How to pay off a 30-year home loan in 7-10 years

How to pay off a 30-year home loan in 7-10 years

A couple of years ago I meet a 33 year old who owned a 2 million dollar home on the water in Sydney.

I asked him how he had done this at such a young age?

His response was simple. Buy a principle place of residence with growth potential every two years, fix it up and sell it for a profit.

There are many different approaches to owning your own home sooner.

In this article we look at a four different approaches to paying off your 30-year home loan in 7-10 years.

1. Increase the principle component of your weekly or monthly home loan repayments

This is the most basic strategy and one that has helped many young Australians own their own home outright.

This approach is simple:

  • Identify the interest and principle components of your home loan
  • Look at re-financing your home loan to a lower interest rate
  • Change your loan repayments period from monthly to weekly
  • Identify how quickly you would like to own your own home
  • Pay the appropriate amount of additional income each week to the principle component of your home loan to achieve your goal

Its surprising how much time and interest you can wipe off your loan over 30 years by following this strategy.

2. Pay a percentage of any additional income you receive towards your home loan

Each year most of us receive a combination of tax returns, bonuses, pay rises or some form of additional income. Unfortunately many of us waste the opportunity these large chunks of additional income provide in terms of reducing our home loans.

A couple of years ago I set a budget and made a commitment that each time I receive a tax return, bonus, pay rise or any additional income I would:

  • Spend 25% of this additional income on improving our families lifestyle
  • Re-pay or re-invest 75% of this additional income

Im a huge believer in making sure you reward yourself and your family for your hard work on your way to financial independence, this additional 25% allows us to do this.

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3. Buy and sell your principle place of residence every 12 – 24 months 

This strategy requires you to buy and sell your way to owning your own home.

This strategy is risky as it requires you to have a deep understanding of the market you’re buying in. Its also a disruptive strategy as it requires you to buy, sell and move every 12 – 24 months.

This strategy can be effective as Australians do not pay capital gains tax on their principle place of residence. Its important to remember you need to buy the right sorts of properties, in the right locations, at the right time in the market to make this work.

An example of this strategy over a five year period is as follows:

Year 1

  • Save a $40,000 deposit
  • Buy your first property for $420,000
  • Renovate this property
  • Sell this property for $480,000
  • Net profit (after entry and exit costs) $30,000
  • Savings after the sale of this property $70,000 (deposit + net profit)

Year 2

  • Deposit $70,000
  • Buy your second property for $420,000
  • Renovate this property
  • Sell this property for $500,000
  • Net profit (after entry and exit costs) $45,000
  • Savings after the sale of this property $115,000 (deposit + net profit)

Year 3

  • Deposit $115,000
  • Buy your third property for $460,000
  • Renovate this property
  • Sell this property for $540,000
  • Net profit (after entry and exit costs) $50,000
  • Savings after the sale of this property $165,000 (deposit + net profit)

Year 4

  • Deposit $165,000
  • Buy your third property for $480,000
  • Renovate this property
  • Sell this property for $600,000
  • Net profit (after entry and exit costs) $70,000
  • Savings after the sale of this property $235,000 (deposit + net profit)

Year 5

  • Deposit $235,000
  • Buy your third property for $500,000
  • Renovate this property
  • Sell this property for $600,000
  • Net profit (after entry and exit costs) $70,000
  • Savings after the sale of this property $305,000 (deposit + net profit)

Net profit (plus initial deposit) over 5 years $305,000.

You can repeat this process until you own your own home outright or you can use it as a strategy to make large chunks of cash quickly.

4. Build a property portfolio 

This strategy involves building a profitable property portfolio over a period of 5 – 10 years and then selling a number of properties to pay off your home loan.

This strategy works by using your additional income to purchase investment properties instead of paying off your home loan.

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Disclaimer:

The information provided in this article is of a general nature only and in no way constitutes legal or professional advice, or specific advice in relation to any finance, tax or the law. In all cases we recommend you receive professional advice based on your own personal circumstances.

Pumped on Property does not claim rights to any media posted unless specifically stated otherwise. Media are used solely for the purpose of discussion, comment or visual aid. We are not responsible for the source or editing of any media, unless stated.

Ben Everingham

About

Ben founded Pumped On Property after building a multi-million dollar property portfolio over a 5 year period. His mission is to show you how to replace your income through property investing so you can do what you love…full time.