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Take Your Tax Return Further

- Thursday, November 12, 2009

Dedicating your tax return to your mortgage can save you thousands

You should have lodged your 2008-09 tax return by now – the cut off was 31 October. While some may be expecting an unwelcome tax bill, for many others a tax rebate might be on its way.

So what exactly should you do with your tax refund?

While it may be tempting to purchase that new lounge suite you’ve been thinking about or splurge on a weekend away, putting your tax return towards your mortgage could save you considerable money in the long term, making it an option well worth considering.

What you could save

We all know that the sooner we reduce a mortgage the less interest we will pay in the long run – but how much exactly could you be looking to save?

Take a tax return of just $1,000 for example. On a 30 year $300,000 home loan at an interest rate of 5.75 per cent, a lump sum payment of $1,000 could save you around $3,000 over the life of the loan while reducing its term by more than two months.

Imagine the results if you did this several times during the life of your loan.

Of course the greater the size of your payment the more dramatic the results. If you had a tax rebate of $10,000 and used it on the above-mentioned loan, you could knock a whole year off your mortgage term and save close to $30,000 in interest.

A long term approach

Don’t forget, this philosophy will work just as well should you increase your regular mortgage repayments – even if it’s by as little as $50 a month.

On the same home loan as above, increasing monthly repayments from the minimum of $1,750 to $1,800 would take one and a half years off your loan term and save you over $17,000 in interest.

So this financial year, dedicate a good portion of your tax return to your mortgage and make extra repayments part of your overall loan strategy – and reap the long term benefits.

This article does not necessarily reflect the opinion of the author/s, Carruthers Financial Services Pty Ltd or any of its employees or subsidiaries. It is intended to provide general news cand information only. While every care has been taken to ensure the accuracy of the information it contains, neither the author/s, Carruthers Financial Services Pty Ltd,'Carruthers Financial Services Pty Ltd's employees, or its subsidiaries, can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this article can be reproduced or reprinted without the express permission of Carruthers Financial Services Pty Ltd expect for the use for which it was purchased for. All information is current as per the date of delivery and Carruthers Financial Services Pty Ltd will take no responsibility for any factors that may change thereafter. The purchaser of this article and all readers thereafter are advised to contact their financial adviser, broker or accountant before making any investment decisions and should not rely on this article as a substitute for professional advice.

David Carruthers is a credit representative (Credit Representative Number [400226]) of BLSSA Pty Ltd (Australian Credit Licence No. 391237).