Owning your own home is a significant financial milestone. However, paying off your mortgage can often feel like a long commitment, one that most people want to remove as soon as possible. It’s no surprise that homeowners usually look to pay off their loan faster, either by increasing the frequency and size of their repayments, utilising an offset account facility, or refinancing to access better interest rates and/or reduced fees.

Purchasing an investment property to help pay down your mortgage quicker

One commonly overlooked way to potentially pay off your home loan faster is to leverage investment properties. This is achieved by holding on to the investment property to generate capital gains and using the money from selling it to pay down the mortgage on your home. The rental income and possible tax deductions on your investment property can also reduce the amount of interest you may pay to hold the property over this time, freeing up extra funds to contribute towards your home loan.

Another way to speed up paying off your home loan is to utilise debt recycling. Debt recycling is a strategy that utilises the equity in your home rather than your savings to invest in other assets (like investment properties) that generate a return. This strategy can be particularly useful when you want to build wealth in a tax-efficient way whilst also paying off a non-deductible debt (like your home loan) as quickly as possible. It works as the interest payments on an investment loan are often tax deductible (allowing you to save on taxes you pay), and as the value of your investment increases over time, so does your net wealth.

If you are really looking to maximise the benefits of debt recycling, looking for a lender that offers an offset account on your home loan can be a smart move. Placing your rental income, personal income and savings into an offset account will reduce the interest charged on your home loan and increase the principal amount you are paying, allowing you to further speed up paying down your mortgage.

Another option to consider for your loan on an investment property is an interest only loan, which can help to free up additional funds that you could potentially use to pay down the mortgage on your own home. This approach should be carefully considered, as it can increase the time it will take to pay off the loan on your investment property.

Here’s how it can all work together:

Step 1: Getting your loan structure in place

Bank valuations on properties can vary, so it is best to start with your broker, who can arrange several on your home. These are generally at no cost to you and will give you a sense of how much equity in your home you can access. To recap, equity is the difference between the current value of your property and the amount owed on your loan. Your broker will also assess your borrowing capacity and be able to set up the right balance between what you feel comfortable repaying and the total amount you can borrow. They can then set up a loan structure to allow you to raise the funds you need to buy the investment property.

Step 2: Picking the right investment property

If you want to utilise an investment property to help pay down your mortgage quicker, you will need to ensure it is:

In a location that is popular and attractive for both homeowners and tenants. Properties located in more sought-after or desirable areas are more likely to outperform the general market and increase in value over time, resulting in capital growth. It is also advisable to look for suburbs with easy access to amenities, strong job opportunities and a robust underlying infrastructure to attract high quality tenants.

Step 3: Maximise your rental income

Your investment property should generate a strong rental return to assist in covering the mortgage repayments and other costs you may incur as you hold your property. To maximise your rental potential, your property manager will ensure your property is well-maintained, appealing to prospective tenants and priced competitively in the market.

Step 4: Monitor the market

It is important to work with a property manager who is always keeping track of the market and changes in property values, to ensure you are ready to act when property values rise.

Step 5: Sell your investment property (optional)

Once the property has gone up in value, use the proceeds from the sale to make a lump sum repayment on your home loan, which will lower the outstanding balance and reduce your interest payments. Whilst this approach can offer a large lump sum repayment, it also means losing a valuable asset. Be sure you’re comfortable letting go of the property before proceeding with this part of the strategy.

You also don’t have to sell your investment property to repay your home loan. You will likely accumulate equity in your investment property as its value goes up. Once you have built up enough equity, you can look to access it through refinancing and increasing the amount you owe on your investment property. Once the equity has been released, you can use it to pay down your home loan, which increased when you started your debt recycling strategy. This approach is ideal if the value of your investment property has grown, but as with any strategy, it is important to be aware of the risks.

Other ways owning an investment property can help pay down your mortgage quicker

Tax deductions and benefits

Generally speaking, investment properties will offer various tax advantages. Although you will still pay tax on any rental income generated, you can often claim certain deductions associated with property ownership. For example, investors will often claim the interest on their rental property mortgage as a tax deduction. Other common expenses you can claim include management costs, such as property agent fees, land tax, and maintenance costs, including cleaning, gardening, insurance, and repairs. Claiming these things as tax deductions can reduce the overall running costs associated with owning an investment property, which will assist in paying down your home loan quicker.

It is important to consult a tax professional to understand how the deductions apply to your situation, as tax laws vary by location.

Create a strategy for long-term wealth building

When considering using your investment property to pay off your home loan sooner, it is also important to consider your long-term financial strategy. Owning one or more investment properties can lead to significant wealth and income generation over time, which could eventually pay off your mortgage and form part of your retirement plan.

Key points to consider when using property to build wealth

Diversify your portfolio: Don’t rely on just one investment property. Over time, consider adding more properties to your portfolio to increase rental income and potential capital gains.

Reinvest profits: Consider utilising the profits from investment properties to pay down your home loan, or invest in more properties, increasing your income and long-term wealth.

Interested in using an investment property to help pay off your mortgage faster?

Utilising one of the aforementioned strategies whether that be through rental income, equity refinancing, capital gains, or debt recycling, investing in property can play a significant role in helping you to pay off your home loan faster. However, it requires a well-thought-out plan, the right property, and a commitment to long-term wealth building.

Our team of property investment experts and mortgage brokers can help you build the right property investment strategy that addresses your objectives and enables you to pay off your home loan sooner. If you would like to discuss your situation in further detail, please get in touch with our team.

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