First home to family home – Paid off in 10yrs | Net worth $3M+

I explain how this young couple used a combination of clever buying and renovation strategies, plus a great business, to gain financial control.

The beginning [2011]

Luc and Sandy were classic first home buyers when I met them. Aged 31 and 26, with some savings and heavily invested in their careers.

They started their property journey with the help of a family guarantee because like many first time buyers they did not have enough in savings to cover a 20% deposit and avoid lenders mortgage insurance.

Having a guarantor gave them a leg up in their home loan payoff journey by saving them $10,000 in lenders mortgage insurance.

Income [2011] – $160,000
Luc and Sally had a combined household income of $160,000 when they bought their first home.

Spending behaviour [2011]
Back then Luc and Sallu had different approaches to spending money – Luc was more the ‘spendy’ type and Sandy had some thrifty money skills.

Assets [2011] – what they own
Luc and Sandy had enough savings to buy a house without a family guarantee. When they realised a guarantee could save them around $10,000, they were fortunate to have someone to step in and help.

Liabilities [2011] – what they owe
They did not have much in the way of liabilities. I have not seen this debt picture often – a car loan and no other debts. Not even a credit card? Luc’s job required a decent car and rather than use savings, he got a car loan and preserved savings for the house purchase.

Luckily for them, the car loan payments did not impact their capacity to borrow for their first home.

Net worth [2011] – $116,000
As is the case for many first time buyers, Luc and Sandy’s net worth (difference between what they own and owe) was made up of mostly savings and superannuation. Luc and Sandy put themselves in a strong position given it is takes first time buyers many years to save for a house deposit. It was $116,000 in 2011 and the next 10 years would see big changes to their wealth position.

Buying a first home [2011]

PURCHASE PRICE – $530,000

What did they buy?
Luc and Sandy bought an established townhouse for $530,000 in a central location under 10 minutes from the Perth CBD.

Property specs:

• 7 year old townhouse
• Two-storey
• 3 beds 2 bath – double garage
• Over 200sqm
• Strata
• Active development area

Why did they decide to buy?
“We started talking about buying 12mths prior and made a savings plan to buy our first home.”

What did you like about the property?
“We saw it as a starter property in a good area from which we could then upsize.

There was also an opportunity to add value. We felt it was marketed poorly with bad campaign photos. It was a good property – just tired and needed some cosmetic work – largely carpets and paint”.

What was the market like when you bought?
“The market was seeing lower demand when we bought.“

What was your buying strategy?
“We actually bought on a main road, but in a good area, which we felt gave us a big discount.

What did you want in a property?
“We wanted to have a future investment use as an option. There was not a lot of space for a family but that was not what the purchase was for.

It was close to a café culture with transport options to the city.”

How did you decide on the purchase price of $530,000?
“We did not really want to go over $500,000 because that was where first home owner incentives peaked before tapering off. But we saw value at $530,00 and still accessed a portion of the incentives available.”

How much did you spend on improving the property?
“Not much – just cosmetic improvements like painting, carpets and a patio.”

My take – Strategy

At the time Luc and Sandy bought, first home owner incentives peaked at a $500,000 purchase price. They saw great value at $530,000 because first time buyer competition reduces as incentives taper off.

Buy stretching that little bit more they got three bedrooms, two bathrooms and a double garage. Had they spent less they would have probably got a two or three bedroom townhouse with only one bathroom and one car garage.

The home loan [2011] – $480,000

Luc and Sandy ended up borrowing $480,000 at a 91% LVR and avoided lenders mortgage insurance with the help of a guarantor. Their deposit was from cash they had in savings.

Using a guarantor helped them preserve $25,000 in savings for a rainy day and home improvements.

Home loan repayments
The home loan was in two portions which is a popular home loan split when a family guarantee is involved.

The smaller, guaranteed portion was on principal and interest payments which matched Luc and Sandy’s goal to remove the guarantee as quickly as possible – by either paying this portion of the loan off, or using a combination of loan reduction and improved property value.

Borrowers liked the idea of the property one day becoming an investment so actively avoided paying off their larger home loan. It sounds counter-intuitive, but it is a popular strategy to keep investment options up your sleeve – but something I always recommend getting tax advice for.

This is the main reason for them choosing *interest only repayments for the larger loan.
*The rates for principal and interest vs interest only home loans were the same at the time.

Home loan features
Luc and Sandy used an offset account to manage the costs for the interest only loan. They more they saved in offset – the less they paid in interest.

What were the feelings you remember about taking on a home loan?
“We remember being a little anxious about getting a home loan because at that stage renting was cheaper than home loan repayments.”

My take – Home loan [2011]

Having two loans in a guaranteed home loan structure allows family to limit exposure to all home loans – in this case the guaranteed amount was $56,0000 not the entire home loan of $480,000.

This is an important loan structure not all lenders offer so the value of a broker is big here:

Principal and interest repayments on the guaranteed home loan allowed borrowers to concentrate on debt reduction to remove the guarantee.

Interest only repayments on the non-guaranteed portion allowed borrowers to preserve debt and offset savings in case they wished to rent property out in the future.

Summary of the start [2011]

Luc and Sandy were relatively young as first time buyers go, ready for homeownership and all the debt that comes with it.

What became of the family guarantee?
In my experience as a mortgage broker, I have helped release many family guarantors within the first few years of a home loan commencing. While Australian lenders typically issue home loans for 30 years, there are strategies to remove any family guarantor obligations relatively quickly – in Luc and Sandy’s case they removed the guarantee in one year.

How? The guarantee was removed using a bank property valuation that showed how the value of the property had increased, at the same time the loan had been partially paid down.

The result? A loan to value ratio below 80%. This reduced the lender risk to a point where the guarantor was released from further home loan commitment.

Find out more about how to remove a guarantor:

Upsizing – Family home purchase [2016]

By 2016 Luc and Sandy were ready to buy a family home. They wanted space for a family and off the main road.

They had managed to buy a starter home in an area they liked, now they wanted a more premium location – with a neighbourhood feel.

To stay in a nice area, they knew that this purchase meant they would go into an inferior property – more space but inferior home.

The problem – New business

But just one small problem – Luc had started a new business. This is where a mortgage brokers problem solving skills can literally make dreams come true.

Luc’s new business was in the same industry as he had always worked in, but only a few months of trading meant it was tough to rely on his income for another home loan.

Many lenders need to see income from a new business over two years before considering their home loan application – time the clients did not want to wait out.

The solution – Sandy’s career

I mentioned at the start these guys worked hard on their careers. By 2016 Sandy had progressed her career to point where much of the borrowing power could be met by her income. The home loan application was successful because any reliance on new business income was small – the lender felt it made sense.

To make sure Luc and Sandy were eligible for new lending before they offered on a property, they arranged a pre approval. Once pre approved, they knew their income position was acceptable – now they just had to find a property.

This was their position when it came time to upsize to a bigger home.

Any new home loan application needs another assessment. While Luc and Sandy’s household income had increased to over $300,000, they had keep their lifestyle in check and avoid lifestyle creep – where the more you earn, the more you spend.

See below – Luc was now enjoying some thrift spending challenges….

Net worth update – Pre-upsize [2016]
In just five years Luc and Sandy had grown their wealth from $116,000 to $714,000.

Buying the family home [2016]

PURCHASE PRICE – $860,000

What did they buy?
A three bed, 2 bath home on 500sqm in a highly sought after suburb 10 minutes from Perth CBD.

What was the market like when you bought?
“Our offer to purchase was one of five offers. This particular area always seems to have demand, no matter the state of the market.”

What were you looking for in a property?
“Space and the opportunity to add value.”

What was you buying strategy?
“We offered slightly over the asking price and we are convinced the preapproval helped us a lot. We did not need to sell our current home to we did not have any subject sale conditions.”

How much did you spend on improving the property?
“We self-funded a large renovation and continued to save as we had done previously. We ended up selling our first home which gave us extra funds.”

What were your improvements?
“We spent about $300,000 of savings converting the home to a four bed, two bath with open plan living and kitchen. We did not overspend on specs – just got them to the required level.”

For example, we spent $150 on a tap instead of a more premium $600 tap – same factory different brand.”

“What brand of tap did you use? – said no buyer ever.”
– from Luc

My take – Upsizing

As I have often seen over the years, upsizing to a bigger home usually happens at the time families are growing, incomes are changing, and time is short. It can make financing a new house a challenge.

Luc and Sandy had all of this….

Starting a business
Keep your mortgage broker close if you plan on starting a new business around the same time as applying for a home loan.

Income
Starting a business was a risk, but an informed one. While income had been between up to $250,000 on a good year – starting a business on an anticipated income of $150,000 might sound foolish to some.

What if I told you that income today is $400,000 plus and business value is $5M+?

Preapproval
Clients had preapproval because their current income position was not in line with classic lending policy. It made sense for them to have their borrowing position assessed prior to offering on a property

Not only did the preapproval give them an advantage in a competitive market, it also removed any doubt as to their eligibility for a home loan given the new business.

Minimal offer conditions
Upsizing can be tricky to finance when you already own a home. They did not need to sell their existing property and had enough savings to put a 20% deposit down on the new property.

They could also lean on proposed rental income for their existing home.

I spell out plenty of upsizing strategies I have seen here.

Not having an offer that is “subject to the sale” of your existing property – keeping offer conditions to a minimum – can often make a seller lean into your offer over others.

Add-value
Their goal with this purchase was to add value to a property as a way of building wealth. While this makes sense it came with compromise:

• Living in a property that needs improving versus one already improved.
• Saving for a big renovation.
• Not realising the value added until they sell.

The home loan [2016] – $688,000

This house, unlike their first, was to be Luc and Sandy’s forever home.

Clients chose to borrower $688,000 at an 80% LVR. A loan to value ratio of 80% keeps costs low by avoiding LMI and usually attracts better rates than high LVR loans.

Luc and Sandy could have contributed more to the loan but instead chose to offset surplus funds to preserve them for renovations.

Repayments
They chose an interest only strategy again – this time only for one year. It helped them replenish savings in their offset and invest in home improvements.

5 steps to mortgage freedom

Here are the five important, you could say life-changing, strategies Luc and Sandy used to get rid of their home loan and build wealth for their family.

1. Income – Career

The importance is career and income progression was key to Luc and Sandy being able to upsize to a bigger home.

Sandy’s income was the main reason they were approved for their new home loan as the business was only just in start-up phase.

When I analyse clients who have paid off their home in under 10 years, there is a select group of professionals who manage to progressively increase their salary—complimented by their ability to refrain from also increasing their living expenses.

2. Lump sum loan reduction

We can focus on the Luc and Sandy’s move to a bigger home but forget that the sensible choices they made with their first home paid off in more ways than one:

• Bought at discount.
• Lived on a main road.
• Lived in a home that they didn’t love but knew it was not forever.
• Added some value through cosmetic renovations.

It was the sale of their first home that helped reduce their home loan debt for their forever home.

3. Business – Income and value

The first few years of the business saw income stuck at around $150,000 for Luc. But consistent effort saw that eventually change with income supercharging home loan reduction.

Having children meant household income was stagnant for a while. Now household income is circa $500,000 per year.

The business has provided financial security on two fronts. Firstly, the income is far greater than the original $150,000. Secondly, Luc is a significant partner in a business that has grown to a value of over $5,000,000 in eight years.

What now? Now the business income is being used to buy assets for their future wealth and income.

4. Home loan strategy

Offsetting a large balance in offset on a variable interest only loan gave borrowers control. The higher the offset balance was, the lower the interest only repayments each month.

They used multiple offset accounts because this worked for their family budgeting.  Different accounts had different savings purposes – renovation, school, even a boat. All these separate accounts still collectively offset their home loan.

In my interviews with borrowers who are now mortgage-free, it is often a mindset thing. Luc always wanted a boat, but they knew buying nice things is a common obstacle to creating wealth. So Luc opened up a separate offset account specifically for his boat. rather than dip into a general savings account, he consciously saved extra in his boat account until—you guessed it….he bought one.

5. Goal oriented

When I asked Luc and Sandy about whether they are goal-oriented, it turns out they set aside time annually to write down their goals—some of which are financial.

Paying off their home loan was always a goal. They came up with a target date to be mortgage-free – Luc’s 40th birthday. It turns out they missed it by a year. He was 41—an amazing feat all the same.

They are driven by the challenge of saving. They make it fun and are motivated by each other. This is another trait I see in people who achieve mortgage freedom in under 10 years. They are convinced that setting goals has helped them save a lot more than if they were to just to drift along.

Were there any sacrifices made to pay off your home loan?
“We did not sacrifice, we were just mindful of what was a necessary purchase and what was not.”

Easier said than done and they did it.

Were there any hurdles?
“Yes but we asked for them!”

In the 10 years they took from first home to renovated family home they had kids, career breaks, renovated and grew a successful business.

All of these are potential derailers when it comes to paying off a home loan. But these borrowers stuck by their goal setting and funnily enough – they achieved them.

Financial position [2024]

Net worth [2024] – $3,095,000.
A net worth of $3,095,000 is an underestimation.

Note: I have not included any business value in their net worth calculations – I know they continue to make investments through their business.

My take on their journey

Food for thought.
Your home is considered your asset, but it does not produce income, and you can only enjoy the proceeds when you sell—but what then? You still need a place to live.

I want the above question to highlight how Luc and Sandy have created an amazing business delivering both value and income. They now use business income to accumulate new assets, which has the benefit of keeping personal assets – like the family home – separate.

Luc and Sandy have money already set aside for schooling, further home improvements – or another house move.

The theme here is control. Control over cashflow, control over savings. Banks are helpful if you need them, but Luc and Sandy have managed to self-fund business, renovations, and a boat which people commonly use finance for.

Luc and Sandy value being in control of their financial decisions.

Paying off their home loan has allowed them to do so.

Something to share: From Luc and Sandy

What are some of the guiding principles that helped you get here?
“From day dot we always set a target. Our first one was to save to buy and house.

Then once we got our home loan, we wanted to remove the guarantee as soon as possible.

A mortgage has never been something we wanted to sit on.

We made it a goal to be mortgage free by 40, and missed it by a year.

Even though we were had time on interest only repayments. We always put money aside that would have normally been part of a principal and interest repayment.”

What next?

Do you ever have enough space? They are contemplating adding another bedroom but not in a rush.

Their family is young, so they continue to save to retain a level of control around living options – renovate, or sell and upgrade.

Despite being in a comfortable position, they remain motivated to save and be in control.

From my mortgage broker experience:
I suspect no matter whatever they do, they probably won’t need a mortgage broker!

Note for readers:
The following may have been altered to retain anonymity of my clients.
– Name of client.
– Facts and figures. These are a combination of verified and unverified amounts. Some have been slightly altered (rounding) to assist with retaining anonymity of my clients. None change the spirit of the story.

Definitions of ratio calculations:
DTI
– The ratio derived from taking all debt limits like home loans, car loans, credit cards, etc
Divided by all annual income – from jobs, rent, etc

Repayment Ratio
– Actual repayments based on interest rate at the time of loan origination over the loan term.
– If interest only repayments were chosen as part of a 30 year term – a 25 year payback period was used in the Repayment Ratio calculation.

Net worth
– Everything owned minus what is owed
– Assets minus liabilities

Definition of no home loan – follow link