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Unlock the power of equity to pay off your home loan faster. Learn expert strategies to leverage the value of other properties to achieve financial freedom sooner.
One of the primary goals for any Australian looking to secure their financial future should be to pay off their home loan early. The good news is that you can achieve this by employing smart strategies and leveraging the equity in other properties you have.
Equity, in financial terms, means ownership. Your equity equals the current market value of your property, less any amount you owe on its loan. For example:
Your property equity increases overtime as your loan reduces and the value of your property increases. Many Australians have seen their equity increase significantly in recent years due to the property boom.
For most Australians who are paying off their own home, it is their largest financial asset. However, unlike cash or share-based investments, people don’t think of the equity that they have in property as funds that are available to invest to help them get ahead.
But savvy investors can use the equity that they have in their investment properties as a deposit for another property (or multiple properties) or to pay off their home loan faster and build their long-term wealth.
Equity grows over time as loan repayments are made and properties increase in value. History shows that property prices in Australia have achieved long-term growth over several decades, especially properties in attractive locations that are consistently in high demand.
Attractive locations usually have many or all the following characteristics:
As your properties appreciate and your equity builds, you can restructure to pay down non-deductable debt.
Lisa and Bryce are a great example of two people who have strategically bought investment properties in attractive locations. Their investment goals were to pay off their home loan faster and build their long-term wealth.
After consulting our team at DPN to help them develop an investment plan, they decided to use the equity they had built up in their home to buy their first investment property in 2015.
As with all our property investment plans, we provided Lisa and Bryce with a range of property purchase recommendations in high-growth areas that suited their investment budget.
They settled on Fern Bay for their first investment property purchase in 2015 (a new 4-bedroom house and land package) followed by a second property (a new duplex that generates two rental incomes) in Ballina in 2018.
Both properties have since delivered a high rental yield (6% per year in Fern Bay and 7.4% in Ballina) and high capital growth (54% in Fern Bay and 53% in Ballina). Due to the substantial capital growth of both properties, Lisa and Bryce’s equity in both has also increased significantly. They now view these investment properties as great ‘deposit vehicles’ to help their children enter the property market one day.
Crucially, the couple have used part of the substantial rental income generated by their investment properties to help them pay off their home loan faster. They prioritised paying their home loan debt faster than their investment property loans because unlike investment property interest, owner-occupier home loan interest isn’t tax deductible.
By 2022, Lisa and Bryce had fully paid off their home loan years early! It is proof that the great Australian dream of home ownership is very much alive if you are smart with how you go about it.
If you are paying off a property loan, you can use the equity you have in that property to buy one or more investment properties. As these properties appreciate and your equity builds, you can restructure your finances to pay down any non-deductable debt first, e.g. your home loan.
Strategically buying one or more investment properties in attractive, high-demand locations can supercharge your equity. This will enable you to build your wealth so you will be mortgage free and financially secure much sooner.
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