Mortgage Minimisation Strategies
If you’re like most Australians, you need to borrow a lot of money to buy a home. That amount of debt can be daunting, but it doesn’t need to be out of control. With these mortgage minimisation strategies, you can manage your debts and keep control of your finances.
Strategy #1 – Credit Income to your 100% Interest-Offset Account
By linking an offset account to your home loan, you can limit the amount of interest charged on your loan. With an offset loan, your lender only charges interest on the amount in that account, not on your entire actual remaining home loan balance.
These smaller interest rates give you greater flexibility in managing your money, potentially leading to more payments against the principle.
Strategy #2 – Purchase a Negative-Geared Investment Property
This strategy might sound a little backward at first, but let’s go through the entire process. Some homeowners can borrow money to purchase a negative-geared investment property. That is, a rental property that does not make enough income to cover the costs.
Why would you want to do that? Well, for two reasons. One, such properties have tax benefits associated with them, which you can use to put towards your main mortgage. Second, you can sell the property after a certain amount of time for a higher profit and use that profit to pay down your mortgage.
To make this strategy work, the loan must be made in the name of the highest-earning homeowner. With a stronger income flow, the borrower will secure a lower interest rate, which means that they’ll have more profit when they go to sell the property.
Strategy #3 – Purchase a positive-geared investment property
The opposite approach to strategy #2 can also be highly effective. Instead of purchasing a property that will lose money, you can also purchase a positive-geared investment property, which does generate more income than the costs. In this case, borrowers simply use the money they make to supplement their monthly mortgage payment.
Unlike strategy #2, the lowest-earning homeowner should be the one purchasing the positive-geared investment property. The lower-income opens them up to incentives that will result in a smaller principle and less risk, thereby generating higher profits.
Which Strategy is Right For You?