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Early mortgage repayment can save you tens or even hundreds of thousands of dollars over the course of the loan if you have the extra money.
One way to pay off your mortgage early is by making larger monthly payments. But how much more should you pay? NerdWallets early mortgage payoff calculator figures it out for you.
Dreaming of becoming mortgage-free in just five years? It’s a bold ambition, but with the right strategies and unwavering commitment, it’s definitely achievable. While paying off a $100k mortgage in such a short timeframe can be challenging, it’s not impossible. This guide will equip you with the knowledge and tools you need to navigate this journey successfully.
Understanding the Challenge:
Before diving into specific strategies, let’s acknowledge the complexity of this goal. A $100k mortgage typically translates to a monthly payment of around $500-$600, depending on interest rates and loan terms To pay it off in five years, you’ll need to significantly increase your monthly payments, which requires careful planning and financial discipline.
Strategies for Mortgage Payoff Success:
1 Make a Substantial Down Payment:
The larger your down payment, the smaller the loan amount you’ll need to repay. Aim for a down payment of at least 20% of the property value. This will not only reduce your monthly payments but also save you thousands of dollars in interest over the loan’s life.
2. Boost Your Monthly Payments:
This is the most crucial step towards achieving your goal. Analyze your budget and identify areas where you can cut back on expenses. Redirect those savings towards increasing your monthly mortgage payments. In the long term, even an additional $100–$200 per month can have a big impact.
3. Pay Bi-Weekly:
Instead of making monthly payments, consider switching to bi-weekly payments. This essentially means making half of your monthly payment every two weeks. Even though it might seem like a little adjustment, it results in an additional payment every year, which shortens the duration of your loan and lowers your interest rate.
4. Make Lump-Sum Principal Payments:
If you receive a bonus or tax refund, or any other extra money, think about paying your principal in full at once. This immediately lowers the loan amount, saving you money on interest and shortening the time it takes to pay it off.
5. Get Help Paying the Mortgage:
Explore options like renting out a spare room or taking on a side hustle to generate additional income specifically for mortgage payments. You could also consider asking family members for financial assistance, but remember to set clear expectations and repayment terms.
Additional Tips for Success:
- Refinance to a Lower Interest Rate: If interest rates have dropped since you took out your mortgage, consider refinancing to a lower rate. This can significantly reduce your monthly payments and shorten your payoff time.
- Utilize Windfalls Wisely: Any unexpected financial windfalls, such as inheritance or lottery winnings, should be directed towards your mortgage principal.
- Automate Your Payments: Set up automatic payments to ensure you never miss a payment and avoid late fees.
- Track Your Progress: Regularly monitor your progress and adjust your strategies as needed. Seeing the progress you’re making can be a powerful motivator.
Remember, paying off a $100k mortgage in five years requires dedication and sacrifice. However, with the right strategies and unwavering commitment, you can achieve this ambitious goal and enjoy the freedom of being mortgage-free.
FAQs:
Q: How much do I need to earn to pay off a $100k mortgage in 5 years?
A: The exact income required depends on your interest rate, monthly expenses, and other financial obligations. However, a general rule of thumb is that you should aim to earn at least twice the amount of your monthly mortgage payment.
Q: Is it better to pay off my mortgage early or invest the money?
A: This depends on your individual financial situation and risk tolerance. If you have high-interest debt, such as credit card balances, it’s generally advisable to pay those off first. Otherwise, investing the money could potentially earn you a higher return than you would save in interest by paying off your mortgage early.
Q: What are the risks of paying off my mortgage early?
A: Some mortgages have prepayment penalties, which means you could be charged a fee if you pay off the loan early. Additionally, if you need to access the equity in your home for an emergency or other purpose, you would have to refinance your mortgage, which could result in higher interest rates.
Additional Resources:
- SmartAsset: How to Pay Off a Mortgage in 5 Years
- SoFi: Paying Off a Mortgage in 5 Years: What You Need to Know
- NerdWallet: How to Pay Off Your Mortgage Early
Remember, paying off your mortgage early is a significant financial decision. Carefully consider your options, consult with a financial advisor, and choose the strategy that best aligns with your individual circumstances.
Mortgage payoff calculator help
- Mortgage amount: This is stated on the first line of your Closing Disclosure under the Loan Terms section.
- Enter different numbers to see how your payoff timeline affects your overall interest savings. How many years do you want to pay off your mortgage?
- Find the amount you still owe (your outstanding balance) by consulting a recent monthly statement or getting in touch with the mortgage servicer. Alternatively, you can estimate how much you still owe by dragging the slider on NerdWallet’s mortgage amortization calculator.
- Outcomes: Only the principal and interest portions of your monthly payments are displayed in dollar amounts. Other expenses like taxes, homeowners insurance, and mortgage insurance (if applicable) may be included in your entire monthly payment. Verify that you can afford the payment once these expenses are included.
See this mortgage amortization explanation for additional details on how the process of gradually paying off a mortgage operates.