Want to shave 10 years off your home loan? Buy a Granny Flat!

March 31, 2016

Yes this is a granny flat!

 

There isn’t a week that goes by where one of my customers asks, ‘Aron, how can I pay off my mortgage as quickly as possible without disrupting my life expenses?’.

 

It’s usually a tough one to answer as to cut a long story short, to pay off your mortgage quicker you need to make accelerated repayments. Although this method may not suit everyone depending on individual requirements.

 

A study has shown that purchasing a granny flat and leasing it upon completion can shave a big chunk off your home loan so I just had to do the figures.

 

The result shocked me and I just had to share it with everyone!

 

Please keep in mind that this is just a pure exercise to prove a principal and individual results will vary.

 

Research:

 

The average Australian loan size is $250,000 (I wish mine was $250k ha!)

 

$250,000 loan @ 5% = $309.49/week minimum repayment over 30 years

 

The average granny flat will set you back approx. $120,000. I’ve exaggerated this figure to $150,000 and assumed someone borrowed the entire cost on top of their $250,000 mortgage.

 

$250,000 current loan + $150,000 additional loan to construct granny flat

$400,000 loan @ 5% = $495.19/week minimum repayment over 30 years

 

This equates to an additional payment of $185.70/week (principal & interest) on top of the existing repayment.

 

This next bit is the kicker.

 

Using a conservative example of $300/week in rental income (different suburbs and designs will alter the rental income)

 

The rental income clearly covers the additional payment above of $185.70 plus $114.30 left over after the repayment.

 

By contributing the left over $114.30 per week to the loan, you’ll save 10years and 1week off your total loan term and save $139,942 in interest!

 

Outcome

 

By purchasing a $150,000 granny flat, borrowing an additional $150,000 and earning rental income of $300 a week you can achieve the following:

 

·       Save over 10 years on your home loan without making extra repayments out of your pocket!

·       Earn rental income

·       Add value to your property

 

Best of all, you didn’t have to pay an extra dollar out of your wallet!

 

Of course not everyone will be in the above position OR have a property to accommodate a granny flat but it still baffles me to think borrowing an additional $150,000 and not paying a dollar out of your pocket could result in shaving off 10 years in your home loan!

 

Mind blowing!

 

If you’d like further information I’ve got in touch with local Sydney builders to help me understand this area a lot more so don’t hesitate to get in contact if you wan't to trim some life out of your mortgage!

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