Five Simple Steps To Slash Up To 15 Years Off Your Mortgage
For most Aussie families, buying a family home is the most significant investment they'll make in their lifetime. And while they strive to pay down the mortgage as quickly as possible - it can often feel as though the journey is long and leaves little space or opportunity to invest any other means of growing their wealth. It can also create a mindset that there's no possible way that they could invest in a further property (what we call good debt) - even though that's not the case for most.
In the world of property, it's not just about the numbers; it's about understanding your unique financial landscape. Here are five essential steps that pave the way to your financial freedom utilising property as the vehicle to get you there.
Step 1 - Assess Your Financial Situation
Before you can work out where you are heading, you need to understand where you are coming from. That’s why it’s so crucial to assess your current financial situation – you need to know what you are up against.
Start by listing out all your assets. This includes your home, savings accounts, investments such as shares and bonds, cash on hand, vehicles and other considerable physical assets.
Next, move onto your liabilities. This includes any debt you have. Obviously, the main one will be your mortgage. Also add any credit card debt, lines of credit and overdrafts, car loans, business loans and student loans.
Subtracting your net liabilities from your net assets will give you an indication of your net worth, or your overall financial position. Don’t stress if you have a low net worth. We can work on that. Honesty is more important than pride at this stage.
Now it’s time to work out the amount of useable equity you have. This is different from equity.
Equity is calculated by subtracting the amount owed on your property from its value. So, for example, if your property is worth $750,000 and you owe $550,000, then your equity is $200,000.
Useable equity, on the other hand, is calculated concerning the amount a lender is willing to loan you – usually up to 90% of a property's value. So, take 90% of your property's value:
$750,000 * 0.9 = $675,000
Next, take that number and subtract the amount you owe:
$675,000 - $550,000 = $125,000 in useable equity.
Why is this important? Because you can use $125,000 as a deposit for an investment property! By using your current home as leverage, you can borrow 80% or more of an investment property’s value from a lender. This will give you enough money to purchase an investment property without having to use any cash of your own.
The best part about this strategy is that it’s a simple, 100% legal method that anyone can use. While many people are unaware of this ingenious strategy, almost all of Australia’s elite property investors use the power of leverage to build extensive portfolios worth tens of millions of dollars.
Another advantage of this method is that you can buy an investment property without having to empty your bank account of all your hard-earned savings. You can purchase your first investment property now, instead of spending years saving up for a deposit. This allows you to kickstart your wealth creation and get ahead of the game. By the time you retire, you could have two… three.. even four properties or more earning you a healthy, passive income – and it all starts by leveraging your current home to your advantage.
Step 2 – Talk To An Industry Specialist Like Your Property Investing
Now that you have a strong indication of your overall financial position, it’s time to start planning a way to increase your wealth. The best way to do this is to talk to an industry professional. That’s what smart investors do. They understand the limits of their knowledge. They can’t be experts in everything to do with property investment – so they use professionals to fill in the gaps of their knowledge and leverage the advice of people who have spent decades working in the industry.
At this point, you might be tempted to go to your bank, but I would advise against this option. Why? Because a bank manager is not a wealth strategist. He or she does not work for you – they work for the bank. As such, there is little incentive to help you get out of debt. Instead, opt for a specialist property investor. They will help you devise a tailored plan that benefits you, rather than one which benefits the bank.
At Your Property Investing, for example, we conduct a deep dive into your current financial situation and have a detailed discussion of your goals for wealth creation. Then, we organise a tailored strategy to help you achieve these goals, pay off your mortgage and set yourself up for a financially free retirement. We help you understand the industry inside out. That way, instead of being in debt to the bank, you can beat them at their own game.
Step 3 – Implement The Tailored Plan You Have Agreed Upon
The next step is to implement the plan you and your investment advisor have agreed upon. At Your Property Investing, this will include several aspects, from the consolidation of your debts to a simple cashflow plan you can follow.
As part of the plan, you will likely need to restructure your home loan. There are numerous ways to do this to reduce the amount of money you will pay over the lifetime of your loan. As an example, one method is to use an offset account.
An offset account works similarly to a standard transaction account, but it is linked to your home loan. While most lenders will charge a fee for the account, it will allow you to reduce the amount of interest you pay. This is because you do not need to pay interest on the amount you have in your offset account.
For example, let’s say your home loan is $500,000. You deposit $20,000 into your offset account. Now, instead of being charged interest on the total amount, you’ll be charged interest on $480,000. This will continue to happen as long as the $20,000 remains in the offset account.
An offset account is just one of many ways you can reduce the amount of interest you have to pay. At Your Property Investing, we can help you put the best structure in place to keep more money in your pocket, allowing you to invest what you save to generate greater long-term wealth.
Step 4 – Stay On Track To Meet Your Goals
Once we have implemented the tailored strategy, you simply need to hold yourself accountable to ensure you remain on track to reach your goals. You won’t be alone, of course. We will review the plan every six months to ensure key performance indicators are being met.
Along the journey, there are other ways you can increase your chance of success. By learning how to take full advantage of your income, for example, you can speed up your mortgage repayments. That’s the goal here after all – to pay off your mortgage quickly.
The best thing you can do to make this easier is to maximise your income. How? By reducing your weekly expenses. This does not mean you have to stop spending. Far from it. But you should sit down with your family and work out which of your expenses are necessary, and which can be cut down.
Instead of ordering takeaway every weekend, try cooking at home. Rather than buying your morning coffee from your local café every day, make one at home. It’s up to you to separate the wants from the needs.
You don’t have to completely sacrifice your current lifestyle, but saving a few dollars here and there can quickly add up. And every dollar you contribute to paying off your home can reduce the amount of interest you pay and help you eradicate debt more quickly.
Step 5 – Reap The Rewards (the best one!)
Successful property investment can bring many good things to your life. It can help you pay off your debt and enjoy a comfortable life with your family. It can help you retire early without relying on the pension or your superannuation to pay the bills. It can give you the freedom to travel the world and make the most of your golden years.
Of course, generating substantial wealth takes time. It requires patience and discipline. But the rewards are worth it. By getting started today, you will put yourself on the path to future financial freedom. My team and I can help you stay on track to ensure you reach your goals.
Take the first step today
With more than two decades of experience in the industry, I know how to craft property investment strategies that deliver returns. For a single, one-off fee, I guide my clients through every step of the process, from defining your goals to executing your strategy.
In line with your strategy, I’ll research and find the properties that will help you achieve your financial goals and hold your hand through the buying stage and beyond. It’s the faster, smarter way to grow your wealth; putting money in your pocket without you having to lift a finger.
Book a wealth accelerator call so we can start paying down your mortgage and part of building your strategy for a wealthier future.
The information in this article is general in nature and does not constitute financial advice. You should seek independent legal, financial, taxation or other advice for your own unique circumstances.