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How To Pay Off Your 30 Year Fixed Rate Mortgage in 5 to 7 Years

Posted August 30th, 2011 in Real Estate by Jeremy Waller

Paying off your mortgage in 5 years seems like crazy talk. Most people never even pay off their house in 30 years due to refinancing or buying a new house.

Even for people on 15 year mortgages, paying off your home in 5 years seems unachievable. Recently, we refinanced to get a lower interest rate and moved our mortgage to a 15 year note.

I got curious the other day and stared running some numbers. I was wondering what kind of an impact making extra mortgage payments would make. During the process I found some interesting things.

I’m going to go all math-nerd here so bear with me…

Let’s take an example mortgage of $221,800. That was the median home price in the United States in 2010. On a 30 year fixed rate mortgage with a 5% interest rate, your monthly payment would be $1,190.67 per month (not including taxes and insurance).

If you paid $1,190.67 each and every month, year after year for 30 years you would finally have your home paid off. You would have also paid $206,841.20 in interest – nearly as much as your house cost in the first place.

The 15 Year Mortgage

Now, let’s look at a 15 year note. At a 5% interest rate, your payment increases $564 per month. That may seem like a big increase, but check this out.

You save $113,072.41 in interest!

That’s just over $7,500 per year over 15 years. On top of that you would have an extra $1,700 per month to play with after your mortgage was paid off.

Let’s keep going…

The 10 Year Mortgage

Keeping the same assumptions, what would it take to pay off your home in 10 years?

First, you would need to find an extra $1,163 per month. Again, that’s not pocket change by any means, but if you can find a way to do it…

You save $146,377.49 in interest!

That’s nearly $15,000 per year over 10 years. If you look at those savings over a 10 year period you are essentially paying an extra $1,163 per month but you are saving $1,220 per month in interest.

How To Pay Off Your Mortgage in 5  to 7 Years

Here’s the big one. Can you do it? Can you actually pay off your mortgage in 5 years? Here’s what it would take.

To pay off a $221,800 mortgage at 5% over 5 years you would need to pay an extra $2,996 per month or $4,185.64 all together. If there is any way at all you could find the money to do that the results are amazing:

You save $177,511.22 in interest!

Essentially, you are paying an extra $2,996 per month but you are saving $2,958 per month in interest at the same time.

An Extra $3 Grand Per Month Seems Impossible

I have no doubt that most people would say that. Very few people have an extra 3 thousand dollars sitting around each month.

Think about this though…

Instead of buying the biggest house you can afford, what if you looked for something a little less expensive.

Instead of a $220,000 house what if you bought a house for $150,000 and then put 20% down – leaving you with a mortgage of $120,000. You may balk at that idea, but keep reading. This is some of the best mortgage advice you can get.

$120,000 at 5% over 30 years is a monthly payment of $644.19 – nearly half of the original payment above.

Assuming that you could afford to make the payment for the $220,000 mortgage – if you applied that to this $120,000 mortgage you would knock 19 years and $76,000 in interest off the note.

To pay off this mortgage in 5 years, you would only need to come up with an extra $1,000 per month over the original mortgage payment.

For $2,264.55 per month you could pay off your $120,000 in 5 years and save nearly $100,000 in interest.

If an extra $1,000 per month seems like a lot, take a look at my post on how to get out of debt. You might be surprised that it’s not as difficult as it may seem to find that kind of money.

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10 Responses so far.

  1. If I didn’t have student loans, this would actually be feasible.

    The one draw back to your plan? You left out property taxes. In my area, it is a full third of the mortgage payment.

  2. Mike says:

    Shaun,

    There can always be an IF to hold you back. I too had student loans, and massive credit card debt. I had my student loans on a 20 year note. Then I found the Dave Ramsey program, and we started living on less than we make. We got extra jobs, and paid down the debt. Both the CC and the SLs. Now we are starting on our mortgage. We now have all of that money left from before and will be able to pay the house off in a few years. We will cut 26-27 years of payments off the house because we bought less than we could afford, and have paid off our debt. It is possible, but it does not happen on accident.

  3. Good post Jeremy, I have thought about what it would take to payoff my mortgage faster. first step was free up extra cash by paying off other debt, then use that additional money saved to pay down the mortgage. Although I can never see myself paying off the house in 5-7 years, I can see 15, maybe even 10???

    • A couple of years ago we switched to a 15 year note. So I can see 15 years. But it’s hard to wrap my head around paying our house off in less than half of that. It’s doable. You just had to live way below your means.

  4. Great post Jeremy – I’m like most people and cant afford to pay an extra $3K towards my mortgage every month, but I do make extra payments to reduce the principle on the loan.

    I really like what you did at the end where you encourage people to buy a lower priced house. That realy is some of the best mortgaeg advice.

  5. Tim Joseph says:

    Thanks for the post and information! I think education is important for us so we must prepare the best education for our generation by sharing such great information with each other!

  6. Dave says:

    I can see that interest really kills. It is ridiculous to pay the bank so much interest. I have also paid my loan in 5 years time and avoided all the unnecessary interest. Thanks for sharing the article. Now more people will be aware of the interests that they have to pay. Cheers!!

  7. Gloria says:

    I began thinking of paying my mortgage off in 5years, coincidently today. It came about when thinking of my daughter that lives with me would have to move out if something where to happen to me. She would not be able to afford the mortgage payments. I have life insurance but I would like to leave her a free and clear house. Cannot get mortgage death insurance due to health issues. Thanks for the post. I plan on taking on a 2nd job as well as my car will be paid in full next year.

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