“How long have you been living in the area?” asked the dental assistant. “Well, I’m officially making my last mortgage payment this month,” the grinning male patient responded. “Oh! So you’ve been here for 30 years, wow!”
This interaction seriously made me throw up a little. Debt has become such a normalcy in our society that people are starting to mark their live’s events by it!
(FYI, the norm wasn’t always a 30 year mortgage. People used to take out short term loans from the bank to pay for their homes, and then they paid cash for upgrades and increase acreage as they went along.)
I don’t know about you, but when people ask me about my life, I want to tell them about my kids, my travels, my experiences. NOT my long-term debts.
How to Pay Off Your Mortgage in 5 Years or Less
I started paying off my debts back in 2010 when I realized that my expenses were greater than my income. I was essentially going backwards every month… It really freaked me out, and I knew that debt was the problem.
In less than two years, I paid off $42,000 worth of consumer debt, and then I knocked out the $75,000 mortgage in just one more year. In total, it took me three years to pay off everything…including the house!
This is absolutely possible for you. Picture it with me….5 years from now:
Your car and your student loans — they’re gone, paid for. At this moment, you’re sitting at your kitchen table, penning the check to your very last house payment. Once this check clears, ALL your debts will be paid! You don’t owe a single cent to anyone! Close your eyes and feel that weight being lifted off your back. You owe nothing to anyone…
It’s possible, I’m telling you it is! I did it in just three years and you can absolutely do it in five. Here are the exact steps I took:
1) Don’t Skip the Starter House
There are a lot of experts out there that think you should immediately jump into your “forever” house…as if you even know what that is when you’re younger….
The truth is that your forever house is:
- too expensive
- probably not in your “forever” area since you’ll move multiple times for your career/life
- not suitable for your needs once you get married and have kids
Instead of jumping into an expensive house right off the bat (and become house poor), I always recommend that people start with a home that’s smaller, in a good area, and costs no more than 2x your take-home salary. In other words, if your household income (after tax) is $75,000, then your home should cost no more than $150,000.
If you ALREADY live in a house that’s more than 2x your yearly salaries, there’s no shame in downsizing or moving to a little less ritzy area. Sure, it might feel a little bit embarrassing at first, but when you get completely out of debt within just 5 years (and can then do whatever you want) you’ll realize that the move was totally worth it!
2) Dig Your Way Out of Consumer Debt First
Sure, it would be pretty awesome to say that you own your home outright, but if you still have other debts like student loans, credit cards, and car loans, then it just makes absolutely no sense!
Think about it. Your home is appreciating in value 3% each year and costs 4% in interest. Your consumer debt is all going down in value (some of it rapidly…ie. your car!) and costs you 7% or more in interest each year! It only makes sense to take care of all your consumer debt first.
Want to get out of consumer debt fast? Read “The Absolute Best Way to Get Out of Debt“.
- Need to get mad at your debts
- Work like a crazy person to earn more money
- Cut all the expenses you can
- Pay off your consumer debts in 2 years or less
Get mad at all your debts
If you aren’t ticked off about how much your debts are weighing you down, then you’re not ready to get out of debt yet. Sorry, but it’s just not going to work for you…
Let me help you get mad for a second.
What do you most want to do in life?
And why is it that you can’t just go do that?
Oh yeah…because your debts are chaining you to that job you hate, to your hampered lifestyle, and your day-in and day-out drudgery.
What if you had absolutely no debt and started putting thousands of dollars into your investments each month? I’m pretty sure you could start accomplishing those dreams of yours! It’s time to pay off your mortgage in 5 years or less!!
Work like a crazy person
Alright! Now that you’re mad at your debt, it’s time to work like a crazy person to increase your income! Need some ideas? Subscribe to this site and get the free eBook, “101 Ways to Make More Money”! Out of all these ideas, I’m sure you could pick one or two and earn yourself an extra $10,000 a year. I’ve done it many times over with multiple projects. There’s absolutely no reason why you can’t too!
Cut all the expenses you can
You know what helps put extra money in your pocket? Cutting back on all your expenses. If you’re really serious about getting out of debt, I bet you could cut your monthly expenses by $500 almost immediately.
- Sell your expensive car that has crazy $400 payments (and buy a beater car)
- Cut your $100 cable
Pay off your consumer debts in 2 years or less
And here’s the ticket to pay off your house in 5 years or less. Getting rid of all your consumer debt in just two years!
Even after cutting cable and selling your expensive car, you’re thinking to yourself, “It just isn’t possible. I’ve got too much debt…I’m just going to be in debt forever. That’s just the way it is!”
It’s NOT impossible. All you have to do is make the decision to start and then figure out what it’s going to take.
To do this, you’re going to need the debt snowball tool. Click the link, read the debt snowball article, download the free debt snowball tool, and enter in your debt numbers. With this tool, you’ll immediately see exactly how long it’s going to take to pay off all your debts.
And then here’s the powerful part. You can change your monthly payment number to see what it would take to pay off all your debts in just two years. Instead of an extra $1,500 a month, it might take $2,500! Sure, it might sound scary, but now at least you know what it takes! And it might be time to ask yourself the question, “How could I earn/save an extra $1,000 a month?”
…with that question almost always comes powerful results. Instead of saying, “I can’t”, you’re now saying, “How can I?” And that can absolutely make all the difference!
3) Save Up an Emergency Fund
I really wanted to skip this step because it’s not exciting at all! But, it is extremely important. If you go straight from paying off your consumer debts to paying off your house and then have a medical emergency, you could be in some huge financial trouble since all your cash is hung up in your house!
So before you go gung-ho on your house payoff, take the necessary time to build up 3-6 months worth of expenses and put the money into the bank where it’s safe. Sure, it’s boring, but you’ll never regret it. Trust me.
Finally! The fun stuff! It’s time to pay off the mortgage in the remaining 2.5(ish) years! Sound impossible? Not even close. Once I started tackling my house debt, it took me only 345 days! That’s right, it took me less than a year to pay off my mortgage.
I’ve been completely debt free since 2014, and it’s. been. marvelous. I can’t wait for you to join me!
Ready? Here are your action steps:
a) Continue the snowball
You’ve done such a great job using the debt snowball to get rid of your consumer debts and to build up your emergency fund. It’s now time to take that extra money you’ve got each month and apply it to your mortgage!
So here’s what you do:
- Continue to pay the regular payments in full (of course)
- Put the additional money toward the principle balance – this is often a simple selection when you make the payment online. Be sure not to simply pre-pay your mortgage. If you’re doing this, that means that you’re still making the interest payments on the loan. Pay the money toward the principle and you’ll never have to pay money on that portion of the loan…EVER!
Want to know exactly how long it would take you to pay off your house? This online mortgage payoff calculator will get you there.
b) Get rid of your PMI and Stop paying escrow
When you buy a house and put less than 20% of your money toward it, the bank will charge you what’s called “PMI” – Private Mortgage Insurance. As a rule of thumb, they normally charge you $75 a month for ever $100,000 they loan you.
So, if you bought a $200,000 house, instead of your mortgage payment being $1,500 a month, the bank will inflate it to $1,650 a month to cover their own butts in the event that you stop paying on the mortgage over the next few years.
If you think rent is a waste of money, then this whole concept of PMI should infuriate you, because this money is absolutely just going into thin air! There is no benefit for you in this payment at all.
So how do you get rid of it? Pay down your mortgage to 80% of your house value as quickly as possible. Once you achieve this, simply call your bank and tell them that they need to stop charging you the PMI (they almost ALWAYS need this reminder).
There is yet another benefit to getting rid of your PMI. And that’s taking control of your own insurance and property tax bills.
From what I’ve witnessed, the bank is pretty terrible at calculating how much you’ll need to pay your property taxes and insurance (even though they’re roughly the same every…single…year… but whatever, I’m not bitter ;)). So much so that they’ll often pad the account by $500-$1,000 – again, to cover their butts in the event that one of your policies jumps in cost from one year to the next.
This should be enough reason to handle your insurance and property tax on your own, but there’s still another huge reason why this makes sense. If you’re a loyal customer to a particular insurance company, then you’re probably getting screwed. It’s just what happens. Insurance companies want to get the most money out of you as they can (it’s part of their business model), so if you’re not paying attention (which many aren’t because it’s tied up in their escrow payment), then they’ll continue to raise their rates every single year!
Take matters into your own hands and get rid of your PMI. Then you can easily negotiate down your insurance policy as well.
c) Stop giving the government a free loan throughout the year
While we’re on the topic of giving away money… stop giving the government your free handouts throughout the year too.
If you constantly receive $2,000 or more in taxes at the end of the year, you’re screwing yourself over in more ways than one.
- You’re giving the government a 0% interest loan, and they’re almost certainly mismanaging it on your behalf
- By dishing out the money throughout the year, you’re missing out on paying down your mortgage early and saving on the interest!
For most, the simplest way to stop paying too much in taxes is to increase the number of dependents on your W-4. Are you currently claiming 0 and getting $4,000 back every year? Try claiming 2 instead!
Unfortunately, it’s not an exact science, but at least we have a bit of control in the matter. If I were you, I’d certainly make the adjustment and pay off your mortgage debt that much faster!
d) Invest some, but not heavily
Paying down your mortgage is an awesome thing, but you don’t want to ignore your investments entirely. And you also don’t want to contribute so much that you can’t pay any extra on your mortgage.
So what’s the happy medium? 15%.
Invest 15% of your before-tax income into whatever source you choose. My two favorites are through my:
- Company 401(k), and via
- Real estate investing
e) Bump up your income
Finally, if you’ve absolutely made it a priority to pay off your mortgage in 5 years or less, then you’re going to want to bump up your income.
The best, most economical way to do this is to start kicking butt and taking names at your day job.
Here’s the cliff notes version on how to do this:
- Work more efficiently (Recommended Read: The Power of Full Engagement)
- Work first on what matters (Think, “What do your bosses care about this year?” before each task)
- Keep a record of your achievements
- Be willing to learn and apply your new knowledge
- Let leadership know that you’re actively trying to advance in your career
- Be willing to ask for an increase if you’ve earned it (as proven by your record of achievements)
Related: How to Earn More Money at Your Job
If you don’t see any room for advancement at your current company, then maybe it’s time to start looking for a better job somewhere else.
Either that, or you can start earning extra money on the side. I’ve done this and it’s absolutely possible, but it’s certainly not easy. Don’t head this direction just because you think it’s the easy route. Chances are, it’s not.
It’s Time: Let’s Pay Off Your House!!
Alright, so that was a lot of words. But seriously, it’s really not that complicated.
- Live as simply as possible
- Pay off your consumer debt
- Save up an emergency fund
- Pay off your house
And that’s it!
Just think about what you could accomplish if all your debt was paid for. You’d have $2,000 or more every single month to do whatever you wanted with! That’s an extra $24,000 a month! Doesn’t that sound crazy!
Let me tell you, it’s not crazy. It’s entirely possible, and I believe that you can make it happen.
Are you ready to pay off your mortgage in 5 years or less? Let’s get started today!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.