Q: My partner and I are expecting to get about $15,000 back on our tax return combined. We owe a little on our credit card, have a small outstanding personal loan, some money in a term deposit and a pretty hefty mortgage on our home. What should we spend our tax return on?
A: Tax time can be a great way to get a bit of a cash injection, especially if you haven’t factored it into your annual budget.
It could help you pay for that family vacation you’ve been hoping to plan, or be used to pay down some debts or help you to get ahead on your mortgage, which seems to be the sensible approach you’re considering.
When working out which debt you should pay off first or how to get the most out of your tax return, there are a few things to consider.
I am a firm believer in paying off as much of a home’s mortgage as possible, however if you have other debt on a credit card or a personal loan with a far higher interest rate than your home loan, then it might be worth considering paying down those debts first, or managing your bills with a debt consolidation plan.
If you have money left over after paying off some of your other debts, then you have a few options. Generally speaking, home loan interest rates are higher than interest rates on term deposits, so your money will go further for you if it’s put on your mortgage.
If you still want access to your money, then putting it in your home loan’s offset or redraw account is one way to go. While there are differences between offset and redraw accounts, essentially they are both designed to help you use your money to reduce the amount of interest you pay on your home loan.
If you’re not sure if you have an offset or redraw account I’d suggest you check with your lender. If it turns out that you don’t but you think you want this flexibility, a free appointment with a mortgage broker can help you to find a new home loan that will suit your needs.
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