7yrs no mortgage | Business supercharges home loan to zero

Seven years….

That is how long it took this couple to go from child-free first home buyers to a family of five living mortgage free in a beautiful family home worth $2.5M.

This is a story of how clients used a growing business and goal setting to supercharge home loan repayments and be mortgage free.

Now close enough to 40, Michelle and Ricky are entering a new and exciting phase for them and their family.

Mortgage free and loving their beautiful family home, they are now eying off a regional property to enjoy for holidays—and one day move into.

The beginning [2014]

Michelle and Ricky had been paying rent, living in a family-owned property for a few years. The opportunity came up to buy it as their first home around age 30.

They purchased the property at an agreed price considered in line with the market. The lender valuation came in a little higher which gave them instant equity and helped them avoid lenders mortgage insurance.

Their home loan application was approved based on income generated from a marketing business they started together just four years earlier.

I analysed a bunch of borrowers who paid their home loans off in under 10yrs and found many were business owners. Done well, business ownership can supercharge your income.

Income [2014] – $200,000
Their business was generating personal income of $100,000 each for Michelle and Ricky.

Spending behaviour [2014]
Michelle and Ricky felt hey were in the ‘moderate’ category when it came to spending. I would agree – given they had absolutely zero debts.

Assets [2014] – what they own
For any couple looking to enter the housing market, $170,000 in savings is a great deposit. Based on my mortgage broking experience, I consider the below assest position very strong for first home buyers at age 30.

Liabilities [2014] – what they owe
One of the traits I see in mortgage-free clients is they can be finanically boring. To much action on your credit file can indicate a lack of planning and perhaps over-spending. I am talking about multiple credit cards, personal loans, buy-now-pay-later, car loans or similar.

Ricky and Michelle met any spending or purchase needs with cash savings.

Net worth [2014] – $345,000
As with most young first home buyers, savings and super contributed the most to their assets.

My take on initial position [2014]

Michelle and Ricky prioritised getting their business up and running. They had also managed to save a decent deposit which new business owners can struggle with. Owning the business for fours years not only helped Michelle and Ricky get comfortable with their ability to repay a home loan—it also gave the lender the confidence to approve their loan.

Buying their first home [2014]

PURCHASE PRICE – $550,000

What did they buy?
Michelle and Ricky bought their first home for $550,000 from their landlord – which happenned to be family. It was about 10 minutes from Perth CBD.

The property:

• Home on half a block (about 400sqm)
• 3 beds 2 bath
• Strata
• On a main road

Why did you decide to buy?
“We were renting the house already and it made sense to start our home buying journey with this one – it was convenient.”

My take – Home buying strategy

In my mortgage broking experience I have seen tenants buying from landlords a number of times. Tenants who buy from their landlords have a unique “try before you buy” experience. This is very uncommon in real estate when you often buy based on a 15 minute open-house inspection.

The home loan [2014] – $480,000

Michelle and Ricky maximised there loan with a view to preserving as much in savings as they could.

Home loan repayments
They borrowed on an interest only basis. At the time of borrowing both there was no difference in rates for interest only versus principal and interest repayment types. They understood interest only repayment strategies could cost more over the long run, but it suited their strategy.

Given this property was not their forever home, interest only strategy allowed them to preserve home loan debt in case they converted the property to an investment in the future. This is a sound strategy and something I always recemmend seeking profesional tax advice for.

Home loan features
They chose a home loan with an offset feature which gave them tow main offset benefits. They could park savings in offset and still have access to the cash. Plus, any savings held in offset also reduced the amount of interest they owed to the lender.

What were the feelings you remember about taking on a home loan?
“We did not feel like we over-extended ourselves. Actually, nothing much changed. We were tenants one day and borrowers the next.”

My take – Home loan [2014]

Michelle and Ricky were growing a business and keep as much in savings from the purchase was their main priority.

They utilised savings held back from the purchase contrinution in an offset account which helped them reduce home loan interest.

Summary of the start [2014]

Michelle and Ricky bought a first home, not a forever home—the start of their home ownership journey. In their minds, home loan repayments effectively replaced the cost of rent—and they carried on growing their business.

The upgrade – Getting real in 2017

By 2017 Michelle and RIcky had had two kids and figured the living spaces, busy road were not a great combination for a family.

They wanted to upgrade without selling their current home.

Michelle was no longer actively working in a business that had rapidly grown. How had the businiess done so well? All the growth was organic, they were just great at what they did!

Income had increased …..

Financial position [2017]
Household income had increased to $300,000. Plus they had a property that could be rented out as well. As you can see from their financial position they had saved more than they owed on their home loan. Offsetting this amount against the home loan meant they were paying no interest.

Their net worth position had grown significantly to $975,000.The extra profits from the business as supercharged their capacity to save and offset their home loan.

My take on financial position [2017]
Michelle and Ricky had not paid off their home loan – this is known as debt preservation. It keeps a home loan in tact which can deliver tax advantages in the event the property is turned into an investment—which is what Michelle and Ricky did.

Buying the (big) family home [2017]

PURCHASE PRICE – $1,530,000

What did they buy?
A two-storey, 4 bed, 3 bath on 800sqm in the highly desirable Mount Lawley area of Perth.

Why did you decide to buy?
“Our existing home was not doing it for a growing family . We were on a busy road, in a house that lacked space and the all of us were getting restless!”

What was the market like when you bought?
“The market was quiet. This house was initially listed at $1.9 million and spent about six months on the market. This was the only house we offered on, but we felt like we got a good deal.”

What were you looking for in a property?
“We were looking for a family home that we could spend at least 20 years in.”

What was your buying strategy?
“We started off dreaming. We were looking at houses near Perth’s coast with a budget around $1.4M.

After visiting some home opens we were driving back home and along the way saw a home open sign and said ‘let’s go and have a look’.

We loved it.

That’s how it started.

The asking price at that stage was 1.65M and we said our budget was 1.4M. We never thought we would be able to get a place like this.

The very next day the agent contacted us to try and get our price up a bit.

Over the next few weeks we had more coversations and finally agreed on a price of $1.53 million.”

What helped your negotiation?
“A key to having our offer accepted was that we could buy without having a ‘subject to sale’ clause in our offer. A competing offer had this clause so the buyers chose us.”

How much did you spend on improving the property?
“Not anything significant – just some redecoration.”

My take – Upgrading to a family home

Don’t rule yourself out of the running for a property based on asking price. It never hurts to have a conversation and there can sometimes be a backstory to a property sale you are unaware of—that can work in your favour.

Properties often need a few weeks on the market for maximum exposure. But when it pushes into the ‘several months’ zone – motivated sellers need to find their buyer.

Foe these sellers, Michelle and Ricky were the solution to their selling problem.

Michelle and Ricky got a preapproval for a home loan which enabled them to presented a relatively strong and uncomplicated offer.

They got themselves a family home they never thought they would be able to buy.

The home loan [2017] – $1,200,000

Unlike their first home loan, Michelle and Ricky, borrowed near their maximum capacity for this one. They considered it too good an opportunity to miss.

Borrowing near your maximum capcity can sound risky – but these borrowers had their investment property in the background still. Something they could sell if they needed to pay down a chunk of debt.

“….we were wondering if we bit off more than we could chew.”

Repayments
This home loan was different to the first. Michelle and Ricky had no plans to make this an investment property. It was to be their family home with – they had no intention of moving.

So principal and interest repayments made sense. The sooner their debt was paid off, the sooner the silent cost of interest was gone from their lives.

Features
They chose a variable home loan with an added offset feature. The offset account gave them a place for surplus funds with the added potential of building this up to a large amount as they did with their first home loan.

How did you feel about taking on this home loan?
“This purchase felt very different to the first. It was unexpected, exciting and caused us some anxiety.

We borroweed much more than we did previously and we were wondering if we bit off more than we could chew.”

Fantastic four: A 4 year home loan payoff

Four takeaways highlight how Michelle and Ricky paid this home loan off in four years.

1. Increased income from business

When I analysed borrowers who had paid off their home loans one key group where business owners. As Michelle and Ricky’s business continued to grow, it enabled a few things to happen:

• It freed up time for Michelle was to work less in the business.
• The extra income generated from the business was committed to the offset.

2. Lifestyle creep

Lifestyle creep is where your living expenes increase as your household income increases. Unless your expenses are kept in check, there is can be little to show for the extra income you generate.

Michelle and Ricky were conscious of not letting lifestyle creep erode their income. They live a nice lifestyle and don’t consider themselves “thrifty” nor “wasteful” with money. This is a common trait among borrowers who successfuly pay off their home loan.

3. Lump sums for loan reduction

Once Ricky and Michelle got to a point where they could see themselves as mortgage-free, they opted to sell their investment property. This provided them with a bulk loan reduction and got them within sight of paying off their home loan. There is a lot to be said for starting small in your property journey.

4. Offset feature

Offset features can offset home loan interest as well as allowing access to cash in the even you need it. Michelle and Ricky valued both of these offset account features, and as business owners particularly valued access to cash if ever needed.

Were there any hurdles?
“Yes. A greatly welcomed hurdle – kids. Our business allowed Michelle to step away from the business yet they retained their lifestyle. The business continued to perform well and household income continue to grow.“

Was paying of the home loan early a goal?
“We had shared goals – no home loan being a big one. We felt a home loan was something we did not want ‘hanging over our heads’.

Living mortgage-free was something we collectively agreed on and it has helped shape all our decisions around money.”

Financial position [2024]

Michelle and Ricky paid their home loan off in 2021 and have gone from strength to strength financially.

Net worth [2024] – $3,185,000+
In addition to a Michelle and Ricky’s net worth of around $3,185,000, they have a successfull business that if they sold, a buyer would pay a lot for.

My take on their journey

A key consideration in selling their investment property for Michelle and Ricky was weighing up what life without a mortgage meant to them. Being mortgage free was always a goal of theirs so “selling” was a decision that made itself.

“It makes sense their focus remains on business rather than investment property.”

They freely admit, “we are not property experts”.

Michelle and Ricky demonstrate sustained success in growing wealth and eliminating debt through a super-charged business income. It makes sense their focus remains on business rather than investment property.

Something to share: From Michelle and Ricky

“We don’t talk about finances with anyone really – just each other.

We have honest conversations with each other about goals – our own as well as what we want for our children.”

I asked how long Ricky works on the business each week.
His answer “not more than 40hrs” would earn the respect of many business owners.

What next?

Without a home loan, Michelle and Ricky are planning to invest in share related investments.

They would like to take one overseas holiday each year.

And they have not given up on a property by the coast – this one might even be a holiday home in the Southwest of WA.