Tim Gurner, a real estate millionaire recently caused a media frenzy by suggesting that if young people didn’t go out to cafes and spend money on smashed avocado on toast, then they’d be better able to save for a home.
In June, 2017, a young couple from Western Australia are making headlines for saying much the same thing. They have paid off their $300k home loan in just four years using a range of strategies, which included not going out for meals and cooking everything themselves at home. They still had smashed avocado on toast, they just made it themselves.
They made tough sacrifices but with a clear goal in mind and a view that they could knuckle down and limit their lifestyle for a few years to reach that goal, they’re now debt-free and only just hitting their early 30s.
Here’s how they did it:
- They saved a 20% deposit before buying.
- They bought a home well within their means.
- They paid off more than what they needed to – doubling their repayments. This strategy kills the interest you end up owing the bank, which over the life of a home loan, can amount to tens of thousands of dollars.
- They rented their home out for a while and moved to regional WA to maximize their income earning ability, which gave them a greater ability to pay off the loan.
- They took the view that they could live very frugally, simple holidays, home cooking, no new clothes – because they knew it was not going to be forever.
Other tips for paying off your loan as quickly as possible include:
- Paying more frequently – choose fortnightly over monthly repayments if you can.
- Pay off more – lump sums – tax refunds, unexpected salary bonuses, even inheritances. Put the money to good use and pay it off your loan.
- Get an offset loan which allows you to offset all your funds against the loan. You can still access the funds when you need to, but they work to ‘offset’ your loan and the more money in your account, the less interest you pay.