We have analysed the new tax cuts and how they will help people borrow more and pay off their home loan sooner!
Effect of Stage 3 Tax Cuts:
- Effective from 1 July.
- Reduces the 32.5% tax bracket to 30%.
- Increases the 37% tax bracket threshold from $120,000 to $135,000.
- Lowers the lowest tax bracket rate to 16% for those earning $18,000–$45,000.
- Increases the 45% threshold to $190,000 from $180,000.
?? Impact on Borrowing Capacity:
- Single Australians: Earning $120,000 a year. Current maximum borrowing capacity: $615,135. Increase in FY25: $27,062 (4.4%) based on a 6.28% interest rate.
- Married Couples with Two Dependents: Combined gross income: $280,000. Increase in borrowing capacity by $75,345. Reflecting a 5.64% increase from $1,334,871 to $1,410,217.
?? Reduction in Mortgage Term:
- For those earning $70,000: Savings of $1,429 yearly tax cut. Could reduce loan term by two to three years. Interest saved: $75,350.
- For those earning $140,000: Loan savings increase up to $171,000. Could repay mortgage up to six years early.
Insights from Sebastian Watkins, COO of Aussie Home Loans:
?? Implications for Borrowers:
- Tax cuts may have “serious implications” for those just outside their ideal borrowing capacity.
- Provides a boost to potential purchasers struggling to save as property prices rise faster than wages.
- Use additional income from tax cuts to boost savings for a deposit.
- A healthier deposit means less borrowing needed, creating a win-win situation for those entering the market.
- The stage 3 tax cuts will increase borrowing capacity for many Australians.
- Potential to reduce mortgage terms significantly, saving borrowers money.
- Important for borrowers to utilize increased income for savings to enhance their home ownership goals.
