Six tactics to pay off property debt faster

Whether you have one property or five, rising interest rates can hit hard.

If debt levels are an issue holding back further property portfolio expansion, there are ways to hasten the paying down of debt.

As well as reducing interest expenses, banks will also factor in debt levels when lending, so reducing debt is crucial on several levels.

Six strategies to pay off a property portfolio faster

1. Use an offset account: An offset account is like a savings account, the only difference being it is linked to your mortgage balance. Funds can be withdrawn every day when needed. Many mortgage holders are wary of offset accounts and don’t want to put all their money into the account for fear they won’t be able to access it. It should, however, be treated the same as an everyday savings account. The best way to utilise an offset account to its full potential is to put the entirety of your salary into this account, as well as any additional income you may receive like bonuses, inheritance, gifts, and any windfall gains.

Funds in the offset account will reduce the amount of interest charged on the loan’s principal balance, the savings of which can be put towards the principal home loan repayments. This has a snowballing effect in paying down the loan faster due to the laws of compounding interest.

2. Make repayments fortnightly: Changing from monthly to fortnightly mortgage payments will result in one additional repayment every year that will compound over the life of your loan and potentially shed years off your mortgage and save tens of thousands of dollars in interest repayments. This works because there are only 12 months in a year, but 26 fortnights.

3. Negotiate interest rates:
You are not locked into your interest rate or bound to your lender, and it is becoming increasingly easier to switch between lenders these days. If you think your interest rate is too high then you should have a discussion with your lender to see if they are able to offer you a better rate, especially if you have been a really loyal customer. You could also seek the help of a qualified mortgage broker to assist you in finding a better deal.

Once you shop around you might find you can get a better deal, however to pay down your loan faster it is best that you don’t change the amount you are repaying. If you keep the same repayment amounts but are paying less interest, this will mean more will be going towards your principal repayment.

4. Refinance loans: Not only is it important to check you are paying a competitive interest rate, it is also worth ensuring the loan still suit your needs. Things to look for are the additional features on loans that you may not be using.

Offset accounts are great but if you are paying the annual fee for this feature but your offset is often empty, the cost of this feature may be outweighing the benefits. Look at your mortgage’s fees and charges and check that you aren’t overpaying.

5. Pay off the home loan first: If you own multiple properties it is best to pay off your home loan first before any of your investment properties. This is because the interest paid on investment properties is tax deductible, whereas the interest paid on the principal place of residence is loan is just dead money. The extra tax refund generated by utilising these interest deductions can also be put back onto paying down the principal amount on the home mortgage.

6. Offload underperforming properties/negatively geared properties: It is important to regularly review an investment portfolio and check whether the properties are performing to expectations. Examine the cash flow of the properties and adjust any properties where the rent may be below the market rate.

It is important to also assess the gearing of properties. Any negatively geared properties will be holding you back, as they will be impacting your serviceability. This means they are costing money to keep them in your portfolio and banks will subsequently limit how much they are willing to lend because the debt is being serviced by your salary.

It is important to keep an investor’s hat on, not be emotionally invested and stick to the numbers.