Ring in a Happy New (Financial) Year!

By Staff Reporter

With the end of the 2010 financial year at hand think carefully about how your tax refund can help reduce your mortgage.


Come 1 July 2010 you will be able to lodge your tax return, which for many can result in a welcome windfall from the ATO.

But the question is: how should you spend it?

Using your tax return to reduce your debts, either by depositing it directly into your mortgage, or by paying off your credit cards and personal loans, will ultimately help to place you in a better financial position for the future.

Pay off your debts Excessive credit card debt is destructive to your financial goals – high interest rates and annual fees can cost a lot of wasted dollars over the course of a year.

And with credit card and personal loan interest rates as high as 15 to 19 per cent or more, it’s no wonder there’s good reason to start thinking about how to drive that down debt. Reduce your home loan principal balance Alternatively, consider depositing your tax return into your mortgage to reduce the loan balance.

As tempting as it may be to hold on to your tax return and fritter it away on daily expenses, sometimes putting your tax return out of sight and mind might actually be better for you.

By depositing it straight into your mortgage your daily expenses will remain the same, but your mortgage could be reduced by thousands of dollars.

Doesn’t that make you feel like celebrating?

And when you think about it, spending a $3,000 tax return on groceries will only amount to $3,000 worth of groceries.

But if you invest your tax return into your mortgage, the reduction over the life of your loan will be significantly reduced.

Let’s look at this more closely...

Case Study Sally, a school teacher, received a $3,000 tax refund. She deposited it in her $400,000 mortgage with an interest rate of 7.51 per cent per annum, after having her mortgage for two years.

Over the period of her 30 year mortgage, she would save $24,572.88 in interest and take 10 months off the life of the loan just through depositing this amount.

If she deposited her tax return every year, think of the savings she would achieve!

And you can too.

Get saving So with the end of the financial year drawing near, now is the time to start thinking whether your tax return – even if it is just a few hundred of dollars – could be invested in your mortgage to secure you a better financial future.

Now that’s money well spent.

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