How to Have No More Mortgage in Five Years

by Neal Frankle, CFP ®

Forget about the 30 vs. 15-year mortgage question. You can have no more mortgage in a very short time. It will require commitment, work and different financial behavior, but you can get it done if it’s important to you. Here’s how:

1. Commit.

Any great financial endeavor needs commitment, and this is no exception. There aren’t any magic formulas that can make your mortgage disappear. It’s going to take hard work and commitment. Make no mistake – you can do it – but you’re going to have to have 100% commitment to get you through the tough times. Get fully committed now or don’t bother.

I’m not going to spend much time here trying to convince you why you would want to have your mortgage paid off. While there are many financial reasons to do this, the big payoff is emotional. The security and sense of accomplishment will be unlike anything else you’ve ever done. Your goal is to live in your own home with no mortgage. Let’s go to Step 2.

2. Calculate.

Call your mortgage holder or look at the latest statement. You’ll need the current outstanding balance. Once you have that number, you’ll need to calculate what the payments will be to pay off the mortgage in five years. You can either ask the mortgage company to do the math, or you can do it yourself. If you do it yourself, you can use the following formula in Excel.

Let’s say your outstanding balance is $200,000, your interest rate is 5% and you want to pay off the balance in 60 payments – five years. In Excel, the formula is PMT(interest rate/number of payments per year,total number of payments,outstanding balance). So, for this example you would type =PMT(.05/12,60,200000). The formula will return $3,774. That’s the monthly payment you need to make if you want to pay off your home mortgage of $200,000 at 5% over five years.

The same mortgage paid off over 30 years is only $1,073 a month, so be prepared when you do this calculation. It will be much higher than your current payments. Now you have your number. You might find that the payment is twice or three times your current mortgage. Remain calm.

3. Reduce Your Mortgage Rate.

At this point, if you are committed to having no mortgage after five years, you can safely take advantage of a 10-year mortgage or possibly even an adjustable rate mortgage and just pay off more principal to get it done in five years. The lower rate you get, the faster you’ll pay off the debt.

4. More In/Less Out.

Up until now, it’s been easy. Now it’s time to roll up your sleeves and do some serious work. You have to come up with an extra $2,000 a month to make your dream come true. That money is going to have to come from earning more, spending less or a combination of the two. You can look for  additional part time work. It shouldn’t be too difficult to do. If you work an extra 10 hours a week and your spouse does the same, that’s an extra 20 hours of income you’ll have pouring in, according to my calculation. If you can earn $15 an hour after tax, that will clear you $300 a week or $1,200 a month. You’re more than halfway there.

Next, you have to discover how to stop spending money. If you’re in debt, you can look for credit card alternatives. But if you are in debt, you should focus on paying that off first rather than having no mortgage. Back to our mission.

You’re left with $800 you need to cut – or $200 a week. Everything should be on the table. Remember, you’re totally committed to being done with your mortgage. I told you it wouldn’t be easy, but remember it will be worth it. Also remember that it’s only for five years. After that, you can go back to your freewheeling days of splendor!

5. Move.

One arrow in your quiver that most people forget about is the option to move. If, no matter what, the payoff amount is too great and you are absolutely committed to not having a mortgage, you can move to a house with a smaller mortgage from the get-go. The added benefit is that the upkeep and taxes might be lower too.

If you go this route, yes, your house will be smaller. But you’ll have no more mortgage for the rest of your life, and it might be a tradeoff you’re willing to make.

I think it comes down to what gives you more pleasure: living in a huge house you have a big mortgage on, or living in a smaller home you own free and clear.

There really is no one right answer. I know my preference. What’s yours?



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{ 1 comment… read it below or add one }

Jerry November 20, 2011 at 3:50 PM

We refinanced recently and it also leads to savings. I’d love to pay my mortgage off faster, though. Right now we pay about $800 per month and that covers taxes and insurance. I’m not making an extra $2,000 right now, though. Would be nice! But, I’m working on it.


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