How Homeowners Can Use Their Tax Refunds to Save Money
Category Property Advice
It's that time of year again - tax season. For many South Africans, it's an opportunity to get a financial boost, thanks to refunds from the SA Revenue Service (SARS). While it may be tempting to splurge on a vacation, new gadgets, or a family outing, homeowners should consider using their tax refund to save money in the long term by investing in their homes.
You still have time until 21 October 2024 to file your tax returns. Here is our list of what you could do with your refund to better your financial situation and increase your property's value:
1. Reducing your home loan debt
One of the most financially beneficial things homeowners can do with a tax refund is to use it to pay off their home loan. By making an extra lump-sum payment to reduce the capital portion of your mortgage, you can significantly lower the interest you'll pay over the life of the loan.
For example, if you have a 20-year home loan of R1 million at 11.50% interest, just one additional payment of R2,400 could reduce your loan term by two months and save you almost R6,242 in interest over time. Making a habit of this annually can result in substantial savings and allow you to pay off your home faster.
Want to turbocharge your repayments even more?
Rounding up your home loan payments to the nearest hundred or thousand can make a substantial difference over the life of your loan. For example, if your monthly repayment is R9,395, round it up to R9,400. These small incremental payments add up over time and help reduce both the principal and interest owed.
2. Boost the value of your property with home improvements
If you prefer to see more immediate results, using your tax refund for home improvements can be a wise investment. Not only will these upgrades make your home more comfortable, but they can also increase its value when you decide to sell.
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Add a second bathroom: If your home currently has only one bathroom, adding a second one can make everyday life more convenient and enhance the appeal of your property to future buyers.
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Fresh paint: A fresh coat of paint can instantly update your home's appearance while protecting it from wear and tear, reducing future maintenance costs.
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Enhance security: Upgrading your home security system not only provides peace of mind but can also lower your insurance premiums.
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Install roof insulation: Proper insulation will help regulate the temperature in your home, saving you money on heating and cooling costs.
Before taking on any home renovations or improvements make sure that you are making the right choices by talking to your local real estate agent. They will be able to help you understand which features will add the most value to your home.
3. Cut municipal service costs with energy and water efficiency upgrades
With rising electricity and water costs, making eco-friendly changes to your home is another great way to use your tax refund.
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Switch to LED lighting: LED bulbs use significantly less energy than traditional incandescent bulbs and last much longer, helping to lower your electricity bills.
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Install low-flow fixtures: Tap aerators, low-flow showerheads, and toilets can reduce water consumption without compromising performance.
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Upgrade to energy-efficient appliances: Replacing older, power-hungry appliances like fridges or washing machines with energy-star-rated models can result in big savings on your electricity bill.
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Install a water storage tank: Collecting rainwater in a storage tank can significantly reduce your reliance on municipal water and lower your water bills.
4. Consider renewable energy
If you're inclined to "splurge" on something that will offer long-term benefits, consider investing in renewable energy options for your home. Installing a solar geyser or photo-voltaic panels can help you transition your home to run on clean, free energy, leading to significant savings on electricity over the years.
Remember that while a tax refund can feel like found money, homeowners have a unique opportunity to leverage it for long-term financial gains. Whether you're cutting down on interest payments, increasing the value of your property, or lowering your energy and water consumption, making smart choices with your tax refund can offer a significant return on investment.
5. Plan for the future
If your refund allows you to divide it into paying a lump sum into your home loan and saving the rest, for example, it would be wise to put that extra money into a savings account for a rainy day.
While we can't predict the future we can try to prepare as much as possible by having an emergency fund to dip into when the need arises. This could be anything from replacing a burst geyser or having a buffer if you are in the unfortunate situation of being without work.
It might not be the most exciting way to use your refund but it is certainly the best way to build your financial fitness.
Author: Harcourts Summerton
