After what period is the property paid off?

We answer these and many other questions in our video blog episodes.

Here is the transcript of episode 24 to read:

After what period of time is the property paid off? That is for you to decide. If you contribute a very high amount of equity and finance less, then of course this lower financing amount will also be paid off much faster than if you finance the purchase price in full. However, you will then also have paid for a much larger part of the property yourself because you contributed your own money. If, on the other hand, you finance it and give the tenant a few years to pay off the property with the rent, the property will naturally cost you personally much less than if you pay it off at lightning speed by investing a great deal of your own money.

The advantage of having paid it off much more quickly is that you will then also be able to receive the full returns for yourself sooner and will no longer have to pay the bank. Everything always has two sides, and that is the case here too. So if you want to know how long it will take, you need to have it calculated for you individually. By someone who can calculate this professionally using professional software and not just on a scrap of paper.

Because in doing so, one might forget that rent must also be taxed, that tax aspects also come into play, that there are administrative costs, and all those things. So, have a good calculation drawn up and simulate one or two different versions straight away. With a slightly higher repayment rate, you'll finish sooner, but you'll also pay a small amount more for it. I myself love it, and many of my clients love it too, by the way, to agree on a manageable base repayment rate that allows your tenant to comfortably pay off the property for you well before you reach retirement age.

With a free built-in special payment option, you then have the opportunity to, for example, pay off up to 5 % of the loan amount annually free of charge. This is a very nice option. If you earn that much money in a good year and everything is going well, and you say, “Yes, I want to make my special payment,” then you will repay the loan faster. But maybe there will also be a year when you say, “Now I want to buy a new car and do something else.”

Or maybe you want to buy the next property and invest a little of your own money in it. And you say: “That’s why I don’t want to make any special payments this year or only a small one,” then you have the freedom. You have the freedom to decide how long you want to wait on the issue of special payments. But you also have the freedom to decide what you spend yourself on that year. That’s a very pleasant situation because you decide and not the bank.

So my experience is that it is better to choose a fixed repayment that isn't too high, a fixed rate that isn't too high, but rather a slightly lower repayment and then work with lump-sum repayments, because then you have complete freedom. Ultimately, you decide how long it takes. That can be 5 years, 10 years, 15 years, 20, 25, 30 years. It simply depends a bit on your age and whether you want to pay more yourself or whether you want to give yourself the time for the tenant and the tax office to pay for the property for you.

Keywords:

Property paid off, equity, financing, rent, repayment period, right to make capital repayments, flexibility during repayment