MORTGAGE REDUCTION
Also known as mortgage acceleration, mortgage elimination and so on, this is the process by which, using an Equity Mortgage account, your entire income is credited to your mortgage account from which household expenditure is then met. Your mortgage account thus replaces your normal bank account.
In this way, every dollar earned becomes an immediate principal reduction, unless and until it is spent elsewhere.
The strategy depends on the fact that all lenders calculate interest charges daily (although they usually debit them only monthly, in arrears). So the day-to-day balance of a mortgage account affects the interest charged just as much as the actual interest rate.
If you use a 55 day interest free credit card to pay for as much of your expenditure as possible, they maximise the benefits of the strategy by keeping more of their money holding down the balance of their mortgage account for longer. The credit card "sweeps" a nominated bank account (usually your LOC Mortgage account) to repay itself every month.
The system is potentially very powerful, often cutting by half the term of a customer's mortgage. But it depends on the customer being very disciplined in their budgeting.
Mortgage reduction through property investment
The addition of an investment property to the above equation can have a dramatic effect on the time that it takes to pay out your home mortgage. With an extra $1700 or more (tax breaks and rental income), on top of your wages, offsetting your mortgage each month disciplined budgeting is not quite as critical.
The rental income and associated tax savings from your investment property is put directly into your home mortgage every week thus reducing the mortgage balance on a weekly basis until this money is needed elsewhere. It is a revolving monthly cycle that uses all available income to reduce the amount of home mortgage interest payable before attending to bills at the end of the month.
Using your investment property as a mortgage reduction tool is a simple process once set up correctly by a finance specialist.
Our referred finance specialists will take the time to explain to you how a mortgage reduction system works so you can make an informed decision as to whether it will benefit you.
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