage thanks to the Phase 3 tax cut, and experts say using the cash to pay down debt could guarantee a return.
Analysis by comparison platform Canstar shows a worker earning an average of about $98,000 with a $50 mortgage could save $14,344 in interest by putting their tax savings from next financial year into their mortgage as a lump sum.
Homeowners can reduce their interest payments by using the tax deduction to pay off their mortgage. Credit: Nikki Short
For a couple making the middle income, the savings would be $28,228, but for a couple making the higher income ($150,000), the savings would be $48,161 on a $500,000 loan and $49,501 on a $1 million loan.
“You can hardly go wrong with a little extra money saved up on your loan,” Canstar finance expert Steve Mickenbecker said. “Most loans these days have a redraw clause, which means if you’ve made an overpayment but decide you still need the money, you can take it out.”
The analysis is based on a 30-year loan with an average interest rate of 6.87 percent and considers savings when contributing only one year of tax deductions.
However, Billy Amiridis, co-founder of 360 Financial Strategists, said that if the same extra payment was made every year over the life of the loan, a single mortgage holder could save more than $117,000, while a couple could save about $196,000.
“If you put as much money as possible into your loan or an offset account, your loan balance will go down faster,” Amiridis said. “By putting the tax savings into the loan, a single person could pay off the loan four years and four months earlier, while a couple could take seven years and five months.”
He said that for those who can afford it, they should treat the money as if it is not part of their income and avoid “lifestyle variation” – the tendency for people to spend more when their income increases.
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