Creating Wealth: Pay Your Mortgage Off In Under Ten Years Using The Right Finance Structure

I had purchased a property in 1999 for $165,000

. The loan on the property was $110,000. The loan was just your basic principal and interest loan taken out over 25 years. The monthly repayments were comprised of interest and principal, which meant that each month a small part of the $165,000 loan principal was being paid down. Eventually after 25 years, the loan would be paid off.

I knew that if I could pay more than the minimum monthly repayment, I would be able to pay the loan off quicker. This was always my intention. However, I never seemed to have any money left over at the end of each month. Even when I got a payrise at work, there was still no extra money left in my bank account at the end of the month. No matter how much I wanted to pay extra off the loan, I didn't have the spare cash to do it. I was always spending what I was earning.

By 1999, I was more educated on creating wealth and how to build a property investment portfolio. I started to question the loan structure, and whether it was the best structure to get ahead financially.

Since purchasing the property in 1997 through to 1999, I had paid over $20,000 to the bank, however my loan had only reduced by approximately $3,000. This meant that most of the money I was paying each month was only paying interest.

I thought there had to be a better way. I wanted to pay the loan off much faster than 25 years. I was mentally ready to build a property portfolio, not just pay off one home.

Self-education lead us to a different type of finance structure. We spent some time researching Financial Planners, and the different wealth creation models they recommended.

The short story is, by having the right type of finance structure, we were able to pay off the loan in approximately seven years. A drastic reduction from 25 years.

A summary of the model our selected Financial Planner established for us was to force us to live within a budget. All of our wages, rental income, tax refund cheques, share dividends and any other income was automatically paid straight onto our home loan. For this example, let's say our total combined income each month was $4,500.

We then had to calculate how much money we needed to cover all our living expenses. Let's say our total living expenses averaged $3,000 per month. This included every living expense including the mortgage repayments, food, entertainment, clothes, utilities, everything. We were allocated a budget of $3,000 per month, and no more. The access to money was taken out of our hands. This forced us to live within our means.

One month we found ourselves short of money. We had to call the Financial Planner and ask for access to some of our money. He explained that if we took out the extra money, it would take an extra, for example six months to pay off our home loan. He explained the consequences ... we had to make the choice. If we took the extra money, we understood the consequence.

Using a more detailed version of this method, our loan was paid off in well under 10 years. When I tried to pay off the loan by paying extra each month, I couldn't do it. However, when someone else set up an automatic system, which forced us to live within our means, we achieved it.

Getting professional financial advice on how to set up a financial structure to enable us to achieve our financial goals, certainly worked for us.

by: Suzie Crawford

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