How Tony and Rhonda Paid Off Their $869,232 Home Loan in Under 6 Years and Saved $491,113 in Interest Payments

Before Tax Effective

Tony and Rhonda came to us in the summer of 2012.

• They had recently purchased a new home and there was an $869,232 loan attached to it
• They had a combined income of approx. $230,000 per annum (that would gradually increase every year)
• They were paying a combined income tax of $68,294
• They still owned their previous home
• Their combined loan amount from the 2 properties was approximately $1,551,869
• They had 2 young children they hoped to send to private schools

And to top it all off, we were in a flat property market.

Like most Australians, they believed in the traditional way of dealing with debt. All debt was viewed as something that was bad and needed to be paid off as soon as possible.

To that end, they wanted to sell their old property and use any profit from the sale to pay down their new home loan.

However, we were in a flat market and the property would not have provided any meaningful profits. We worked out that after costs they would have had only $79,000 to put towards their new home loan. This was clearly not enough.

They needed to change their mindset before we could move forward, and we quickly brought them up to speed on how thousands of Australians use good debt every day to help pay down their other debts much sooner.

“All excess funds should be used in a way that gets you the biggest tax benefit and the greatest return on your funds.”

And they quickly came to agree with the strategy we put forward to them.

Firstly, they had to change the old home loan from a principal and interest to an interest-only loan. This lowered their annual repayments by a whopping $11,763, which could now be diverted to the non-tax-deductible new home loan.

We then used our extensive years of tax experience to obtain annual deductions of $51,900, and after rental income was applied, they received an annual tax refund of $5,050 on average.In the end they were able to reduce the cost of holding the old property to only $7,909 per annum initially, which would then reduce even further in line with rental increases over time.

They were now holding a $780,000 property for only $659 per month.

This gave them access to the following opportunities:

• A 1% annual property growth would wipe out the holding costs of $7,909 per annum
• Any growth above this 1% would result in a profit
• An average annual growth of 7% would generate $46,691 capital growth per annum.

The scene was set.

Strategy #2 - Give it Time

Now all they had to do was sit and wait for the property market to do its thing. It wasn’t easy - like most people, they were hearing and reading the negative headlines and were worried their investment property would lose even more capital.

However, we had been doing this long enough to understand that these things will always even themselves out over time.

We had already seen off:

• The sky-high interest rates of the late 80’s
• The Australian Stock Market Crash of ‘87
• The recession we had to have in the 90’s
• The 9/11 terrorist attacks
• The Iraq War
• The Global Financial Crisis

Tony and Rhonda have now: