Paying off your loan in 10 years? Sound too good to be true?

The mortgage world is full of information; some of it helpful and some of it not. A constant feature of this information overload is those talking about paying off your mortgage in 7 - 10 years. Claims of mortgage ‘secrets’ known only by industry ‘insiders’ gives the impression that there is some trick that can magically reduce your loan. With courses going for $4,750 a pop, we’ve taken a deeper look at what they’re selling to show you these insider secrets.

Different people who advocate for paying off your loan in 7– 10 years have different methods of achieving this, however there are several features which are for the most part promoted across the board.

Saving Brutality

The first ‘secret’ advocated for is nothing more than extreme frugality. Taking a line-by-line approach to people’s monthly bills, any excess spending is eradicated. A bare-bones budget is then drawn up for your monthly spend and every spare cent goes straight to the loan. No luxuries, no excuses, it undoubtedly will assist in paying off your mortgage, but we’d suggest there is more to life.

Redraws and Offsets

The second and related tip is to maximise the use of a redraw facility.  People are instructed to put their whole salary each month towards their home loan. Then based on their budget, they redraw money out of their home loan into an offset account, that is then used to pay for day-to-day expenses. We have written previously about redraws and offsets here but one feature of the redraw as opposed to an offset is that it is more difficult to access that extra money. This is meant to increase discipline, making it less likely that people will spend this money and draw down their loan. 

Now a similar strategy to this is one which we can actually agree with and advocate for. Your redraw facility and offset accounts are some of the strongest tools you have at your disposal to reduce your home loan fast. With interest accrual counting daily, any dollars you can have in these accounts in any day of the month is going to be working hard for you!

That can’t be it?

These are the main two methods that are promoted as being secrets. However, even the best saver wouldn’t be able to pay off their loan in10 years following this. So, from here the risk becomes higher, the methods trickier, and the recommendations might just be helping line the Guru’s pockets too.

The Up-sell

After putting your extra money towards your home loan, you have built additional equity in your home. The gurus now teach you how to make the most of this by leveraging further into the housing market and buying investment properties. These properties are usually off the plan purchases so that you can maximise on depreciation benefits in the first few years of the property. Rental returns and capital gains on the property once sold can then be used to pay off your initial mortgage.  Of course, this goes beyond redraw facilities and budgeting and comes with the risk of being further exposed to the property market. 

Finally, the additional catch that they don’t put in the fine print is that these gurus could be working with specific developers, to ensure the developers have sufficient sales on their development sites. This allows them to progress the builds with the guru potentially receiving a notable commission from the developer. 

With this potential conflict of interest, it could be best to take their property recommendations with a grain of salt.

Cashing in

Most people selling the 7-10 year dream are simultaneously accountants, mortgage brokers, buyer’s agents and insurance brokers.  They provide a packaged system for you, where they do everything, from being your accounting coach, to finding your next investment property, to securing the money to pay for it. Of course, they take their commissions along the way and maximise these by keeping you within their system.

The fallout

So, paying off your mortgage in 7-10 years? Well, if you’re happy to cut expenses down to rice and beans for food, not touch any money put towards your home loan and leverage further into the property market, paying the guru at each step of the way, it’s a possibility.

These are options that are worth considering with the help of level-headed professionals and can certainly help towards paying off your home loan faster. However, I dare say that paying $4,750 for a course might be better spent by say putting it towards your home loan (saving you over $19,000in interest charges over the life of the average Australian mortgage).

If you’d like to discuss further about getting a great deal on your mortgage and ways to pay down your loan faster, our qualified mortgage brokers are always happy to talk you through it, with the mortgage simulation tools we’ve got we can put a real plan in place – and it won’t cost you a cent. 

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