Most of us are only a few weeks away from tax savings on our bills, with the upcoming Stage 3 tax cuts likely to be in place from 1st July. When you pay less in tax, you have more disposable income, and this increased financial capacity may enhance your ability to borrow for various purposes including home loan.
The impending Stage 3 tax cuts have sparked substantial debate, drawing both praises and criticisms. However, let us set aside the political discourse as of now and deep dive into various other aspects.
These Stage 3 tax cuts are anticipated to benefit nearly 13.6 million Australians , with the amount of tax savings varying on the individual income levels. According to the Federal government, an individual earning an average wage (national average) of around $73000 could expect tax savings to the tune of $1504 , while those earning $100,000 might be able to save $2,179 per year approximately.
For Households who are grappling with the pressures of increasing costs of living, the tax cuts are being awaited very eagerly. Moreover, for the individuals who are looking for new homes currently in the market, these tax cuts could be useful in providing them an advantage by bolstering their power of borrowing.
What is ‘borrowing power’ in the context of home loan?
The borrowing power, also termed borrowing capacity, indicates the amount a lender is inclined to lend you towards your finance requirements.
The valuation considers various factors such as the deposit size, the existing household expenses, and after-tax income (or take-home pay).
A higher after-tax income typically translates to a greater borrowing capacity. Consequently, this could speed up home ownership or enable the purchase of a more upscale property.
How might the tax cuts affect your borrowing power?
The impact of Stage-3 tax cuts on your borrowing power is significant.
An analysis by Rate City reveals that for an individual who is earning $100,000 annually, the subject tax cuts could potentially elevate their power of borrowing by a notable amount of $21,000. On similar lines, a working couple with combined earnings of $150,000 might witness a surge of around $30,000 in their borrowing capacity.
This development spells great news for prospective first-time home buyers in Melbourne and those looking to upgrade their current residence. Even if, there are no immediate plans to borrow more funds, the augmented take-home-pay which have resulted from these tax cuts could potentially render repaying your existing home loan more manageable.
Brilliant ways to boost your borrowing power for home loan
You do not necessarily have to wait for Stage 3 tax cuts to enhance your borrowing power. Here are some alternative strategies that can help you out:
- Trim Spending
- Reduce Credit Card Limit
- Increase Income
Through the reduction of your non-essential expenses, you can easily free up some additional funds that could support your deposits. Since, many lenders consider your household expenses while accessing your loan eligibility, reducing the routine costs could amplify your borrowing power or capacity.
When you apply for a fresh home loan, the lenders usually evaluate the maximum limit on your credit cards rather than the outstanding balance. Thus, lowering your credit card limits or even closing it once paid off, can be a potential source to increase your borrowing power. This further prevents the risk of increased spending on your credit cards post your new home purchase, thus, leaving sufficient funds for repayments of home loan.
Although challenging, your income rise can significantly increase your borrowing power. Doing extra work shifts, negotiating with the employer for a pay hike, or starting a side business are some of the viable options to improve your bank balance and, your borrowing capacity.
Home Loan: Find out how much you could borrow
Determining your borrowing capacity or power can be easily done through available online calculators, providing you the rough estimates. However, a big drawback with these online calculators is that they overlook the varied criteria of different lenders and, lack personal insights into your goals and expenses. Thus, to obtain a more precise understanding of your power of borrowing, it is crucial to engage in discussions with us for any home loan in Australia. By getting to know you, studying your expenses, and the property type you aspire to acquire, we can surely devise a tailored plan to help you reach your ambitious objectives.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.