Buying a home is considered one of the biggest financial decisions any person makes in his or her lifetime. Still, I am pretty sure you never knew that your mortgage can also be an excellent wealth-building tool. The right strategies will make use of your mortgage in such a manner that it maximises your long-term financial gains. Here’s how your mortgage can be turned into an effective investment vehicle working for you.
Leverage Equity to Invest
As you pay down your mortgage and your property value goes up, you build equity, which is the difference between your home’s market value and what you owe on your loan. This equity can be a great bridge to other investments, for example, allowing you to tap into this equity through a line of credit or by refinancing your mortgage.
This way, you can use your hard-earned money to finance extra real estate, stocks, or even start a business. Such strategy bears the name “gearing,” as it uses borrowed money to generate income. Don’t forget that leveraging works both ways, magnifying both rewards and risks.
Use Property as a Source of Investment
Regarding the amassing of wealth through the use of your loan, one way to do this is through using the equity of your current home to gain a loan to buy an investment property that generates rental income, for instance, paying off your mortgage, or more likely generating stable cash flow.
Look for areas with high rental demand, excellent infrastructure, and potentially solid capital growth. Of course, being a landlord is a burden, so one should be prepared to handle property management tasks or pay a professional to do so on one’s behalf.
Maximise Savings with an Offset Account
An offset account can help you reduce the interest charged on your home loan. For example, if you have a $300,000 loan but have $20,000 in the offset account, you only pay interest on $280,000.
This will not only save you money on interest but also pay off your mortgage sooner so that it may become available for other investments. The strategy to make a huge amount out of an offset account is to keep as much money in it as possible and consider it to be your main account for savings and everyday expenses.
Consult a Loan Broker for Personalised Advice
Home loans and investment strategies are complex. A home loan broker is able to come to your rescue. A broker can find the mortgage products best suited for your financial goals, whether you are looking to refinance, access equity, or invest in property. They can help you get the most out of your home loan while saving you time, money, and stress.
Understanding Debt Recycling and Its Financial Benefits
You can swap your non-deductible home loan debt for tax-deductible business debt through a process called debt recycling. And here’s the way to do it: paying off your mortgage and using the redraw funds to invest in something like shares or managed funds. You could possibly make interest on this section of your loan tax-deductible as well, which would reduce your tax liability the bigger your wealth grows.
Your home loan can be leveraged to build wealth through smart strategies like equity leverage, property investments, and offset accounts. Seek professional advice to tailor these strategies to your individual financial situation.
