How your tax return can take 3 years off your home loan – and save you $10k
By doing this one thing, you could save thousands over the life of your loan.
If you're a homeowner, you probably would have noticed that interest rates are currently at an 11-year high. This has increased the average monthly mortgage repayment by around $1,300.
With those rising repayments at the front of mind, this tax tip from digital lender Tic:Toc might come in handy.
Using Finder's calculation of the average tax refund amount ($2,900), Tic:Toc worked out how much a homeowner might save if they put that entire amount into their home loan.
Making an additional payment $2,900 payment into your home loan could shave 3 years off your loan term and save $10,478 off your loan (not accounting for further fluctuations in interest rates or fees).
Tic:Toc's calculation used a home loan amount of $587,517 with an interest rate of 6.16% p.a.
Laura Osti, head of marketing at Tic:Toc, said many of us were looking forward to receiving our tax refund as it provides a "much-needed boost to our finances", but putting the money towards your home loan could make a big difference.
"If you're in the financial position to not immediately need this additional cash injection, putting your tax refund towards your home loan can make a huge difference in the long run," she said.
"As the money goes directly towards your principal, it can reduce the overall interest you pay and shave time off the total loan term. By putting it in an offset account or utilising a fee-free redraw feature, the cash could still be available to you if you need it."
Even small extra repayments can help
The key point from Osti is "if you're in the financial position".
According to Finder's Consumer Sentiment Tracker (CST), 81% of Australians are either somewhat or extremely stressed about their financial situation. 1 in 8 Australians have said their tax return is critical this year.
So being able to set aside that cash boost won't be possible for a lot of people.
However, Osti said that even if you can't spare the entire refund, every little bit helps.
"Additional repayments, regardless of the amount you're able to contribute, chip away at the principal mortgage, reduce the interest you pay over the life of the loan and can help reduce the total loan term," said Osti.
"But beyond this, it can go a long way towards developing good, sustainable money habits and help you feel more financially in control of your mortgage."
Tips on managing your home loan
If you feel that you can't make any additional repayments at all at the moment, Osti said there are other things borrowers can look at doing.
Review your interest rates.
"Ensure it's competitive compared to new customer rates in the market. This will help with negotiations with your existing lender, or if you decide to refinance."
Read the fine print.
"See what's possible within your current contract or what fees may be associated if you choose to switch to another lender."
Use online tools.
"Take advantage of online resources, financial calculators and budgeting tools to assist you in managing your finances effectively."
See where else you can make savings.
"Take stock of your financial situation, track expenses and identify areas for potential savings or what opportunities there are to cut back on discretionary spending.
"Talking to friends and family to pool resources or discover cost-saving ideas can be helpful – it's also likely to help to show you're not alone."