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Surprise Gains for Homeowners from Upcoming Tax Breaks

Surprise Gains for Homeowners from Upcoming Tax Breaks

Australian homeowners are on the verge of experiencing newfound financial relief as impending tax reductions promise significant savings, but leveraging these cuts could yield even greater monetary benefits.

These Stage 3 tax cuts present an opportunity for homeowners to expedite their mortgage repayments. By doing this consistently, homeowners can potentially save upwards of $150,000 throughout the life of their loans.

On average, Australians will see a tax reduction of $1888 annually. However, channeling this exact amount toward mortgage repayments frequently can magnify the benefits substantially.

Research conducted by the Aussie Home Loans team indicates that utilizing the Stage 3 tax cuts purely for mortgage payments can shorten loan terms by two to six years, resulting in substantial financial savings.

For instance, a homeowner earning $70,000 annually could save approximately $75,530 by directing a monthly tax cut of $1429 towards their mortgage. On the other hand, individuals with a $140,000 annual income could attain savings up to $171,000, freeing themselves from mortgage obligations six years ahead of schedule.

An expected 13.6 million Australians will feel the impact of these changes from July 1, with improvements seen in their weekly, monthly, or fortnightly earnings.

When detailed scenarios were explored, a single Australian with no dependents and an annual income of $120,000 would witness their borrowing capacity increase from $615,135.18 to $642,197.44 by FY25, assuming a 6.28% interest rate. Similarly, a dual-income family with two dependents and a combined income of $280,000 would see a boost in borrowing capacity by $75,345.89 under the same interest condition.

Aussie’s Chief Operating Officer, Sebastian Watkins, emphasized the profound effects of these tax cuts. “Our broker network has noticed that numerous potential buyers fall short of accessing the desired finance amount due to the faster appreciation of property prices relative to wage growth,” Watkins states. “These tax cuts will enable specific buyers to boost their borrowing capacity and enhance options for home financing beginning July 1.”

Watkins further elaborated, “Even if these cuts don’t immediately heighten your borrowing potential, the boosted income can be directed towards your deposit savings. A more substantial deposit reduces the need for borrowing – a double advantage for market newcomers."

The Stage 3 tax cuts also promise benefits for ‘mortgage prisoners’ - individuals transitioning from fixed-rate to variable loans. While many have adapted to higher rate scenarios, a significant mortgage transition still awaits a portion of borrowers.

Ben Magnus, head of Empower Wealth Mortgage Advisory, comments on the upcoming changes: “More options will soon be accessible for homeowners by demonstrating improved income positions, visible a few months into the new financial year.”

Financial pressures, as reflected by mortgage arrears, have been ascending since the lows of the Covid-19 outbreak, transitioning from 1.0% in the third quarter of 2022 to 1.6% in the first quarter of 2024. Although this figure marks a peak since early 2021, it was slightly higher at 1.8% during the early days of the pandemic.

The escalation in arrears is driven significantly by rising debt costs and other factors such as increased cost-of-living pressures, greater tax burdens, and depleted household savings. Moreover, susceptibility to sudden interest rate shifts is heightened due to elevated levels of housing debt and softening labor market conditions.

Despite these challenges, most borrowers have managed their mortgage repayments by leaning on their savings, working additional hours or jobs, and reducing contributions to offset accounts.

Future projections suggest a continuation in the rise of mortgage arrears, driven by rising unemployment, dwindling household savings, and broader economic uncertainties.

Published:Tuesday, 25th Jun 2024
Source: Paige Estritori

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