It may be possible to pay off your home in seven to 10 years, without extra repayments.
Many homeowners resign themselves to carrying the burden of a 30-year home loan. However, there is an alternative approach that can help you pay off your mortgage in a significantly shorter time frame, potentially within a third of the usual term. What’s more, this strategy doesn’t require any additional loan repayments. In this article, we will explore a method that leverages the equity in your home, and investments in positive-cash-flow properties, to expedite the repayment process.
The strategy
By utilising the equity in your home you can secure a loan to invest in a positive-cash-flow property. Let’s say this property experiences an annual growth rate of approximately seven per cent, generating weekly cash flow ranging from $100 to $400. The positive cash-flow from the investment property can be directed toward paying off your mortgage. Over a period of around seven to 10 years, as the investment property appreciates in value, you can sell it and use the proceeds to pay off a significant portion, if not all, of your remaining mortgage balance.
Expanding your portfolio
If you have sufficient borrowing capacity and equity, you may even consider investing in multiple properties, which can expedite the process of building equity and paying off your home loan.
Market insights
Historically, most capital city property markets have averaged close to nine per cent annual growth over the past six decades. These markets tend to follow a cyclical pattern, with approximately seven years of booming growth, often reaching nearly one-hundred per cent, followed by a flat phase of about seven years with minimal growth.
During this flat phase, rental returns and affordability gradually recover. Currently, different markets are at various stages of this cycle. For instance, Sydney has just completed a boom phase and is expected to experience approximately seven years of poor growth, accompanied by low rental returns and reduced affordability. On the other hand, cities like Brisbane, Adelaide, and Perth are in the early stages of a boom, offering rental returns that are 50 to 100 per cent higher than Sydney.
Over the next seven to 10 years, it is projected that these three markets will experience 60 to 100 per cent more growth than Sydney, along with significantly higher rental returns. Therefore, for every $1,000,000 invested in property the potential total growth and rental returns could range from $800,000 to $1,200,000.
The positive cash-flow from the investment property can be directed toward paying off your mortgage
Building an investment portfolio
Once your home loan is paid off, or significantly reduced, you can consider further investments to build a diversified portfolio, which can serve as a foundation for your retirement.
Risk management
It is essential to recognise that this property strategy involves assuming more debt in the short term, which inherently carries additional risk. Therefore, it is crucial to assess your comfort level with the increased loan repayments, and develop strategies, to mitigate potential risks. While positive cash flow from the property will typically cover the expenses, it’s prudent to be prepared for scenarios where interest rates rise faster than rental returns, unexpected vacancies occur, or unforeseen costs arise. Implementing risk-management tactics, such as maintaining a cash buffer, acquiring adequate income protection and life insurance, and utilising reliable property research to identify suitable investment areas at the right price, can help safeguard your financial position.
Incorporating a strategic approach to accelerate home loan repayment can revolutionise your financial journey and lead to a brighter future. By leveraging the equity in your home and investing in positive-cash-flow properties, you can potentially pay off your mortgage in just seven to 10 years, without the need for extra loan repayments. However, it’s essential to be mindful of the associated risks and implement proper risk-management tactics.
Seeking professional advice from a knowledgeable property investment advisor is highly recommended to navigate this path successfully. With careful planning, diligent monitoring, and informed decision-making, you can pave the way to achieving mortgage freedom sooner than you ever imagined.
Richard Sheppard is the CEO and founder of inSynergy Property Wealth Advisory. inSynergy provides a broad range of professional services designed to assist with all aspects of property investment. Phone 1300 425 595 or visit insynergy.net.au.