How To Pay Down Your Mortgage Earlier

by Virginia Graham on December 26, 2011

Debt recycling and limit re-balances are subjects I often avoid. They just sound dodgy and illegal somehow.

I thought that the only real way to repay your home loan sooner, was to starve and scrooge around trying to economize by bringing your lunch to work etc etc and if I hear any more obvious tips such as do not buy name brands, go shopping at Aldi, write a list- I’ll scream! I know these tips are good to be reminded of but occasionally we need some new strategies. Legal ones.

So I was quite shocked when I was going over a product with “limit rebalances”,that I actually could see how it may work to pay down your mortgage earlier.

Essentially the way it works is you have your mortgage of $300,000 against your house worth $500,000. Then you’ve got a second loan for your investments of $50,000 also against your home. What you do is pay off your home loan as speedily as you can, so pay loan down by $50,000. Then you can re-balance your loan so your investment loan is $50,000 more, ie $100,000 and your home loan is $250,000. Your total loans are still the same at $350,000 but now (presuming your accountant agrees) you’ve got more of the loan tax deductible.

As more of your loan is deductible, you can pay rather more off your house loan and leave the investment debt as an interest only loan and deductible (again check with your accountant for your circumstances). Repeat the method and keep re-balancing your limits till all of your personal debt is paid off. Some banks ( contact us if you want to grasp which ones) permit limit re-balances without having to provide new financial documents each time which makes sense as the debt should be getting simpler and simpler to pay down.

Virginia Graham is a mortgage broker for Central Coast Mortgage Broker. Virginia is a writer, financial expert and has been featured on channel 7, channel 9, the Sydney Morning Herald and plenty of other publications.

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