How to Pay Off Your Mortgage in Five Years (2024)

Owning a home outright can be a major accomplishment.

When you no longer have a mortgage to pay, you can use that money for other things like investing, working less or retiring early.

The good news is that you don’t have to wait decades to enjoy this kind of financial freedom. You can pay off your mortgage early and achieve it sooner than you think.

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How are mortgages paid?

If you want to pay off your mortgage sooner, it’s important to know how each payment contributes to lowering your debt.

Your mortgage payments include different parts. The first part is principal, which is the actual amount you borrow to buy your home. For example, if you have a $300,000 mortgage, the principal is $300,000.

Along with the principal, mortgage payments also include interest. This is the fee you pay for borrowing money from the lender.

Interest is calculated as a percentage of your outstanding principal balance. Your specific interest rate, however, depends on various factors like your creditworthiness and market conditions. If you have a 6% interest rate on your $300,000 mortgage, you’d pay about $18,000 in interest annually, or $1,500 per month.

When you make your mortgage payment, some of it goes to reducing the amount you owe (the principal), while the rest covers the cost of borrowing (the interest). As you continue making payments, the balance goes down and you gain more ownership in the property. This is called equity.

It’s important to note that during the early years of a 30-year fixed-rate mortgage, a larger chunk of your monthly payment goes to paying interest (only a small portion goes to reducing the principal).

However, the amount you owe in interest gradually decreases as you move further along in the mortgage term. At this point a shift occurs and more of your payment starts chipping away at the principal.

To pay off your mortgage faster, you’ll need to make extra payments toward the principal—on top of your regular monthly payments. So let’s say you make an extra payment of $200 toward the principal every month. This additional payment helps decrease the principal faster, thus shortening the time it takes to pay off the mortgage.

Is paying off your mortgage early a good idea?

Accelerating mortgage payoff can offer many benefits. One major advantage is the savings on interest.

When you pay off your mortgage ahead of schedule, you significantly reduce the total interest paid over the entire loan period. This can potentially save tens of thousands of dollars.

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Another benefit is the increase in home equity. Paying off your mortgage faster means you own a larger portion of your home, and more equity can open doors to future refinancing opportunities, such as home equity lines of credit and home equity loans.

Less stress is also an advantage. Living mortgage-free can bring peace of mind, allowing you to redirect those funds to other financial goals, such as saving for retirement, a child’s education, or other investments.

But while accelerating mortgage payoff has many advantages, there are situations when it might not be the best strategy.

  • High-interest debts: If you have other outstanding debts with higher interest rates, such as credit card debt or personal loans, it might be better to prioritize paying off these debts first.
  • Insufficient income: Speeding up mortgage payoff means making larger payments, which could put a strain on your budget. It’s important to carefully evaluate your overall financial picture and make sure you also have enough income to cover your other financial responsibilities.

Inadequate savings: Additionally, you might skip paying off a mortgage early if you don’t have enough in savings for an emergency. Ideally, you should have a minimum 3 to 6 months’ worth of living expenses.

Strategies for paying off a mortgage early

To pay off your mortgage early, you’ll need to increase your monthly payments and apply additional funds to your principal balance.

For some people, this might involve finding ways to boost their income, or re-budgeting and cutting back on unnecessary expenses. Re-budgeting also requires calculating the expense and figuring out how much more you’ll need to pay each month.

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Let’s say you currently owe $200,000 on your mortgage and you want to pay it off in 5 years or 60 months. In this case, you’ll need to increase your payments to about $3,400 per month.

Along with higher payments, the below strategies can help support your payoff efforts.

  • Refinancing: Refinancing to a lower rate can reduce your monthly interest charges. As a result, more of your monthly payment will go to paying down the actual amount you owe. You can pay off the principal faster and save money on interest in the long run.
  • Recasting: Mortgage recasting involves making a lump sum payment toward the principal balance, and then recalculating the monthly payment based on the reduced balance. This doesn’t affect your interest rate or loan term, but it can lower your monthly payment and free up funds. You can then use this money to make extra principal payments.
  • Biweekly payments: Instead of making a single monthly payment, you can pay one-half of your mortgage payment every two weeks. This results in 26 half-payments a year, which is the equivalent of 13 full monthly payments. Biweekly payments help chip away at the principal balance faster, shortening the overall term of the loan.
  • Lump sum payments: If you receive an unexpected windfall such as a tax refund, bonus, or inheritance, use a portion (or the entire amount) to help pay down your mortgage principal.

The bottom line

Combining one or more of these strategies with increasing your monthly payment can accelerate your mortgage and pay off the balance years earlier.

Before implementing these strategies, make sure your loan doesn’t have a prepayment penalty—and always apply extra payments to the principal balance.

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How to Pay Off Your Mortgage in Five Years (2024)

FAQs

How to Pay Off Your Mortgage in Five Years? ›

Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.

Is it possible to pay off a mortgage in 5 years? ›

Paying off your mortgage in five years or less is possible for many homeowners if they plan appropriately. It may require cutting back on spending or increasing your income, but often it can be done.

How to pay off 200k in 5 years? ›

Let's say you currently owe $200,000 on your mortgage and you want to pay it off in 5 years or 60 months. In this case, you'll need to increase your payments to about $3,400 per month.

What happens if I pay an extra $500 a month on my mortgage? ›

Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment.

What happens if I pay two extra mortgage payments a year? ›

Just making two extra mortgage payments a year can shave years off the life of the loan and save you tens of thousands of dollars; here's one strategy to get started.

What happens if I pay 3 extra mortgage payments a year? ›

Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.

What happens if I pay an extra $1000 a month on my mortgage? ›

Throwing in an extra $500 or $1,000 every month won't necessarily help you pay off your mortgage more quickly. Unless you specify that the additional money you're paying is meant to be applied to your principal balance, the lender may use it to pay down interest for the next scheduled payment.

How to pay off a $300,000 mortgage in 5 years? ›

Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.

How to pay off a 150k mortgage in 5 years? ›

With these principles in-mind, here's a look at five strategies that can help you pay down your mortgage in just five years:
  1. Make a substantial down payment. ...
  2. Boost your monthly payments. ...
  3. Pay bi-weekly. ...
  4. Make lump-sum principal payments. ...
  5. Get help paying the mortgage.
Jul 19, 2023

How to pay off a 30-year mortgage in 5 years? ›

Here are some ways you can pay off your mortgage faster:
  1. Refinance your mortgage. ...
  2. Make extra mortgage payments. ...
  3. Make one extra mortgage payment each year. ...
  4. Round up your mortgage payments. ...
  5. Try the dollar-a-month plan. ...
  6. Use unexpected income.

Is there a downside to paying off a mortgage early? ›

If you pay off your mortgage early, you'll no longer have any mortgage interest to deduct on your tax return if you itemize your deductions. This change is most likely to affect you if you have a large mortgage, a high interest rate—or both—-and your annual interest payments are substantial.

What happens if you pay $100 extra a month on your mortgage? ›

If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.

What happens if I pay an extra $1200 a month on my mortgage? ›

No matter how much extra you pay each month, that amount can help shorten the life of your loan. Even making one extra mortgage payment each year on a 30-year mortgage could shorten the life of your loan by four to five years.

What happens if I pay an extra $2000 a month on my mortgage? ›

The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.

Do extra payments automatically go to principal? ›

Ideally, you want your extra payments to go towards the principal amount. However, many lenders will apply the extra payments to any interest accrued since your last payment and then apply anything left over to the principal amount. Other times, lenders may apply extra funds to next month's payment.

Is it true if you pay your mortgage twice a month? ›

Bottom line. If done right, making biweekly mortgage payments leads to less interest paid over the life of your loan, saving you money and whittling your balance down sooner. However, you must confirm that the extra payments are being applied to the principal and that you're not subject to prepayment penalties.

How to pay off $70,000 mortgage in 5 years? ›

How to Pay Off Mortgage in 5 Years
  1. Refinance to a Shorter Term Mortgage Payment Schedule. ...
  2. Make Biweekly Payments. ...
  3. Round Up Your Mortgage Payments. ...
  4. Allocate Windfalls to Mortgage Payments. ...
  5. Make a Substantial Down Payment. ...
  6. Increase Your Monthly Payments. ...
  7. Lump-Sum Principal Payments. ...
  8. Assistance in Paying the Mortgage.
Nov 15, 2023

How to pay off a 25 year mortgage in 5 years? ›

6 Ways To Pay Off Your Mortgage in 5 Years
  1. Set a target date. A target date creates a milestone. ...
  2. Create a budget and stick to it. ...
  3. Make larger, more frequent payments. ...
  4. Boost your income. ...
  5. Refinance for a lower rate. ...
  6. Make a larger down payment.
Mar 6, 2024

How long does it take to pay off a $400,000 mortgage? ›

See your monthly payments by interest rate.
InterestMortgage termMonthly payments
6.50%30 years$2,528
6.75%15 years$3,540
6.75%30 years$2,594
7.00%15 years$3,595
18 more rows

How many years should it take to pay off a mortgage? ›

The average mortgage term is 30 years, but that doesn't mean you have to get a 30-year loan – or take 30 years to pay it off. While it offers a relatively low monthly payment, you'll likely pay the most in total interest if you keep the loan for 30 years.

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