They can also boost borrowing capacity for those seeking home loans
Homeowners who allocate their entire stage 3 tax cut savings to their mortgage could reduce their loan term by two to six years, data analysis by broker network Aussie Home Loans has revealed.
For those earning $70,000 who apply their full monthly savings of $1,429 to their loan, mortgage repayments could be reduced by two to three years, potentially saving up to $75,530 in interest over the loan’s duration.
Someone earning double that amount could save up to $171,000 and pay off their mortgage six years early.
Aussie has examined various scenarios to understand the potential impact of the upcoming stage-three tax cuts, not only on those already paying their mortgages, but also on those aiming to maximise their borrowing capacity for home loans.
One scenario cited by Aussie shows that single Australians with no dependents earning $120,000 per year in 2024, who could borrow a maximum of $615,135.18, will see their borrowing capacity increase by $27,061.93 to $642,197.44 in 2025, based on a 6.28% interest rate.
A married couple with two dependents and a combined taxable income of $280,000 will see their borrowing capacity rise by $75,345.89, a 5.64% increase, to more than $1.4 million on a mortgage with a 6.28% interest rate in 2025.
Sebastian Watkins (pictured above), Aussie chief operating officer, emphasised the significant implications of the stage 3 tax cuts for those near their ideal borrowing capacity.
“Through our extensive broker network, we have been receiving feedback that many potential purchasers are just coming short of the desired amount they need to purchase their dream home especially as the price of property increases quicker than their ability to save or their wages to grow,” Watkins said.
“They evidently have two choices: look elsewhere for something cheaper and most likely less desirable to them, or continue trying to save as much as they can while hoping their incomes grow at a higher rate than property prices.
“These tax cuts will mean there is a cohort of purchasers, who come July 1st, will increase their borrowing capacity as their net income will grow and they will have more optionality when seeking finance for a home.”
Watkins also advised those still below their desired borrowing capacity, even with the tax cuts, to focus on their homeownership goals.
“Even if the tax cuts don’t automatically bump you up enough in terms of borrowing capacity, the additional income can be funneled straight into extra savings for your deposit,” he said. “Ultimately. the healthier your deposit the less you need to borrow, so this is really a win-win situation for those ready to enter the market.”
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