A part-time receptionist on about $50,000 a year has revealed the savvy way she paid off her home loan in just four and a half years.
Mum of two Susan Miller, now 57, said she was in a desperate situation back in 2017 after buying her ex-husband’s share of their long-time family home.
The remaining debt was equivalent to half the value of the property but Ms Miller was unsure how she would pay the mortgage given her low income.
“I was divorced and finding money difficult. I was scared I may have to sell the home,” she said.
A chance encounter at a barbecue with an investment adviser who was a friend of a family member inspired her to think differently about her debt.
She followed some of his advice and has now paid off the mortgage, but she said the steps she took were counterintuitive and were options she would never have earlier considered.
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Susan Miller bought an investment property in Queensland to help pay off the loan on her Adelaide home faster.
A cornerstone of the strategy was to actually take on more debt, but to use tax deductions and discipline to boost her savings and eventually make a lump-sum payment to close the loan.
“My parents always taught me you have to pay off your loans before anything else. I learned I had to change that mindset,” she said. “You have to spend more to make more.”
The first step was to refinance the loan on her Adelaide home and draw out some of the equity to fund the deposit and stamp duty costs on an investment property in Queensland.
The property was priced at the lower end of the market and the rents were high relative to the mortgage. Both the loan for the investment property and her home were converted to interest-only payments.
The aim was to keep her ongoing expenses as low as possible.
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The rents for the investment property were high relative to the mortgage and increased after purchase.
Critically, she opened an offset account on the mortgage for her home and diverted all her income payments, including from her job and her investment property, into the account to boost the balance.
Having money in an offset account lowers the amount of interest paid each month.
Ms Miller also took steps to ensure her money remained in the offset account for as long possible before it needed to be spent, further reducing the amount of interest she was charged.
One way she did this was by using a credit card with an interest-free term to pay her day to day expenses. She then paid off the expenses on the card near the end of the interest-free term.
Another tactic was maximising her tax claims. She made sure the investment property she purchased in Queensland was eligible for numerous tax deductions.
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Property investor George Markoski suggested to Ms Miller that she maximise her tax deductions on her investment property to help pay the loan on her home faster.
She also filled out a tax form that allowed her to get a weekly tax return rather than a yearly one – again allowing her to continually boost her offset account balance.
Her investment adviser George Markoski explained that the idea was to maximise the losses she was entitled to claim back on tax without making a real monetary loss.
“On paper we are losing money. The real money she puts into the offset account and is always trying to extend the amount of time the money is in there,” he said.
Mr Markoski said all these steps combined created a situation where her savings could increase exponentially because each dollar she saved reduced her interest expenses and allowed her to save even more, while continually getting tax write offs.
For Ms Miller, her end goal was to eventually have enough money in the offset account to pay off the debt altogether.
She got an added boost when she secured a higher paying job. The rent for her investment property also increased from $350 per week to $480.
The plan all came together in 2021 when she settled the balance of the loan on her home in a lump-sum payment. She is still paying off the loan on the investment property.
“I realised that you have to change how you do things and look at things differently. My advice for others would be to take a chance and talk to other people who have done it,” Ms Miller said.
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Mortgage broker Rebecca Jarret Dalton said using interest-only loans and an offset account was a good strategy for some property owners to follow – provided they had discipline and were good savers.
“The most risky part is if the property value falls and you haven’t been paying principal, you won’t have paid any of it off,” she said, noting it would be hard to refinance again in this situation.
“It’s best suited to someone with a higher income who has high income bearing investment properties,” she said.
Finder analysis showed there were multiple banking products offering an offset feature and interest-only loan term, including products from ANZ, AMP, Tic: Toc and Easy Street.
Interest rates for these loans varied from 6.24 per cent to 7.09 per cent.
Home loans expert at Finder Richard Whitten said borrowers usually needed to look a little harder to find loans that offer both features and some have small monthly fees (usually about $10 a month).
“Interest-only loans are popular with property investors because the repayments are cheaper at first, and your interest charges are tax deductible,” Mr Whitten said.
“If you’re applying for an interest-only loan, whether it has an offset account or not, a lender will assess your ability to repay the loan based on principal-and-interest repayments, because that’s what the loan will turn into once the interest-only period ends.”
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