How Does Using The Equity In Your Home Help Pay It Off Sooner?

Over the past 5 to 10 years, Australian homeowners have seen remarkable growth in residential property prices. According to CoreLogic data, median dwelling values in major cities such as Sydney and Melbourne have increased by approximately 50% to 70% since 2015, even though there are reports about property values in Melbourne and Sydney not increasing.

This growth has created significant equity for many Australians, often amounting to hundreds of thousands of dollars.

For those who own their home, or have a small mortgage compared to the value, this equity may be a valuable resource to help accelerate mortgage repayment by investing in additional property.

Many Australians may be able to leverage this equity to build a property portfolio that not only has the potential to grow their financial position but also assist in paying off their home loan sooner.

Ultimately, the most important factor is selecting the right property with a suitable yield and growth potential.

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Why leveraging your home equity may matter more than ever

The equity built in your home may represent more than just an increase in property value. It can be a financial tool that might unlock investment opportunities.

Depending on your lender’s policies and your financial situation, you may be able to access this equity through a line of credit or a home equity loan to fund the purchase of an investment property.

This approach could allow you to invest without needing a large deposit from your savings.

Simply making extra repayments on your home loan may not always be the most effective way to reduce your mortgage term. Investing in property may generate capital growth and potential tax benefits that could then be applied towards paying down your home loan faster.

The key is to ensure the property has strong growth potential or is located in an area with rising demand.

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SELECTING THE RIGHT PROPERTY IS CRUCIAL

A poorly chosen investment may lead to ongoing losses and financial strain.

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How to select the right property to accelerate your mortgage payoff

1. Focus on growth corridors
   Consider suburbs or regions with strong infrastructure projects, population growth and employment opportunities. Areas undergoing development or gentrification may offer better capital growth over time.
2. Consider property type and condition
   Newer properties or well maintained homes may attract reliable tenants and reduce unexpected maintenance costs. Units or townhouses in popular locations can also offer good entry points for investors.
3. Research market trends and seek expert advice
   Use data from sources such as the Australian Bureau of Statistics (ABS), CoreLogic and local real estate experts to inform your choices. Our finance specialists and property networks may help tailor your strategy to your situation.
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Using investment property to pay off your home sooner

Once you own an investment property, you may be able to use rental income and any tax benefits to make additional repayments on your home loan.

Any tax deductions may improve your overall cash flow position. Over time, capital growth on your investment property might provide a lump sum gain when you sell that could be applied to reduce your home mortgage.

For example, if a homeowner in Brisbane purchased an investment property in a growth suburb several years ago by leveraging their home equity to do so, the capital growth of around 40% combined with rising rental income would have allowed them to make extra repayments on their home loan.

As a result, they should be able to reduce their mortgage term by several years and improve their overall financial position.

Of course, individual results will vary depending on factors such as property performance, location, supply and demand and financing arrangements.

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Benefits beyond faster mortgage repayment

• Building a property portfolio may help you accumulate assets that can be used to fund or part fund your retirement or other financial goals.
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• Diversification
  Owning multiple properties can spread your risk and income sources.
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• Tax efficiency
  Strategic use of tax deductions and depreciation may improve your cash flow.
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• Financial security
  Paying off your home sooner may reduce interest costs and increase your equity buffer.
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Risks and things to keep in mind

Investing in property is not without risks. Market fluctuations, unexpected vacancies and maintenance expenses can impact returns. You may need to cover shortfalls from other income sources, so it’s important to maintain a financial buffer.

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Always seek professional advice to ensure your property investment strategy aligns with your long term goals and risk tolerance.

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If you are considering leveraging your home equity and investing in property to help pay off your home sooner, it is advisable to consult our finance team or property investment specialists.

With the right guidance and strategy, you may be on the path to mortgage freedom faster than you think.

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If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email bob@westhomeloans.com.au