Pay off your home loan in less than 10 years
Many homeowners assume they’ll be tied to a 30- year mortgage, but an alternative approach could significantly reduce that timeframe to as little as seven to 10 years. The best part? This strategy doesn’t require any additional loan repayments – it leverages your home equity and invests in positive cash flow properties to accelerate your mortgage payoff.
The strategy
By tapping into your home equity, you can obtain a loan to invest in a positive cash flow property. Imagine this property appreciates at an annual rate of around nine per cent and generates a weekly cash flow between $100 and $200. You can use this positive cash flow to pay down your mortgage faster. Over approximately seven to ten years, as your investment property gains value, you may choose to sell it and apply the proceeds to pay off all, or a significant amount of your remaining mortgage balance.
Expanding your portfolio
If you have sufficient borrowing capacity and equity, you might consider investing in multiple investment properties. This approach can further accelerate your equity growth and reduce your home loan term even more quickly.
Market insights
Historically, capital city property markets have averaged nearly nine per cent annual growth over the past 60 years. These markets tend to follow cycles—about seven years of significant growth, often close to 100 per cent, followed by seven years of a plateau, experiencing minimal growth. During the plateau phase, rental returns and affordability gradually improve.
Currently, different markets are at varying stages of this cycle. For example, Sydney has just completed a boom phase and is likely to see about seven years of slower growth, with lower rental returns and reduced affordability. Meanwhile, cities like Brisbane, Adelaide and Perth are in the early stages of a boom, offering rental returns 50 per cent to 100 per cent higher than Sydney’s. Over the next seven to 10 years, these markets are projected to experience 60 per cent to 100 per cent more growth than Sydney, along with significantly higher rental returns. For every $1 million invested, you could see potential growth and rental returns ranging from $800,000 to $1.2 million.
Building an investment portfolio
Once you’ve paid off or significantly reduced your home loan, you can consider further investments to build a diversified portfolio, laying the foundation for a secure retirement.
Risk management
It’s important to understand that this strategy involves taking on additional debt in the short term, which comes with risks. You must evaluate your comfort level with increased loan repayments and develop strategies to mitigate potential risks. While the positive cash flow from your investment property should cover expenses, you should be prepared for scenarios such as rising interest rates, unexpected vacancies or unforeseen costs. Implementing risk management strategies like maintaining a cash buffer, securing adequate income protection and life insurance, and conducting thorough property research to find the right investments, can help protect your financial position.
Transform your future
Incorporating a strategic approach to accelerate your mortgage repayment can transform your financial future. By leveraging your home equity and investing in positive cash flow properties, you could pay off your mortgage in just seven to 10 years without making extra loan repayments. However, it’s crucial to be aware of the risks and implement proper risk management tactics.
Seeking professional advice from an experienced property wealth planner is highly recommended to successfully navigate this path. With careful planning, diligent monitoring, appropriate risk mitigation and informed decision-making, you can achieve mortgage freedom sooner than you ever thought possible. Take control of your financial future and embark on a journey towards a brighter and more prosperous life.
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