WEALTH HUB JOURNAL

How You Can Own Your Own Home and Achieve Financial Security

Many Australians are struggling to pay their debt, and even those who are on top of their monthly payments may be feeling anxious at the thought of carrying that debt into retirement. No one wants to spend their golden years worrying about loans—particularly not their mortgage.

A home loan is the largest debt for most people, and if a situation arises where they can’t make their payments, the very floor beneath their feet could be at risk.

However, there are strategies for paying off your home loan sooner that are easy to overlook. And not only can the right strategy resolve your largest financial burden earlier than expected, it can also set you up for financial security in later life.

At Wealth Hub Australia, we show our clients that it’s easier to get out of the trap of your mortgage payments than you might think. In fact, you may be able to start enjoying a debt-free life and start creating wealth well before retirement.

You’ve probably heard the same advice all your life: Pay off your debt first, then start creating wealth. But what many people miss out on is the fact that investing can help you pay off your debt—even if it means going deeper into debt to reach your investment capital.

Here are some ways you can get out from under your lender’s thumb faster and start living the life you want.

Building Wealth vs Saving Money

Contrary to a popular misconception, building wealth and saving money are two separate things. While putting away money in a savings account is a tried-and-true way to save money, this method is vulnerable to inflation, and it can take decades to see real earnings.

By contrast, if you save money with the intention of purchasing assets while paying off debt, you can build real, generational wealth. This strategy isn’t as safe as trusting a savings account—investments can be unpredictable—but with a savings mentality, you can reach and exceed your goals faster and achieve a level of financial security you may not have thought possible.

So how can you build a legacy while reducing your debt?

Where Will You Be in 20 Years?

Say you have a $500,000 home and are making minimum monthly payments on a 30-year loan. As house prices go up a few percent each year for the next 20 years, your home may be worth twice what it is now. Unfortunately, if you’re still paying your mortgage, you’ll still have hundreds of thousands of dollars in principal remaining on your loan. This kind of burden may be manageable, but how will that translate to your retirement plans? Or what you hope to leave for your children?

However, with an investment property portfolio accruing passive income all this time, you’ll be in a much different situation in two decades when you want to start enjoying the next phase of your life without financial stress. Here’s how things could look for you with a wealth-building mindset.

How a Wealth-Building Mindset Can Change Your Future

What if you purchased a second property?

Instead of just making the minimum monthly payments on your $500,000 home for 20 years, if you proactively bought a second $500,000 home as an investment, you’d spend those 20 years raking in passive income.

Monthly rent streaming in from your tenants plus the tax benefits would put you in a position for mortgage reduction, sling-shotting you ahead of where you’d have been if you’d followed the first strategy.

Imagine living your golden years with no mortgage and enough savings to do what you want. That’s not only financial security for you, but also a legacy for you to leave to the generations that follow you.

It may be hard to believe that this could be your future, but if you start using your capital to pay down debt today, it’s achievable. It starts with a mortgage reduction program, and here are tips on how to make the most of it.

1. Opt for an Offset Facility

You can reduce your base mortgage and the amount of interest you’ll pay with an offset facility. It’s a savings account attached to your mortgage that you deposit your money into instead of a traditional savings account. The benefit is that this money is offset against your capital instead of your interest, paying down more of the debt on your home even though your rate hasn’t increased.

The more money you deposit into your offset account, the sooner your home will be paid off.

2. Switch to More Frequent Mortgage Payments

Every day that you are in debt, your interest is adding up. A sizeable loan like a mortgage can grow to monstrous proportions if you allow your payment plan to stretch on to the horizon. Instead, if you switch to a twice monthly or weekly payment plan, you will significantly reduce the total amount of interest you will pay over the years.

You’ll pay more often, but if you can accommodate more frequent payments, it will save you a serious amount of money in the long run.

3. Build Your Property Portfolio

A mortgage reduction program will free up some extra money, so what’s the smartest thing you can do with it?

Purchasing investment properties will create streams of passive income and help you tackle your primary debt faster and reach a state of financial security sooner.

Your offset facility makes you eligible for some ATO tax benefits, and if you put those savings into your offset along with the monthly rent coming in from tenants in your residential or commercial properties, you can attack the loan principal on your home more aggressively.

With all these strategies in place, you can pay off your 30-year mortgage in half the time or less. And with the passive income you’re still earning from your investment properties, your options for retirement are a lot more favorable.

It’s Never Too Early to Get Started

Whether you’re in your golden years now or they’re still decades away, you can take control of your financial future today. Without a strategy, you’re setting yourself up for stress and a debt burden that will limit your options dramatically.

A strategy requires planning, so before you purchase investment property, explore your options for mortgage reduction and how tax variables may impact your debt repayment.

Creating generational wealth requires a long-term strategy and clearly defined goals, but with planning and smart decisions, you can achieve financial security, retire well, and pass on a legacy.

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