Tax cuts this year are giving people extra cash, but if you’re a homeowner, there’s a smart way to use that money to save even more.
Starting July 1, new tax rates mean people can borrow more for home loans, which is great for first-home buyers. But if you already own a home and are paying off a mortgage, this extra cash can have an even bigger impact.
Big Savings with Small Changes
If you put your tax cut towards your mortgage or into an offset account instead of spending it, you could save almost five times that amount over the life of your loan.
For example, someone with a typical income and an average-sized mortgage could save almost $11,000 over the life of their loan by using this year’s tax cut as a lump sum payment. Plus, they’d pay off their mortgage about three months earlier.
Here’s a breakdown of potential savings:
Individual Savings
| Income | Tax Cut | Interest Saved | Loan Paid Off Faster |
| $60,000 | $1,179 | $5,871 | 1 month |
| $80,000 | $1,679 | $8,340 | 2 months |
| $100,000 | $2,179 | $10,798 | 3 months |
| $120,000 | $2,679 | $13,244 | 4 months |
| $150,000 | $3,729 | $18,343 | 5 months |
| $200,000 | $4,529 | $22,194 | 6 months |
(Based on a single lump sum payment equivalent to this year’s tax cut is made one year into the loan, $625,000 loan size, 6.19% interest rate, 80% LVR, 30-year loan term.)
Consistent Payments = Huge Savings
If you continue to put the equivalent of this year’s tax cut towards your mortgage every year, you could save over $100,000 in interest and pay off your loan three and a half years early.
For those with higher incomes or dual incomes, the savings can be even more significant because they can make larger extra repayments.
Dual-Income Household Savings
| Combined Income | Tax Cut | Interest Saved | Loan Paid Off Faster |
| $120,000 | $2,358 | $11,675 | 3 months |
| $160,000 | $3,358 | $16,547 | 5 months |
| $200,000 | $4,358 | $21,373 | 6 months |
| $240,000 | $5,358 | $26,154 | 8 months |
| $300,000 | $7,458 | $36,050 | 11 months |
| $400,000 | $9,058 | $43,461 | 1 year 1 month |
Based on a lump sum payment equivalent to this year’s tax cut is made one year into the loan, $625,000 loan size, 6.19% interest rate, 80% LVR, 30-year loan term.
Real-Life Examples
Using a loan amortisation calculator and assuming an average loan size of $625,000 at a 6.19% interest rate, with a loan term of 30 years:
- Someone earning $60,000 would save about $5,871 by putting this year’s $1,179 tax cut towards their mortgage. If they kept doing this every year, they’d save $60,767 and pay off their loan two years earlier.
- Someone earning $100,000 would save $10,798 from this year’s tax cut (more than four times the actual tax cut), or $104,569 in total if they kept it up, paying off their loan three and a half years earlier.
- A dual-income household earning $200,000 would save $21,373 with this year’s tax cut, paying off their loan six months faster. If they kept this up, they’d save $180,572 and cut six years and two months off their loan term.
By simply putting your tax cut towards your mortgage, you can save a significant amount on interest payments and pay off your home loan much sooner.
So the real question is, what will you be doing with your tax cut to make sure you get the best return.
