How to Pay Off Your Mortgage in Seven Years

by Neal Frankle, CFP ®

Here are 4 steps that are really your own personal “mortgage pay-off” system. It’s free and it will absolutely get you mortgage-free in seven years. I can guarantee that if you really want to do this, you can.

Here’s how:

1. Understand how a mortgage works.

In most cases, your monthly payments stay the same but the balance you owe goes down. That’s because your payments include principal and interest. Even though most of the money you pay at first goes towards interest, your balance does get reduced every time you make a payment. That being the case, if your payments stay the same but your balance goes down, more and more of the money you pay each month goes towards the principal as you pay it down.

It’s a wonderful thing. And one way to painlessly get that mortgage paid off sooner is to refinance your mortgage and get a lower rate so more of your payment attacks the principal. When you do this, you can also switch to a 15-year mortgage from a 30-year. That will automatically get you a lower rate and accelerate your mortgage freedom day. Just make sure to use the extra cash towards your payments rather than for extravagant vacations and fun toys. Don’t make me come over there.

2. Get so excited.

In order to pay off your mortgage in seven years or faster, you have to be on a mission. I say this because you’re going to have to make sacrifices in order to get this done. That means you’re going to need to be committed and get “buy-in” from your family.

Now is especially a wonderful time to get this done because interest rates are so low. That means it’s relatively easy. So it’s a great time to make this priority #1.

Some people say that paying off your mortgage is not a clever thing to do. They argue that with interest rates so low, it makes sense to have a large mortgage and invest the money. It’s a good argument but one I personally don’t agree with.

You may find it difficult to believe, but even a financial planner like me believes that money isn’t everything. I grew up seeing what it’s like to be evicted from my home as a child because my father couldn’t make the payments. There’s something about having the security of having a home that’s free and clear that just can’t be translated into dollars and cents. I know lots of people who have paid off their mortgage and I’ve never met a single one who regretted it. I personally think it’s a wonderful idea.

3. Do the math.

In order to pay off your mortgage in seven years, there are only two remaining steps. First, figure out how much you need to pay in order to retire the debt and then find the money to make the extra payments. Let’s tackle the first step first.

You can either calculate the monthly payments yourself or simply call the bank that holds they mortgage. If you want to go that route, simply ask them what your payments need to be in order to retire the debt in seven years and they’ll tell you. In addition, they may offer you bi-weekly payment plans that help you pay off your mortgage faster as well. This type of plan simply allows you to make payments every two weeks rather than once a month. By making your payments more often, you reduce your debt a little faster and that means a little more of your payments go towards principal. Just ask your lender if they can help you set this kind of program up.

If you want to figure out what the payments are yourself, simply use any mortgage calculator. Plenty are available on the web. All you need is the balance you currently owe, the interest rate you currently pay and the date you want to be debt-free. These calculators will tell you exactly how much money to pay each month in order to achieve your goals.

4. Make it happen.

Now you’re ready for the easy and fun part. You are already committed to paying off your mortgage in seven years or less. You also know how much money you need to pay each month in order to make this dream a reality. Now all you have to do is find the money.

To do this, figure out how much extra you’ll have to pay each month. Compare the number you calculated above to the number you are already paying. Let’s say your normal payment is $1,000 each month and you need an additional $450 to make this dream come true.

Where is that money going to come from?

Remember I told you that this is going to require commitment and “buy-in” from the complete family? My first suggestion is to have a family meeting. Ask everyone where they think the money should come from. Don’t impose your will. Get everyone to be part of the process. Do this and the entire mission will become fun for everyone rather than a struggle.

If it were up to me, I’d make sure to have a good budget tracking software package and keep it up-to-date. It’s much easier to cut your spending if you know where your money is going in the first place.

Track your monthly spending. Have monthly meetings. Make the monthly mortgage payment a priority. Don’t relate to these extra payments as something you’ll do if you have money left over.

Even if you are retired now, you can still make this happen. It might mean you have to get a part-time job, but so what? It’s worth it. Make these payments first and find a way to live with it. By looking at your budget and making this a priority you can make your dream come true.

Did you pay off your mortgage already? How did you do it? What impact has it made on your life?

 

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{ 5 comments… read them below or add one }

retirebyforty June 4, 2011 at 9:42 PM

Wow, 7 years seem very ambitious!

Reply

Neal Frankle June 5, 2011 at 10:29 AM

You can do it man…

Reply

Robert @ The College Investor June 1, 2011 at 11:33 PM

I don’t think I can do it in 7 years, but I’m working towards my goal of 10 years for my 30 year fixed mortgage. I can do it!

Reply

Neal Frankle June 5, 2011 at 10:40 AM

IT may not be possible to do it in 7 but if 10 is your number…..work up a plan and I’m sure you’ll get there!

The main point is that we can all get out from under our mortgage much faster than we think. Sounds like you are doing a great job ! You go! Let us know your progress.

Reply

Jessica07 June 1, 2011 at 5:09 PM

I love your tip number two. I completely agree: you have to become determined to stick with it. Make it a mission and don’t deviate from the plan!

Reply

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