Dedicating your tax return to your mortgage can save you thousands.
While some may be expecting an unwelcome tax bill, for many others a tax rebate might be on its way.
So what exactly should you do with your tax refund?
While it may be tempting to purchase that new lounge suite you’ve been thinking about or splurge on a weekend away, putting your tax return towards your mortgage could save you considerable money in the long term, making it an option well worth considering.
What you could save
We all know that the sooner we reduce a mortgage the less interest we will pay in the long run – but how much exactly could you be looking to save?
Take a tax return of just $1,000 for example. On a 30 year $300,000 home loan at an interest rate of 5.75 per cent, a lump sum payment of $1,000 could save you around $3,000 over the life of the loan while reducing its term by more than two months.
Imagine the results if you did this several times during the life of your loan.
Of course the greater the size of your payment the more dramatic the results. If you had a tax rebate of $10,000 and used it on the above-mentioned loan, you could knock a whole year off your mortgage term and save close to $30,000 in interest.
A long term approach
Don’t forget, this philosophy will work just as well should you increase your regular mortgage repayments – even if it’s by as little as $50 a month.
On the same home loan as above, increasing monthly repayments from the minimum of $1,750 to $1,800 would take one and a half years off your loan term and save you over $17,000 in interest.
So this financial year, dedicate a good portion of your tax return to your mortgage and make extra repayments part of your overall loan strategy – and reap the long term benefits.