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How you can pay your mortgage off sooner using the pay down cycle structure



When it comes to fast-tracking paying off your mortgage, the pay down cycle structure stands out as a smart approach. Here’s a breakdown of how it works:


Imagine you and your significant other have purchased your first home and are eager to pay off your mortgage as quickly as possible. If you’re good with your financial management and committed to a budget, then the pay down cycle structure could be your winning strategy to say bye bye to your mortgage sooner.


As an example, let’s pretend your current home loan sits at $630,000. You decide to allocate $600,000 for a fixed term of one year, while the remaining $30,000 is earmarked for a Flexible Home Loan, which you aim to clear within the same timeframe.


The key is to keep the balance on your Flexible Home Loan at a minimum so you can slash interest expenses. This involves channeling your income into the Flexible Home Loan account and meticulously managing your expenses.


Everyday purchases can be made using a credit card, with an automated payment setup to clear the balance in full each month, thus avoiding any interest charges. Remember, credit card interest rates typically exceed those of home loans, so this tactic is only effective if you refrain from cash withdrawals and consistently clear the balance.


With disciplined management throughout the year, you achieve your objective of paying off the Flexible Home Loan, leaving you with $30,000 available for redraw. Conveniently, this coincides with the review period for your fixed home loan.


You can now utilise the $30,000 to make a lump sum payment towards the fixed loan before renegotiating its terms. Now, with your fixed rate loan reduced to $570,000, you initiate the pay down cycle again - Rinse & Repeat!


What makes this method shine is its ability to swiftly reduce your principal balance, consequently lowering interest costs. Moreso, the Flexible Home Loan facility offers ready access to funds should any unforeseen circumstances arise.


Obviously the cons of this type of structure are that you have to be extremely careful with your money, and really be focused on paying off that Flexible Home Loan. 

If you end up spending too much then this whole structure can backfire and end up costing you even more, so it’s a good idea to chat with a Mortgage Advisor about if this is the right option for you. If done right, you could end up saving thousands in interest payments, however you need to know exactly how much you can save over the course of a year to make this work. 


We can help with that, so if the idea of using the pay down structure to get your clear of your mortgage faster sounds like something you’d like to know more about, simply get in touch with us today!



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