How to Pay Off a Mortgage in 5 Years and Own Your House Outright

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Are you at that point in life where homeownership makes sense — but the idea of paying a mortgage for the next 30 years feels terrifying? You’re not alone. The world feels more unpredictable than ever, and while homeownership may still make sense, being weighed down with mortgage payments for 30 years isn’t always an attractive option.

Experts agree that housing is your biggest expense, but it doesn’t have to hold you back. In fact, buying your own home builds up equity that you can use in the future, and properties generally increase in value over time, which makes homeownership a smart long-term investment.

Financial independence and owning your dream home are two achievable goals, but it’s going to take some smart planning, and maybe a few short-term sacrifices, to make it happen. We’ve queried the experts — from real estate agents to financial advisors — to put together a list of the best ways for you to make your homeownership dreams happen … without sacrificing the next 30 years of your life.

Choose one or a few ways from the list below to make your dreams of eliminating house debt in five years come true. Imagine the light and free feeling you’ll have when you send off that last payment and own your home outright!

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1. Set a clear goal

“I want to pay my loan off in five years” is good, but setting a specific date is even better; it gives you something tangible to aim toward and look forward to.

Giving yourself a very clear goal and having a timeline for it will help keep you on track. If you’re like many people and enjoy incremental achievements, having a breakdown of your repayment goals along the way (20% paid off, 50% paid off, or specific dollar targets to hit each year) can help you enjoy the feeling of achievement sooner than the five-year mark and may help keep you motivated and on track.

2. Stay well below DTI limits

Debt-to-income (DTI) is one way lenders assess your ability to repay. Your total monthly debt payments (including your house payment) should be below a certain threshold, according to lender requirements. Your DTI ratio does not impact your credit score or your ability to get credit cards, but it does play a key role when you’re applying for a mortgage.

If you’re carrying a lot of other debt, then your DTI can impact your ability to get a mortgage as a first-time homebuyer as you’re considered to be at higher risk for default. This applies even if you have otherwise strong credit and earn a good income.

To calculate your DTI, lenders tally up your monthly debt payments — such as student loans, car payments, and credit card payments — and add in your new mortgage payment.

That total is then divided by your monthly gross income (what you earn before taxes and deductions), which gives them your DTI.

Expenses such as your utilities, cell phone bill, and groceries are not included when calculating your DTI.

Mortgage loan studies have suggested that borrowers with higher DTIs are more likely to default on their loans, so banks and other lenders take your DTI number seriously when considering you for a mortgage loan.

Since July 2017, lenders have considered a DTI of up to 50% to be acceptable for certain qualified buyers using conventional loans — but that doesn’t mean you should necessarily take advantage of the full 50%. This is especially true if you’re planning to pay off your mortgage earlier than your loan term. Paying your mortgage off ahead of schedule will be harder to do if you’re already spending 50% of your income on various debts.

3. Increase your income

You don’t need to get another full-time job to increase your income.

With the gig economy booming, you have lots of options for ways to earn a bit of extra money in your free time.

You could drive for Lyft or deliver for GrubHub. You could pick up some freelance writing or social media work online. The options are abundant and flexible, and spending just a few hours each week could result in a few hundred extra dollars each month to put towards your mortgage.

You could also consider asking your boss for a raise. Depending on when your last raise was and your job performance since then, a raise could be a viable way to increase your income.

4. Consider your repayment goals when shopping for a house

It’s going to be much easier to pay off a house that isn’t at the very top of your budget or price range. The more money you spend on a house, the more money you’ll need to come up with on a monthly basis in order to pay it off. This makes speeding up the repayment process trickier.

Giving up an extra bedroom or a bit of yard square footage might be worth it in order to repay your mortgage loan faster.

If you don’t want to compromise on the space, consider some DIY improvements. A home that needs a little TLC will cost less on the open market and also gives you the ability to customize your home to be even more perfectly suited to your wants and needs.

5. Put down as much as you can when you buy …

The higher your down payment is, the lower your monthly mortgage payments will be, and thus the easier it will be to repay your loan quickly.

If you’re able to put down 25% or 40% (or more!) of the home’s sticker price upfront, the smaller your anticipated monthly payments will be, and the easier it will be to make them all, as well as any extra payments you can afford.

However, it’s better to save up in advance than to deplete your emergency savings, especially if your five-year repayment plan means you won’t be able to rebuild your savings until your mortgage is paid off.

6. … But also, take advantage of down payment assistance

If you are a first-time homebuyer, there are special programs that will help you buy a house.

This help usually comes through down payment matching programs, which will match up to 10% of your down payment, bringing you to 20%, which helps you avoid paying for mortgage insurance.

If you qualify for one of those programs, it doesn’t make sense to put 20% down yourself — instead, put down 10% and save the rest for an emergency fund (which lenders are going to want to see), closing costs, or plan to use it for a lump sum payment on the loan principal after you own the house.

A 2016 study from RealtyTrac reported that down payment assistance programs save homebuyers who qualify for them more than $17,000 on average over the course of their loan. The average savings on the down payment itself was $5,965.

7. Ask about prepayment penalties before you commit to a loan

When you’re shopping around for a loan, be sure to ask any potential lenders about prepayment penalties before you sign on the dotted line.

If you’re planning to pay off your mortgage early in order to save on interest, the last thing you want to do is pay penalties as a result.

Not all lenders have them, but if you want to pay your loan off early, it’s better to not pay your lender for the privilege!

8. Consider getting a 15-year loan term

A shorter term will have a lower interest rate, and additional principal payments will be more impactful as a result.

A 15-year loan term may feel like a far cry from your five-year payment plan but if there are no prepayment penalties, you can still pay it off in five years and benefit from the lower interest rate along the way.

9. Refinance to a shorter term

You can also get a 30-year mortgage and then refinance it into a shorter term after you buy. This can help you save a chunk of money, especially if your current mortgage is fixed rate and rates are lower now than when you signed your original mortgage. Though understand that you’ll have to pay closing costs again when you refinance, so factor that into your payoff plan.

Michael Shea, CFP®, EA at Applied Capital, elaborates: “Especially during times when interest rates have fallen, refinancing has created an opportunity for homeowners to lock in a lower interest rate and decrease their monthly payment.” And he notes that if you were able to continue making the same (higher) monthly mortgage payment after refinancing, you would also be able to pay off the mortgage earlier. “This doesn’t change their budget, but increases the amount they are putting towards their principal.”

10. Recast your mortgage

While you can’t do this with some loans (FHA and VA loans, for example) and many lenders, some conventional loans and lenders will allow it.

After you pay a lump sum toward your loan principal balance, your lender might readjust your payment schedule, which could mean a shorter loan term and paying less interest overall.

Most mortgage recasts will officially result in a lower monthly payment, but if you keep your payments at the same level as before, you’ll end up paying your mortgage off sooner.

11. Avoid taking on other debts

If you’re committed to aggressively paying off your mortgage, you likely won’t have the financial bandwidth to take on other debts. This means making your current car last for as long as possible and not going back to school right away.

Paying off medical debt can be financially draining, so make sure your health insurance will cover you should the need arise before you dedicate a large chunk of your disposable income to owning your house outright.

12. Pay off other debts and divert that money to your mortgage

If you’re carrying other debts that can be paid off faster (especially if they’re credit cards with high interest rates), pay them off and divert the money from those payments to your mortgage payment.

Paying off those cards might hurt in the short term and mean living on a strict budget for a little bit, but the long-term benefits of being free from both credit card and mortgage debt will feel really good.

13. Set up a biweekly payment schedule

Some lenders will let you set up your payment schedule this way. You pay half your mortgage every other week, which adds up to one whole extra payment per year.

This is because there are 52 weeks per year, which is 26 half-payments, or 13 full payments. That’s 1 more than the 12 payments you’d make on a monthly schedule — and you likely won’t notice the difference in your day-to-day, especially if you get paid biweekly.

Kevin Bartlett, an agent in Estero, Florida, with more than six years of experience, has worked with several clients who paid off their mortgages early, explaining, “When people want to pay off their mortgage early, they typically make double payments, every-two-week payments. So they have an extra payment by the end of the year.”

14. Maximize your principal repayment efforts

If you can save money by cooking for yourself, bringing your lunch to work, staycationing — and then apply everything you save to your principal — it’ll definitely help.

Don’t give up all semblance of joy in your life, but making small sacrifices can result in a big payoff when the money is applied to your loan principal.

Bartlett’s clients who are aggressively paying off their mortgages often apply this method, as even a $100 extra payment twice a month makes a big difference.

Many add $100 per payment to cut the principal the interest down, so they’re still gaining an extra payment, plus they’re getting an extra $100 every payment, which equals about $2,400 a year off their mortgage and interest.

15. Make an additional house payment as often as you can

If you get a bonus, birthday money, or any windfalls, consider throwing some of it at your loan principal. It might be tempting to splurge on a trip or a new toy, but reducing your loan principal will save you money and get you to full homeownership that much faster.

16. Continue to touch base with your household to adjust

Keep each other motivated and on track, and assess how well your strategies are working.

Your repayment process will go much more smoothly if everyone is still on board with the plan and any short-term sacrifices that may come along with it, whether that means giving up fancier vacations or kids sharing a room or bathroom instead of having their own.

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Remind yourself why you’re doing this

Are you going to throw an amazing party when it’s all over? Go on a luxury vacation to some gorgeous beach? Take up an expensive hobby you’ve really missed?

Whatever your reason is, keep it top of mind by making it part of your mortgage payment process so you never forget your why.

Put it in your budgeting app as a note for your mortgage payment or in your calendar every two weeks when the automatic payment pulls from your bank account. Make it effortless to remember the “why” behind your aggressive repayment schedule. It’ll help keep you motivated.

Header Image Source: (Marsha Lynn Hudson / Unsplash)