Press release - Tax Cuts give borrowers a chance
by Lisa Montgomery 10/05/2007
Tax Cuts give borrowers a chance to get their house in order
With interest rates on hold and new tax cuts unveiled in the latest Federal budget, leading non-bank lender Resi Mortgage Corporation says borrowers should take advantage of this period to really get their “financial” house in order.
Resi’s Head of Consumer Advocacy, Lisa Montgomery says the combination of steady interest rates and tax cuts offers borrowers, investors and first home buyers the chance to build their financial position.
“Borrowers need to be on their toes to take advantage of unexpected bonuses like these tax cuts,” says Ms Montgomery. “One minute borrowers are told interest rates will rise and then there’s a windfall in the form of tax cuts.”
Ms Montgomery says she understands borrowers must juggle competing financial demands for any “extra money”.
“However if borrowers can take this tax cut and put it straight back into their mortgage – they can not only pay their loan off sooner and save money, but also create a financial buffer for times when interest rates might rise.”
Ms Montgomery said investors and first home buyers can also benefit from the offerings, and suggests the following strategies for debt reduction:
For the existing borrower
Rather than viewing the new Federal tax cuts as tax relief, see them as a bonus which you can add to your mortgage each month. This will save you interest, as well as reducing the time taken to pay out the loan. The table below shows the financial impact of adding just $10 or $20 extra per week to a mortgage - not to mention the peace of mind.
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Extra Repayment (weekly)
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Interest saved
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Time saved
|
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$10
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$37,295*
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2 years, 5 months
|
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$20
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$66,703*
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4 years, 5 months
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* based on a loan of $250,000 over 30 years at Resi's variable rate of 7.44% on 10 May, 2007
Your home loan is not the only form of credit likely be affected by any rise in interest rates. Your credit cards and personal loan debts are also likely to increase. Careful consideration should also be given to consolidating your short term debt such as credit cards and personal loans, onto your mortgage (or long term debt). This allows you to take advantage of the lower interest rate and your tax cuts can then be used to offset that single debt.
The current climate is also a good time to find out if you’re paying too much with your current home loan. Provided you weigh up any refinancing costs, switching to a cheaper home loan could save you money – perhaps compensating for a future rate rise.
For the new homebuyer
Start with a budget to help you save. The more you save, the less you will need to borrow and pay in overall fees – consider putting any extra money gained from tax cuts into your savings. Don’t over commit yourself just to get into the market.
Take the time to select the most appropriate home loan for you, taking into account special features which may be most appropriate for you such as a low interest rate over a long term, unrestricted additional repayments and a redraw facility.
For the Investor
Take advantage of the tax cuts to get your investment property in order by carrying out any minor work which will assist in allowing it to hold its value and as a result, its rental return. By giving a property a simple coat of paint or a quick garden makeover you can only add to its appeal. Repairs are also tax deductible.
Montgomery encourages borrowers not to squander the tax cuts.
“These tax cuts are an unexpected windfall. I would encourage borrowers to make good use of them, funneling the bonus into some form of debt reduction. Making the hard financial decisions now will make a huge impact down the track,” she added.
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