Stage three tax cuts could save years off the average home loans

Homeowners who put their entire stage-three tax cut savings on their mortgage could shave two to six years off the life of their loan, saving thousands | USE THE INTERACTIVE MAP

Chris and Paula Waters at their home in Boondall, Brisbane, where they are busy ‘building that nest egg’. Picture: Mackenzie Scott

Homeowners who put their entire stage-three tax cut savings on their mortgage could shave two to six years off the life of their loan, saving thousands.

New analysis from mortgage brokerage Aussie has found that those earning $70,000 and who put their full monthly saving of $1429 on their loan could reduce repayments by two to three years and pocket up to $75,530 in interest payments over the entirety of the debt.

For someone on double that wage, savings climb to as much as $171,000 and borrowers could unchain themself from their bank six years early.

The Reserve Bank kept interest rates on hold at 4.35 per cent at its June meeting, in line with expectations. Economists now don’t ­expect a rate cut until next year.

Aussie chief operating officer Sebastian Watkins said the tax cuts were a “good news story” for homeowners and borrowers.

“As you are continuing to make those incremental payments, you reduce principal,” Mr Watkins said.

“That means that your interest is being spread across a lower base and the amplifying effect of that is you’ll pay your loan down sooner.”

The Aussie analysis of the ­nation’s five largest states found smaller average mortgage sizes in Western Australia and South ­Australia means borrowers can pay off their loans faster with the help of their tax cuts compared to those in Sydney.

Stage-three tax cuts will equate to the relief of about two rate cuts and help to give borrowers some budget wiggle room.

Housing researcher PropTrack’s director of economic ­research, Cameron Kusher, said the new financial year income boost would ease some of that pressure for the people who really needed those rate cuts this year.

“Putting it on the loan is not necessarily going to reduce your payments, but it will ease the burden of the higher interest rates,” Mr Kusher said.

“For some people, it might be the difference between being able to stay in their home or having to sell their property.”

Brisbane couple Paula and Chris Waters, aged 50 and 51, hope to use their extra funds to see off debt before starting to pay down the mortgage on their Boondall home. They have just purchased their first investment property as they look to secure their financial future.

“It’s very encouraging,” Mr Waters said.

“We’re at an age where we don’t go out anymore and were saving. The is now a big emphasis on building that nest egg.”

Increases to take-home pay will also help boost the amount people can borrow by about 4 per cent.

Brisbane-based Aussie broker Melanie Smith says buyers will soon be in a sweet spot to get the most from their lenders, before banks reassess and raise their benchmark of basic living costs.