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How To Pay Off Your 30 Year Mortgage in 5-7 Years

real estate

In this article we will explain a strategy for paying off your mortgage in just five to seven years. You can apply similar techniques to other kinds of debt such as personal and car loans.

Start by thinking about your total yearly income (after tax), and divide this by 12 to get your total monthly income. For this example let’s consider that your yearly income after tax is $60,000, then you will have a monthly income of $5,000.

Next, look at your monthly expenses:

  • Mortgage repayments: for example on a $200,000 loan, with a 30 year fixed mortgage, you may have a monthly repayment of $1,200 at 6% interest
  • Credit card repayments: for example if you have $12,000 owed on credit cards, your minimum repayments will be around $600 per month, with 16% interest
  • Car loan repayments: may be around $600 per month
  • Living expenses (food, utilities, entertainment): for this example let’s estimate $1,200 per month

So for this example total expenses per month are $3,600. Take this from your after-tax monthly income and you will have $1,400 left over. Most people will take this $1,400 and put it into a savings account for either long-term or short-term savings.

This means at the end of the month, you have earned $5000 and after considering repayments, living expenses and money put into savings, you will have spent $5000, so will have zero cash flow.

This is a very common way for people to manage their finances, however there is an alternative approach that you may want to consider if you want to pay off your mortgage in 5-7 years rather than 30.

First, lets look at some important information you need to understand about your debt and your finances.

  1. Understand the difference between interest paid on your credit card and interest on your home loan

Although on your credit card you are paying 16% interest, and on your home loan you may only be paying 6% interest, and so it seems that you are paying much higher interest on your credit card compared to your home loan.

However, there are two key differences between these types of debt: Firstly, your credit card is revolving or two-dimensional, which means as soon as you pay down your card you can access those funds again and use your card for purchases. Your home loan on the other hand is one-dimensional, meaning once you pay off a portion of it you no longer have access to those funds.

Secondly, your credit card calculates interest as simple interest: that is, a basic percentage on the money that you owe. Home loans are amortized, which means that you are paying interest calculated on the expected life of the loan.

  1. On a typical home loan schedule, you will only start to pay off a large portion of the principal 17 years into the loan

Lenders calculate home loan repayments based on the interest you are going to have to pay across the life of the loan. For most mortgages, the vast majority of your payments at first are going towards paying off interest, and only a small amount going towards the principal. In most projections, the point where you will start to make real headway on paying off the principal is 17 years into the life of the loan!

For our home loan example above, of the monthly repayment of $1200, at first you can expect that around $950 goes to repay interest, and $250 goes to pay off the principal.

Let’s look at what happens four years into your home loan.

4 years x 12 months = 48 months total, so 48 x $1,200 monthly repayments = $57,600 paid in 4 years

Using our month repayment breakdown, in the first 4 years you will have paid:

$950 x 48 = $45,600 paid towards interest

$250 x 48 = just $12,000 paid towards the principal of the loan

So, of your $200,000 loan, you have only reduced it by $12,000 in the first four years, even though you have paid $57,600 towards your mortgage in this time.

It is important to understand how this works particularly if you are considering refinancing your mortgage. Often you will have the opportunity to refinance your loan at a better interest rate, which can be a great idea and help you pay off your mortgage sooner. However, it is important to check whether refinancing your mortgage will mean “resetting the clock” on your amortization schedule, meaning a higher percentage of your repayments will go toward servicing interest again, like they did at the start of your loan.

Worst case scenario, if you keep refinancing your mortgage every four years, you could be stuck in a cycle of paying interest on your loan only rather than the principal, and never paying off your loan!

A handy tool for calculating your mortgage and the best options for you is Carl’ Mortgage Calculator, which you can access here for Apple of here for Android.

Another important thing to consider is whether putting your money into a saving account is the smartest thing to do. For a young age, we are told to put our money into savings. However, if you put the $1400 in our worked example above into a savings account, you may receive around 1% interest on this money. However you are still paying interest at a much higher rate on your credit card and your home loan.

Considering all of this, there is an alternative strategy to managing your finances. Under this alternative strategy, the approach is:

  • Take your entire monthly income of $5000 and use this to pay off your credit card. So in the example, your credit card balance will reduce from $12,000 to $7000.
  • Use your credit card to pay your living expenses and your mortgage, bringing your credit balance back up to $9000.
  • By making these kinds of payments every month, in this example you will have completely paid off your credit card in 6 months.
  • You can then take the $12,000 of available credit on your card and use this to make a payment on your mortgage. It is very important that this payment goes towards the principal of your loan, rather than interest.
  • From here you will have $12,000 of credit card debt, but you can pay it off across the next 6 months using the same strategy (steps 1-4 above).

Consider that by this method you will pay off $12,000 of the principal of your mortgage in 6 months, whereas in the traditional method it would take you four years to pay $12,000 off the principal of your home loan. Moreover, you will save paying $45,600 in interest.

You may also be concerned about having emergency back-up funds. However, in this example you will be continually paying down your credit card, so you will always have the balance off your card available to cover emergencies which come up. It is important (for this reason and also to maintain a good credit rating) to never completely max out your credit cards.

Continue this strategy, paying off $12,000 from the principal of your home loan every 6 months, meaning that you will be able to pay off your $200,000 home loan in around 8 years. However, you should be able to reduce this time even more because if you regularly use this much credit and consistently pay it off on time, your bank is likely to offer you a higher credit limit, meaning you can pay off $15,000 or more every 6 months, and so will easily pay off your 30 year mortgage in 5-7 years!

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Experts’ advice on paying your mortgage off in a fraction of the time

property real estate

Purchasing a home is likely the biggest investment you’ll ever make. It will probably also be the best investment you make in your lifetime: allowing you to raise your family in your dream home, while gaining a foothold in the lucrative investment market. However, for most buying a house also involves taking on a large amount of debt for up to 25 years.

It is possible to pay off your home loan in a much shorter amount of time – even as little as 10 short years – and enjoy the financial freedom of outright home ownership! Here are tips and advice from the experts to allow you to do just that.

Make a considered decision on setting your price bracket

Before anything else, paying off your mortgage comes down to how big your loan is in the first place. This means that when you decide on how much you can afford to borrow (and therefore what kind of house you can afford to buy), be sure to be sensible about what mortgage is right for you. Just because banks and lenders are willing to lend you a certain amount of money, doesn’t mean you should take it. In order to pay off your mortgage sooner it is important to make as many additional payments as possible, but this will be practically impossible if your loan is so large that you struggle to make the minimum repayments every month.

Before deciding on the price bracket of the home you can afford, do a comprehensive analysis of your budget. How much is your total monthly income, including extras such as bonuses and dividends?  What are your regular living expenses, including everything you will spend money on? Be realistic. Subtract your monthly expenses from your monthly income to determine your maximum monthly mortgage repayment.  If you are struggling to find your dream home in your price bracket, it may be time to reconsider location and house size – do you really need to be close to the CBD or have that extra bedroom?

Then set a goal for how soon you want to pay off your mortgage, whether it is 5 years, 10 years or something else. From there you will be able to calculate how much you can borrow in order to pay off your mortgage in that time frame.

Pay off and consolidate other debts

Another part of the preparation phase is addressing all your other debts before you take on a mortgage. It is important to pay as much of your personal loans, credit card balances and any other debt you may have before taking out a mortgage.

Good financial practice is to pay off “expensive” debt, that is debt with the highest interest rates and fees, first. Generally, credit cards and personal loans incur significantly higher interest than your large mortgage, so these should be attacked as a priority.

Or even better, if possible you should consolidate all of your debt in one place, usually meaning bringing your personal loans etc under your home loan. This means you will pay the lower interest rate on everything, and so will pay less over the total life of the loan.

Make bigger payments, more often

It may be obvious, but it is worth pointing out: in order to pay off your mortgage faster, you need to pay more than the minimum payments, on a regular basis. There are a few tricks to make it easier to do this.

Firstly, make it your standard practice to pay above the minimum amount every month. You can calculate how much you need to pay in order to pay off your mortgage in your goal amount of time using the method described above. You may also find it easier to make fortnightly, or even weekly payments which add up to this amount, rather than monthly, which can be less stretch when paying this in smaller chunks. This also means over the whole year you will end up making the equivalent of one extra monthly payment, as there are 26 fortnights in a year but only 12 calendar months.

Finally, anytime you come into any extra money, big or small, put this straight into your mortgage. Tax refund time? Pay it straight into your home loan? Bonus from work or birthday cheque from Grandma? Likewise. Before you do any of this however, you will need to check with your lender as to their rules on making additional payments, so make sure you ask about this when investigating loan options in the first place.

All of this will help you to hit the principal part of the loan as soon as possible, rather than only paying off the interest. The reason many people take 20, 25 or even 30 years to pay off their mortgage is that they spend the first years paying only interest while the principal remains untouched, and keeps generating more interest. In this way, you will end up paying much more overall across the total life of your loan.

Cut out luxuries you don’t need

If paying off your mortgage sooner is a priority, take a hard look at your expenses and see which luxuries you can cut out in order to put that money toward your home loan. A good start is to make a spending record of every cent you fork out – you will be surprised by how much you spend on unnecessary items like take away coffees, parking fees and eating out.

By setting up frugal measures such as eating at home more, catching public transport and cutting back on indulgences, you can save a significant amount of money which can go straight into extra mortgage repayments. Some of these may be a challenge, but consider them short-term hardships: after all, once you have paid off your mortgage you will have your entire income to spend on luxuries, holidays and whatever you wish!

A great way to bring in some extra income can be to rent out space in your house. If you go away on holiday, rent your home out on Airbnb. If you have a spare room, consider renting it out – this will not only bring in cash which you put towards extra mortgage repayments, but your new lodger will help share utilities and internet bills. If you don’t have a spare room (or don’t like the idea of a housemate) you may be able to even rent out your garage as parking space depending on your home’s location.


Don’t settle for your mortgage once you have it, always be on the look out for a better deal! The market is constantly changing, so continuously check for loans offering better interest rates or otherwise better terms and conditions. Most mortgages have the option to refinance, which could mean paying your loan off much quicker if you find a better deal.

Sometimes you won’t even need to go ahead and refinance in order to get the better deal: if you call your lender and tell them you are considering refinancing with someone else they will often offer you a better rate with them.

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21 Ways on how to pay off your mortgage faster (painlessly)

real estate

Acquiring a mortgage is usually necessary to be able to buy your dream home, however it can be a large burden. Luckily, there are a range of things you can do to buy this debt off sooner – check our list below!

  1. Make as many extra payments as possible

The interest incurred on a home loan can be huge. Therefore the more you pay off sooner means you pay less interest, and can significantly reduce the total amount payable over the life of the loan.

  1. Imagine you have a higher interest rate

A great strategy to pay off your loan sooner is to make repayments based on a higher interest rate than you are actually paying. When calculating your repayments, add 2 or 3 points onto the current interest rate, and you will make great headway into paying off your mortgage!

  1. Look into financial packages

Financial packages, such as bundles of home loans with home insurance or fee-free credit cards, can represent great overall savings. When shopping around for a mortgage, be sure to ask what packages they offer.

  1. Avoid Honeymoon rates

So called “Honeymoon” rates can seem attractive to home buyers. These involve loans which have a cheap rate to start off with, which then goes up after the initial period (generally 1 – 3 years). The problem with these is that after the initial period your loan switches to a high interest rate which is usually higher than other loans available, and in most scenarios you end up paying more in interest over the whole life of the loan.

  1. Make payments more often

If you struggle to make big monthly payments above your minimum repayment, consider making smaller payments more often. Paying small amounts when you can can be a great way to chip away at your mortgage without suffering the pain of shelling out large amounts of cash at once – and these small amounts add up! Consider making regular fortnightly payments rather than monthly.

  1. Don’t just pay the interest

Especially in the first few years of the loan it can be common to pay off the interest only, without touching the principle at all. However, in order to pay off your mortgage quicker it is important to make sure you attack the principle straight away. Try to keep track of your mortgage and make sure you are paying down the principle, not just interest.

  1. Put all your debts in one place

If you have multiple debts – for example a personal loan and credit card as well as your mortgage – be sure to bring them all together under one loan. This means you can make one repayment for all, and most importantly will pay the same interest rate across the whole loan, which will almost always be lower for a home loan compared to credit cards and personal loans.

  1. Investigate All-in-one loans

All-in-one loans, also known as 100 percent offset loans, take this one step further by putting all of your finances together into one account. This means the same account where you take your mortgage from will also be the account that your income is paid from, and where you take money from for expenses. This can make a huge difference to paying off your loan because by putting your income directly into your mortgage account you will reduce the principal of your loan, and therefore reduce the amount of interest you are paying.

  1. Not sure whether to go for a fixed or variable interest rate? Try a split loan

Split loans, sometimes also known as combination loans, assign part of your loan to fixed interest rates, and the other part to variable. This means you are covered both ways, no matter whether interest rates go up or down.

  1. Pay mortgage fees and charges up front

When you take out a mortgage, there are a number of fees and charges which apply, which some lenders will allow you to add these to your loan rather than paying upfront. Although this can be tempting, it is better to pay these immediately to avoid having to pay interest on this amount in addition to the principal of your loan.

  1. Pay the first instalment in advance

Likewise, for new home loans you often are not liable to pay the first instalment until a month (or more) after settlement. However, making the first payment on the settlement date means you are closer to paying off the principal of your loan and lowering the total amount of interest you pay on it.

  1. Leverage your equity

Once you have paid off a portion of your house, that becomes an asset which you own. In financial terms, this is known as equity. You may also have additional equity if the value of your home has increased since you bought it, as equity is calculated based on the value of the property, less the amount owing on your mortgage. If you have equity on your home, and are thinking of borrowing money for other purchases such as a vehicle, you are much better off borrowing against the equity of your home loan and enjoying the lower interest rates.

  1. Shop around for the best deal

There are literally dozens of lenders and brokers to choose from, so make sure you do thorough research before settling on the best deal. Furthermore, when you do start the process of applying for your loan, make sure you are armed with all the information on alternative loan options, so that you can negotiate the best possible terms with your lender. Don’t forget that some lenders offer discounts to specific professional groups, so be sure to ask about this also.

  1. Be clear on the best loan for you

As you are investigating different loans and weighing up your options, make sure you are clear on what you want and need from your loan. Make a list of all the features you want from your home loan and rank them according to importance. Then assess each loan against these criteria.

  1. Include smaller lenders in your search

One mistake buyers often make is overlooking or being wary of smaller, “non-traditional” lenders. Although the big lenders may seem like the better option, many smaller lenders offer very competitive loans that are worth considering if they are the best option for you.

  1. Don’t be stuck with one lender

Even once you have signed up for a home loan, you shouldn’t stop looking around for the best rates. Always keep an eye out for new mortgage offers which may be better than your current loan, as in most circumstances you can change mortgage providers with little or no fees.

  1. Don’t be tied to one property

Given the length of time it takes most people to pay off their mortgage, it is very possible that you may want to move house in this time. If this happens, it is much more financially advisable to take your mortgage with you to the new property rather than closing out and applying for a new loan. When you sign up for your home loan in the first place, make sure it is transferrable to a new address without incurring ridiculous fees and charges.

  1. Open an offset account

If you have a savings account, consider changing this to an offset account instead. This means that rather than earning interest (which on most savings accounts is pretty minimal) you will offset the interest you are paying on your home loan. Ideally, you will find an offset account which pays the same rate of interest as the interest you have on your mortgage, giving you a 100% offset.

  1. Use your savings to invest

Once you have secured the best possible interest rates, you can really put the difference to work by using it to invest. If you take the money you would have been spending on interest rates and put it into stocks and shares, you may get a great return that you can ultimately use to pay off your mortgage. This will depend on various factors such as the current state of the share market and interest rates, so be sure to seek financial advice before making any moves.

  1. Don’t use bridging finance

Bridging finance may sound like an attractive option to cover buying a new home before you have sold your old one. However, this type of financing incurs interest rates which are significantly higher than the standard variable rate, costing you much more in the long run. Always sell your old property before buying a new one wherever possible, or if this cannot be achieved investigate a deposit bond instead.

  1. Live more frugally

This is no cunning trick, but rather a simple one: cut back on expenses you don’t need and put that money into paying off your mortgage sooner instead. You will be surprised how much you can saving by making your own lunches for work rather than buying them out, or by cutting out cigarettes or over-consumption of alcohol.

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The wisdom of buying an investment property for under $500,000

In most capital cities of Australia, apart from Melbourne and Sydney, there is still a plentiful supply of properties under $500,000 for sale.

These capital cities include Brisbane, Perth, Adelaide and Hobart, as well as major regional centres such as the Gold Coast in Queensland and Bunbury in Western Australia.

Perth, for example, is now a property investors’ paradise, with many properties located within a 20- kilometre radius of the CBD and listed for sale for under $500,000. This is around half the median house price of Sydney. Properties in these competitively priced capital cities offer a low-risk entry into the property market with the potential for capital growth.

It is especially important that first-time investors take a conservative approach to their property investment purchase and focus on buying an investment property for under $500,000.

Too many first-time investors over-expose themselves financially by purchasing an expensive investment property which can limit their ability to buy multiple properties. This is particularly the case if they purchase an expensive property in the wrong location, potentially resulting in a financial nightmare.

In contrast, buying a lower-priced property that has the potential for strong capital growth can be an important building block to establishing a successful property portfolio.

Lower-priced properties also tend to have higher rental returns and this factor is important during a climate of rising interest rates, with the major banks increasing interest rates for investors over recent months.

Issues you should consider when buying a lower-priced property include:

  • Spend time researching all aspects of the property market before even looking for an investment property. Issues, such as negative or positive gearing, rental returns and depreciation have to be considered by a first-time property investor;
  • Past trends in property values are generally an indication of future trends and it is wise to examine the long-term capital growth rates of the suburb;
  • Take a broad approach to buying an investment property. Most first-time property investors buy a property in their local neighbourhood because they are familiar with the area. By taking a narrow approach to the location of the investment property, first-time investors severely limit their options;
  • Try to target suburbs in lower-priced areas which have a higher number of properties for sale;
  • When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they would like to live in. It is important to remember that the investment property must appeal to a tenant who will be paying the rent;
  • Check out any planning changes proposed for the suburb. Many local governments are undertaking reviews of zoning which could have a major impact on property values. For example, a property that was purchased for a single residential use and rezoned by the local council as a triplex site will increase substantially in value. The planning department of a local government can advise first-time investors of any proposed zoning changes;
  • Check out any planned infrastructure changes for an area you are interested in buying. For example, an upgrade of a local shopping centre or plans for a new railway station can have a major impact on local property values;
  • Make sure that there are tenants prepared to rent your property. Rental income is a key factor in serving the loan so if you cannot find a tenant, you will have problems keeping the investment property over the longer term; and
  • Check your finances before you consider buying an investment property. If you have pre-approval finance, it will allow you to move more quickly to secure the right investment property.


By: Paul Bennion from www.smartpropertyinvestment.com.au

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Retirement Might Be Closer Than You Think—If You Do These Two Things

You can retire earlier and be better than you think if you make the right choices today.

The vast majority of Australians are far from prepared for retirement. Most are so far behind that the chances of catching up by conventional means are low. This is only compounded by the choices they continue to make on a daily basis. So, if you are not yet one of the top 1 percent on track to retire with confidence and with a high quality of life, what can you do to change things for the better?

Spend Smart

Despite living in one of the wealthiest countries ever, Australians are in poor financial shape and live in anguish because they have simply allowed themselves to become nothing more than consumers. TV evolved into “smart” phones, and now we are on the verge of seeing all our “smart” homes installed with devices that feed us constant shopping suggestions or even shop for us.

One way to change this dynamic is to question and evaluate every dollar we spend and borrow. Ask whether your purchase is really taking you closer to your real goals. If not, it is taking you further from them. Perhaps we could be spending less on depreciating items and invest in cash-producing things instead.

Start Investing ASAP.

By investing in income-producing assets first, we are able to change this dynamic. We can multiply our income, and we can earn while we sleep, eat, spend time with family, or work 9-5 jobs. That surplus can be used to cover expenses, reinvest, or grow a nest egg for retirement and beyond.

Of course, what we invest in matters. Stocks have surged to new highs, but few believe this run will last. I prefer investing in real estate for a variety of reasons. It offers passive income and a hedge against inflation. It’s also a tangible asset that won’t be vaporized by emotional trading, and it can simultaneously build wealth and cash flow.

Not everyone has the cash or credit to go out and buy a bunch of rental houses, though you can partner up with others. If you can combine your capital with others, you can invest passively now. If you do not have any capital, partner with someone who does, and use your time as a resource and invest actively.

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How to pick a winning property investment: 7 points to consider before investing in Real Estate

So it’s your first time to dive into property investing. You are both cautious since you will be spending a big amount of money that costs you your lifetime of savings and salary and excited as well because you are looking forward to the return on your investment in the years to come. This mixed emotion is pretty normal, as risk and return are both part of any investing decisions. However, with the help of investment consultants such as Investors Advisors Australia, you will be guided along in your property investing journey, that would mean we are able to calculate risk we are willing to take, as well as leverage on the information, learning and experiences of these consulting firms to our advantage.

However, on the personal side, we need to understand how the property market works, because at the end of the day, you are the one who will decide on which investment to take and consider.

So now, how do we know that a certain property is a good property to invest in? The key to a having a great investment is all about knowing which markets are about to rise in value, and I am talking about LOCATION. We need to know which locations have a potential to grow so we could get in and position yourself early before the wave rises. And once you are already on the wave, all you have to do is ride on it and wait for the proper timing when you can maximize the return of your investment.

Here are the 7 signs in the market that gives us a hint that a certain urban centers and suburbs are emerging and that their value is about to soar:

  1. Demand is high than supply – the law of demand and supply is very basic and this dictates the market’s action to price. If demand in a particular market surpasses that of supply, any available inventory in the market will be snapped up quickly. This would mean that the average a property stays on the market is short and is going down. There are plenty of factors that drive the demand in market, and one of this is the shifting demographics. An exploding population means a higher instances of people wanting to live and work in the city and on its fringes, thus increasing the demand for properties.
  2. Fewer available properties – this is the opposite of having a high demand, where supply of properties dwindle in a short period of time. It means there is less stock on the market and that real estate developers are not building and developing projects at a rate of the demand. Any available inventory in the market will easily be snapped up.
  3. Falling Vacancy Rates – Since there is high demand due to shifting demographics, some would prefer to rent than to buy due to availability of properties. If the vacancy rate is dropping, this would mean that there are fewer tenants in the market than available rental properties, and this would result in rental price increase as some landlords or investors seize the opportunity for higher returns.
  4. Growing Rental Yield – this is the result of point #3. Rental price increases due to limited supply. And as the demand increases, the popularity of a certain location also increases, thus increasing the influx of people moving into that location. Investors then would follow since they will be attracted by higher rental yield, thus increasing market activity.
  5. Lesser discounts and promos – Since there is great competition among developers wanting to have a pie in the supply, vendors will eventually stop giving discounts to lure buyers. Demand is enough to drive the properties at the market.
  6. Rise in Auctions – you can notice also that aside from real estate developers, home owners also would want to sell their properties through auction. Auction have a unique potential to push a selling price even higher. A rise in auction and auction clearance rates in a particular location could be a sign of surging market.
  7. Plenty of online interest – many people search for properties online, and the demand generated by online property portals is one of many indicators that a certain urban center or suburb is attractive to the population – both investors and buyers.

There are plenty of tell-tale signs in the market to tell us that a certain location is an investment-worthy. It is just a matter of keen observation and be updated on what is happening in your locality.

Investors Advisors Australia has information on what’s the best urban center and suburbs in Australia that are performing well on the real estate market and are perfect for investment. Also, you may want to join in one of our free investing forums to arm yourself with the most current information about real estate in your city. Contact Us now for details.