Use Your Equity To Pay Off Your Home…How?
Use your equity…
This one is a little left of centre, considering in previous posts I have been showing you ways to reduce debt. Now, I am going to suggest borrowing more, ultimately to reduce debt. When I first entered the world of finance broking, I would hear stories about people paying off their loan in 10 years. I always thought that only the wealthy could do this; there was no way I could manage to double my repayments to make this happen. Again with our $400,000 loan, at 6%, I would need to pay $2,050 extra per month, on top off the already $2,398. Whoa, a bit of an ask? However, to achieve this aim, you could purchase a well selected investment property. I must stress that this really relies on choosing the right property to achieve capital growth, a property that will double in value every 10 years. This strategy may not be suitable for everyone.
Case Study
scenario
• Current home value $500,000.
• Current mortgage $300,000.
• Current loan repayments $1,610 per month.
• Interest rate 5% per annum.
• Time remaining with mortgage 30 years.
• Total repayments over 30 years $579,438.
Position Year 1.
For ease of illustration I have not included costs such as stamp duty etc. As a rule of thumb in Victoria one should add 5.5% to the purchase price to ascertain associated costs for an investment property.
Position Year 10.
Sell investment property for $800,000 and repay both investment loan and home loan leaving no debt on your current home loan.
End Position
Investment property sold for $800,000. Investment loan of $300,000, paid out. Investment loan of $100,000 attached to own home paid out. Home loan of $300,000 paid out. Own home worth $1,000,000 with no debt. Cash in bank $100,000, time to invest again.
Disclaimer and notes.
Does not take into account principle and interest repayments on existing home loan, balance after 10 years = $244,000. Selling costs and capital gains not taken into consideration for this example. The information provided is of a general nature and we would encourage you to discuss your personal circumstance with your broker or financial planner and or accountant. You should seek professional advice before you implement any new approach to ensure that it is appropriate for your circumstance.
Past results do not guarantee future performance
