9 Tips On How to Pay Off Mortgage In 5 Years


Everyone desire to own their homes. But the sheer size of the amount to buy a home for the average person is usually scary. You might end up giving up your vacation, retiring early or sending your kids to college if you fail to plan the repayment of your mortgage properly.

First, it is a huge task to start when you think about it and it is intimidating when you consider the amount we are talking about here. But you can apply simple rules that will help you pay off your mortgage faster and save you a lot of money that could have gone into interest payments.

Also, with this guide, you will increase your home equity and reduce the number of years you would have spent paying interest to your lender. If you follow these strategies, you could pay off the mortgage even in less number of years. Besides, it depends on how committed you are, the size of the mortgage, and whether you have outstanding credit you are paying. Here is how to pay off the mortgage in 5 years.

How to pay off a mortgage in 5 years

Below are effective tips on how to pay off your mortgage in five years:

1. Buy an affordable home

First on this list of how to pay off a mortgage in 5 years is pre-qualification.

When you visit your bank, they would first analyze your full financial income and use it to determine the amount of loan you are eligible for. You may use this number to set your housing budget if you want to keep paying interest for years to the bank.

So, you can examine your monthly income and decide what amount you want to budget for a monthly mortgage. It could be more or less. Just know the amount you can afford and stick to it then use it to plan for the mortgage.

2. Learn about mortgage points and use them

When you approach a financial institution for a mortgage and want to know how much it costs, you will get quotes that contain loan rates and points.  Financial planning experts say that one point is equal to 1 per cent of the loan amount. For example, if you have a mortgage of USD$100, 000 the point will be USD$1,000.

Also, there are two kinds of points.

They are discount points and origination fees. A discount point is a prepaid interest on the mortgage. And the more you pay, the lower your interest rate will become. While the origination fee is the amount the lender charges as the cost for making the loan for you.

So if you know that you will stay in that home for a long time, then you may pay for these points to save money on the interest rate on your mortgage each month. And then you can use the savings to pay for the mortgage.

3. Calculate the balance outstanding

Calculating the numbers is the next tip of how to pay off a mortgage in 5 years. So collect your updated mortgage statement of account from your lender. Then copy the outstanding balance. Next, calculate what amounts you need to pay off the mortgage in 5 years.

You can ask your lender to calculate the amount for you or do the math personally. To start, fire up your computer and open an Excel spreadsheet in Microsoft Office.

Assuming your outstanding balance is $100,000 and interest rate is  5 per cent and you want to pay 60 instalments in five years. Use this formula. PMT (interest rate/number of payments per year, the total number of payments, outstanding balance) So to apply this formula enter (.05/12,60,100000) and you will get USD$1,887 in five years. If it is $200,000 it will amount to $3,774 in 5 years.

Stay calm when you calculate the mortgage this way because it will be higher than the current amount that you are paying.

4. Pay down your other debts

An important rule you must follow about any debt repayment is to always make sure you pay down debts that attract high-interest rates. These debts are expensive. So pay them first. If you pay them off the interest will stop accumulating. And you will have enough room to pay your mortgage debts easily.

So before you attempt to overpay on your mortgage, clear all credit card loans if you have any because they are expensive debts to service.

5. Pay Additional

Paying additional amounts on your mortgage debt is another route you can try when you think of how to pay off your mortgage in 5 years. You should be aware that each time you make additional payments above the expected repayment, the extra is applied to the principal balance.

You can use this method to pay extra on a 30-year mortgage of $220,000 at 4 per cent interest rate. If you pay extra on your mortgage payment quarterly, you will save $65,000 on interest and can pay off your loan in 11 years.

Also, if you divide the amount you pay by 12 and add that amount to each amount you repay monthly or choose to pay half of your payment bi-weekly or every 2 weeks, you will make an extra payment each year. And save $24,000 and this will remove 4 years off your mortgage.

So, round up your payments and pay an extra amount each month. Also, increase your payment each time you receive a bonus or increase in salary.

But you should confirm with your lender before you make additional payments. Some accept these extra payments at a particular time in the month. Also, make sure the lender apply the extra repayments to reduce the principal and not the next month’s payment.

Beware that some lenders may charge prepayment penalties. So, confirm what obtains in your mortgage company.

6. Repay the principal early

When you get a mortgage and you start repayments as scheduled month by month, it will seem as if the principal does not reduce. That can be discouraging. What happens is that as long as the repayments are not large enough to hit the principal, due to compound interest you would continue to pay interest.  So do all you can to pay down the principal early.

To do that, put effort into overpaying above the repayment amount monthly. This over-payment attacks the principal and reduces the interest amount you will have to pay in the next month. Additional repayment regularly or in a lump sum will shave years off the loan term.

7. Do bi-weekly payments

This biweekly payments strategy is one of the quickest ways in this list of how to pay off a mortgage in 5 years. How it works is that you end up paying an amount that is equal to half the total amortized payment each month every two weeks.

Note that you have 26 biweekly periods in a year. Hence you are able to use the biweekly method to create one extra monthly payment every year. This will reduce the number of years you are supposed to pay off the mortgage.

For instance, if you have a mortgage of 30 years at a 4 per cent interest rate and pay biweekly, you will pay off in 310 months or 25 years and 10 months. But, you must be disciplined to pull this off. You can open a new bank account and deposit the amount that covers every two weeks.

And if your mortgage banker prefers monthly payments, accumulate the amount for a month and withdraw it. And then pay it to your mortgage lender. When the year ends it will still amount to double payment.

8. Pay all extra dollars to repay your mortgage

Set aside every additional money you get from a bonus, salary increase, holiday money or graduation gift. Make sure you pay off debts that attract the highest interest first.

Also, if you have an emergency fund saved up and you have mortgage debt, any extra money that you receive must go to the mortgage debt repayment and apply it to reduce the principal.

9. Don’t spend all you earn

If you need another strategy on how to pay off your mortgage in 5 years, then be prudent. Try to make savings in all the ways you can without degrading your lifestyle.

You could plant a garden instead of buying things from the grocery. Just go to your backyard and get green vegetables and other things you need. This garden will save money for you and the organic plants there will keep you healthy.

And if you are married, calculate the exact amounts you would need to repay the mortgage and find out if you can live on one income.  All you will then do is apply the second income to repay the mortgage.

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