Paying off your home loan can be a daunting task. Especially if you’re just starting and you imagine making all those monthly payments for the 30 or so years. But did you know you can back your mortgage in a short period? To be precise 5 years!
So how can you pay off your mortgage in 5 years? You can pay off your mortgage in five years by paying approximately 4 times the 30 year mortgage payment. Making larger and more frequent payments can shorten the duration of your loan substantially.
The mortgage period is determined by the cost of the home you want and the amount you can afford to pay every month.
Paying Off Your Mortgage in 5 Years
After establishing if the above is possible then you must know the amount required monthly to cover this mortgage in five years.
Have that budget and set a time frame when payments will be made and stick to that!
To know the amount to top up each month, it is good to utilize a mortgage calculator. This will not only give you the amount to be paying as a monthly installment but also show you what you will save in terms of interest.
For instance, if your principal amount was $250,000 and the repayment period is 22 years with a monthly installment of $ 1560.02.
If you decide to add on the monthly payment by $3,250, you see that you will have saved $126,804 on interest payments and the repayment period is reduced drastically by 16 years to 5 years!
On the same note, let’s say you have a mortgage of $ 150,000 for a rate of 23 years. To pay this principal amount in 5 years, you can decide to increase your monthly repayments by $1850. This will save you $ 80,172 on the interest as you’ll pay $ 22,253.26 instead of $102,707.82.
The principal plus interest you’ll pay in total will also change from $252,707.82 to $172,536.26.
Paying off a mortgage in five years is a very feasible undertaking – simply start by making a repayment plan so you understand what to pay each month, and afterwards seek to find methods that will help you stick to it.
Having to pay off a home mortgage can save you large sums of money in benefit because mortgages are typically large loans that last for a couple of years or longer.
Not to mention how liberating it is to not have to worry about a monthly mortgage payment.
Paying off your mortgage within a short period involves taking several steps that assist you in managing your finances better.
We have compiled for you 15 easy ways to pay off your mortgage in five years! Keep scrolling and find out how you can get to be mortgage free in no time.
1. Be Realistic
Make sure that you get into a mortgage deal that you can afford. If not, paying off the loan in six years or less may not be a reasonable expectation. Look for areas where you can reduce the loan principal.
Additionally, you will need to make sure that tax refunds should be applied to the principal balance. You should also look at the loan rate and other home costs to see where you can cut costs, and then apply the savings to the principal. That way, it will be easier for you to clear off your mortgage without feeling any strains.
2. Paying More Every Month
A lot of people may not realize this but the most evident solution is to make an additional principal payment with any leftover money at the end of the month. Therefore, ensure that your monthly target for the creditors comes with extra monthly payments just to decrease the amount you owe, but it also reduces the amount of tax you pay over the term of the loan substantially.
The longer that you will take to pay your loans, the more you are more likely to lose. Therefore, you will have to make sure that you pay in a short period of time. And, this you can only do when you pay more than the loan requirements for the month.
Also, to accomplish this, you must make larger or more common payouts than the mortgage company requires. You will also need to reduce other expenses or find ways to earn more money each pay period.
3. Choose the Fortnight Payments
This method is explained by simple math. A monthly payment equals 12 payments per year. Having to pay biweekly involves paying half the amount each month every 2 weeks. That equates to 26 half-payments or 13 full payments, for a total of one extra payment per year. This strategy could be implemented online, allowing borrowers to reap the benefits of the “set it and forget it” strategy.
Check with your bank or lender to see if it accepts bi-weekly payments rather than monthly. But bear in mind that this is only for those who have some form of weekly source of income.
4. Buy What You Can Afford.
This is what a lot of people miss! Make sure you can afford whatever you will be purchasing. Meaning, don’t get yourself into deals that will strain you.
If you’d like to finance a property, you must first get prequalified. The bank will examine your overall financial picture and recommend an amount for which you are likely to be approved for a loan.
Some people use this figure to determine their housing budget. You might want a bigger house but if it’s going to pull you down then you may have to leave it.
5. Work with a Target
This will motivate you to do better when making payments. Also, this would work extremely well for those who have the compulsive disorder to make sure that everything is paid for in time and all is in order.
Set a specific deadline for repaying the loan. Setting a five-year goal is useful, but it is easier to achieve if you have a hard deadline. Make a note of your target date and keep it someplace noticeable so you don’t lose sight of the goal you’re working toward.
You might even want to set a few deadlines to keep yourself on track. Once you’ve established a target date, you can figure out how much you’ll need to pay each month and year.
An amortization schedule, which indicates just how much of the mortgage payment goes into accrued interest, may be provided by your lender. A mortgage calculator can also help you figure out how much you should pay each month or year.
6. Make a Down payment
If you do not have a mortgage, try putting down 20%. If you have a smaller down payment, private lenders will require you to pay private mortgage insurance (PMI). That additional insurance cost will only make it more difficult to pay off your mortgage quickly.
If you cannot afford a 10% (or more) down payment, you should reconsider whether you can afford the home. Also, making a down payment means that you have already cut some of the money.
Therefore, you will be getting to pay less which is something you can do within a short period of time. Overall, the quickest way to pay off a mortgage is to have a smaller mortgage.
Make sure that you have done everything possible to try and make the mortgage as small as possible. If you have savings, then use them for down payments. You will be happy you made this decision later!
7. Have you Tried Saving!
You will have much less money to cover non – operating costs if you put more money into your mortgage. As a result, you can help yourself by limiting your other monthly expenses.
For instance, if you watch or listen to five streaming services, you may be able to reduce that to three. Search for premium content that you no longer use or that you don’t use on a regular basis.
Cost-cutting doesn’t have to be a permanent thing, either. After you’ve reimbursed off the mortgage, you can resume spending money on the items you had initially cut out. Meaning this is only a short-term solution to help you focus on paying off your mortgage.
8. Try Budgeting
Create a budget to help you avoid overspending. Budgeting allows you to keep track of where your money is going and ensures that you only spend money on products you want to splurge on.
When you first track your spending for a month, you may be surprised at where your money is going. Creating a budget, however, is insufficient. You must also adhere to it.
The best part about the world that we live in today is that there are so many budgeting apps that you can get to use online. And, with their guidance, you will be one step closer to closing off that mortgage.
9. You Will Need a Side Hustle
Rather than drastically reducing your spending, or perhaps in regards to it, you might want to look for ways to earn a little extra cash. This could include holding a yard sale or opening an Etsy shop.
There are a lot of side hustles that are free to start and you can brainstorm on the one you think might work for you. For example, some couples are making a lot of money from vlogging. You can just go on tik tok or YouTube and try getting as many followers and likes as possible. If you are not tech savvy and want to generate extra income the old school way, then consider giving a portion of your house on rent. It may initially seem like a lot of work but will be worth it at the end of the day.
10. Did You Know About Mortgage Points?
Financial institutions will provide quotations which include loan rates and points to individuals who are inquisitive about just how much their mortgage rates will cost them. There are two types of points that you should expect from the mortgage company.
- Mortgage discount: prepaid value; the more you pay, the lower the average percentage.
- The Origination Fee: The lender charges an origination fee to cover the costs of making the loan.
If you intend to purchase a home for the near future, it may be worthwhile to pay for these points because you will save money on your mortgage interest rate. You could save even more extra money per month and apply it to your overall monthly mortgage.
11. You May Need a Calculator
Contact your mortgage company or check your most recent statement. You’ll need to know what the current outstanding balance is. After you have a certain number, you must calculate the installments required to pay down the mortgage in 5 years.
You have the option of having the mortgage company do the calculations for you or doing it yourself. If you want to do it yourself, there are so many formulas that you can make use of to help you easily calculate how much you will have to pay in order to clear your mortgage in 5 years or even less!
But you will also find that the very same mortgage paid off over 30 years may cost you way less than the five year plan. So, plan accordingly when performing this estimation. It will be significantly higher than your current payments. Meaning, you now have my amount that you need to pay. But you may discover that the payout is twice or three times the amount of your monthly loan. Just maintain your cool and you will be done in no time.
12. Getting Ahead of the Principal
The first few years of paying your mortgage are really tough. And, this may be because you are still trying to deviate from your original way of spending and your life has to change drastically. But, do not be disheartened, all you need to do is make sure that you go ahead of the principle.
Therefore, do whatever you can to have some of the principal paid back early, and then you’ll notice much difference.
So, each buck you place into the mortgage above your repayment amount is an invasion on the equity that also means you’ll be paying it back on a lesser proportion later on. Additional payments or normalization repayments will allow you to cut many years off the period of the loan
13. Maximizing on Tax Loans
As previously stated, “the fastest way to pay off the loan is to make additional payments for as wide a range as your mortgage requires,” says investor and writer Dan Dzombak. “That is easier said than done for many individuals.”
Yet another tactic that can help you achieve this is to use one’s tax deduction to make yet another large extra mortgage repayment per year. Back in 2015, it was predicted that 75 percent of taxpayers will receive a refund this year. But, also, so far with the 2021 tax season, the ordinary tax refund is $21,500 which is taken from the 24% tax bracket.
14. There is No Such Thing as Extra Money!
We know that you may want to take a break and spend a little. But, well, there is no rest when it comes to mortgage payments.
Evidently, the debt with the highest interest rate takes precedence. And therefore, if you already have an emergency security savings fund and your mortgage will be your only debt, don’t even think about what you’ll do with an excess account when it comes your way: Incorporate it to your home mortgage as extra principal.
15. Try Mortgage Refinancing
There are so many benefits that come with refinancing your mortgage loan. For instance:
- This can help you reduce the loan term and make higher payments until it is paid off.
- Or, you may be able to obtain a lower interest rate.
Such mortgage refinance options may eventually pay off the mortgage early and also save thousands of dollars in interest, as refinancing a mortgage allows you to create a completely new loan.
If you’re not using too much more equity in your home, you could be eligible for the Home Affordable Refinance Program. This may help in making the whole mortgage situation a lot easier and more bearable.