How to Pay Off Your Mortgage in 5 Years

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|10 min read

For countless Americans, a monthly mortgage payment is a standard part of owning a home. They set aside part of their paychecks each month for their mortgages and occasionally hold off on other luxuries until they have a little extra money to spend. 

However, it is possible to pay off your mortgage early if you are dedicated to eliminating this debt. This process isn’t easy and requires careful planning and dedication. In some cases, you might have to give up some of your favorite activities for a few years – like traveling the world or refurbishing antique cars – while you pay off your home loan.

Here are a few options to consider to pay off your mortgage and live debt-free. Consider how each choice could help your finances in the long run and whether you have the means in the short run to make it happen. 

Pros and Cons of Paying Off Your Mortgage Early

There are several benefits of paying your mortgage ahead of schedule. Even a few additional principal payments can add up and reduce the term of your loan. However, like all financial decisions, every benefit also comes with drawbacks.

Here are a few pros and cons to consider.

Pros

  • Interest savings: every extra payment cuts down on the interest you give to the bank. Use a mortgage payoff calculator to see how this adds up. 
  • Eliminate your debt: many homeowners live with their mortgage debt for 30 years. However additional payments can help you live debt-free sooner. 
  • Greater opportunities to refinance: if your financial situation changes, you can refinance to a lower payment that is more bearable. If you come into extra money, you can refinance to a higher payment with a lower interest rate.  

Cons

  • You will have less liquid cash: you might not have as much money for emergency expenses because your wealth is tied to your home. 
  • There is less money for enjoyable activities: you might have to reduce your travel, put off getting married, eat out less, and skip other activities in order to pay off your mortgage. 
  • Prepayment penalties: make sure your loan allows you to make extra payments without any extra costs or fees.

Even if it takes longer than five years, you can save a significant amount of money by working ahead on your payments. Missing out on fun activities like family vacations or expensive date nights now might be worth it to you in the long run once you fully own your home.   

How to Pay Off Mortgage in 5 Years

You can take advantage of several options to cut down the amount of time you owe to your lender.

Most people eager to pay off their debt will use these options below to make payments and reduce their principal:

1. Refinance to a Shorter Term Mortgage Payment Schedule

If you want to pay off your mortgage early, talk to your bank about refinancing to a shorter term. Instead of making payments on a 30-year loan, you might be able to condense your payments to a 15-year loan.

You will have a higher monthly payment but you will pay off your debt faster. Banks often have lower interest rates for shorter-term loans, which means refinancing could help you save money in the long run. 

While this is the most formal way to pay off your mortgage early, it also comes with extra costs. Your interest rate could actually be higher than your 30-year loan because of market trends. The type of refinance you do could also impact your property taxes, especially if your home values have increased in the past few years. You also won’t have a mortgage interest tax deduction if you pay off your loan early. 

Make sure you have a clear understanding of the maximum monthly payment you can handle, the tax ramifications, and the potential interest changes that come with refinancing your mortgage.

2. Make Biweekly Payments

Most people make monthly payments that are automatically drawn from their accounts. This means they make 12 payments per year. However, you can pay your mortgage faster and pay less interest by making half-payments every other week. Because there are 52 weeks in a year, you will make 26 payments throughout the year. This leads to an extra month paid off. 

For example, if your mortgage is $1,600 per month, you would pay $19,200 with 12 monthly payments. However, with biweekly payments, you would pay $800 each time with 26 monthly payments, or $20,800 each year. 

This is a small change that you likely won’t notice, but the extra payments add up. Paying off a bonus month each year shaves more than two years off your mortgage if you have a 30-year loan.

3. Round Up Your Mortgage Payments

This is another small way to pay off your mortgage early and it can be done informally. Instead of signing up for automatic payments, manually make your mortgage payment when it is due (either monthly or bi-weekly). If you have a little extra cash on hand, round up your payment each time. 

Using the same mortgage example as earlier, if you owe $1,600 per month and make $800 payments bi-weekly, see if you can afford to round up to $1,000 per payment. An extra $200 per payment is $5,200 per year, which is more than three monthly mortgage payments. Without realizing it, you could shave years off of your mortgage debt.  

This option also gives you flexibility if you can’t afford to round up each month. You can pay the exact amount in December so you have money for holiday gifts or in July when you want to take a cruise.

4. Allocate Windfalls to Mortgage Payments

Oftentimes, paying off your mortgage early means using money to make payments instead of spending it on more exciting opportunities and activities. Remember that the interest savings that come with paying off your mortgage can give you more money to enjoy life once you’re debt-free. 

Whenever you receive a little extra cash, either from your tax returns, work bonuses, inheritance distributions, or gifts from friends and family, put the money toward paying off your mortgage. Even a small payment of $500 extra can have an impact on your payments in the long run.

5. Make a Substantial Down Payment

One of the easiest ways to pay off your mortgage is to have a large down payment that lowers your monthly costs. A large down payment reduces risk in the eyes of lenders because they are more likely to recoup the debt if you can no longer make your payments. This means you will have a lower interest rate, resulting in a lower monthly payment. 

The lower the interest rate, the less money the bank gets for your loan. A lower interest rate and lower monthly payment can free up funds to develop mortgage early paying habits – like rounding up or paying bi-weekly. Your finances will be less stressed as a whole, which means you can be more aggressive with your loan.  

Use a mortgage payoff calculator to see how different down payments and interest rates can affect your costs. You might be shocked how a few thousand dollars in your down payment or a one percent drop in interest can lower your overall debt. 

If you can’t increase your down payment now, look for more affordable homes where your current down payment is a larger percentage of the property’s value. You can always sell your starter home in the future and use the funds to buy a bigger property.

6. Increase Your Monthly Payments

You can decide to increase your monthly payments without refinancing or following the round-up method. One option is to align your monthly payment increases with any pay raises or cost of living adjustments you earn. For example, if your company gives you a raise of $500 more each month, you can allocate $250 to your mortgage and use the remaining $250 for fun activities.

By paying a little extra to cut down on your loan principal, you might be able to complete a mortgage refinance for a shorter-term loan sooner than you expect. This could help you lower your interest rate so you give less money to the bank in the long run. 

7. Lump-Sum Principal Payments

If you come into a little extra money (like from the estate of a deceased relative or from winning the lottery), you can use the money to make a lump sum payment on your mortgage. 

Lump sum payments are applied to the principal of the loan. As long as you don’t have any prepayment penalties with your bank, this allows you to pay off your mortgage faster. Your bank will either allow you to keep making payments on the outstanding balance or it will recast your loan. This means the loan term is still the same but the average payment is lower. 

This could be a good option if you don’t need to pay off your mortgage early but want to free up your finances with lower payments each month. A lump sum payment now that lowers your monthly bills might also allow you to make extra payments in the future with the money you have.

8. Assistance in Paying the Mortgage

If you aren’t able to handle extra payments on your own, look for ways to bring in more money to cover your mortgage balance. For example, you might decide to let out your space to a roommate for a few years if it means using their monthly rent payments to cover your loan principal. You can take on a second job outside of your current employment so you can pay off your mortgage earlier. 

You can decide how committed you are to paying extra in order to pay down your principal amount. By limiting your expenses each month, working extra, and saving money wherever you can, you can quickly pay off your current mortgage well ahead of schedule.

9. Discuss Your Financial Goals With Accounting Professionals

If shortening your mortgage term is an important goal, meet with a financial advisor to discuss your specific options. They can look at your debt-to-income ratio and create a plan to help you pay off your mortgage quickly. 

These advisors might recommend a mixture of rounding up on your future payments and using your tax refund to cut down on your loan. They can give you an overall financial picture that allows you to set aside emergency savings and plan for retirement while still working toward your mortgage payoff goals. 

Your finances aren’t just related to your home. You need to make sure you have cash available if you have an emergency medical bill or an unwanted accident.

Set Monthly Payment Goals When You Buy a House

If you are preparing to buy a house, use a mortgage payoff calculator to understand what you can expect to pay. You can track your principal, interest, taxes, and homeowners insurance costs all within one payment.

Once you know what your payments will be, you can decide whether it’s possible to take on extra payments throughout the year. 

To find a house with a reasonable mortgage, find a Realtor through FastExpert. You can meet with real estate agents who specialize in certain areas and property niches so you can buy your dream home. Learn more about FastExpert today and find an agent near you.

Amanda Dodge

Amanda Dodge is a real estate writer and expert. She has worked in the field for more than eight years. She spends her time writing and researching trends in real estate, finance, and business. She graduated with a bachelor's degree in Communications from Florida State University.

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