How to Pay Off Your Home in 10 Years or Less

In partnership with

How to Pay Off Your Home in 10 Years or Less

The median mortgage in America is over $1,700 per month, but did you know your mortgage payment could be $0 per month? All you have to do is pay off your home early. Mortgages in America are often six-figure deals that people assume they will be paying off for the rest of their lives. The word "mortgage" comes from an old French word that roughly translates to "death pledge." I decided a few years back that I needed to pay off my home loan and set a 10-year goal. This is how you can too. Focus and intensity are what it takes to pay off your home loan way ahead of schedule while still enjoying simple pleasures in life like playing golf, etc. Here is what I learned: no matter how low your interest rate is or how much of a tax deduction you get, paying off your mortgage is worth it.

Why Paying Off Your Mortgage Early is Beneficial

Skyrocketing Your Net Worth: Paying off your mortgage early significantly boosts your net worth. A home loan is one of the highest liabilities you will have. Most net worth millionaires pay off their home loan in 10.2 years. By eliminating this debt, you save a substantial amount of money in the long run.

Example: Consider a $300,000 mortgage at a 4% interest rate over 30 years. Your monthly payment would be about $1,432. Over the life of the loan, you would pay $215,608 in interest. If you pay off the mortgage in 15 years, you would pay only $99,431 in interest, saving you $116,177. This is a significant saving and directly increases your net worth.

Pro Tip: Use an online mortgage calculator to see how much you can save by paying off your mortgage early.

Freeing Up Income: Paying off your mortgage early frees up income for other investment opportunities such as funding an education fund, individual investments, IRA, etc.

Ownership: You don't own your home until you pay the mortgage; the lender does. Lenders don't care why you miss payments. In most cases, it takes four months for a lender to start the foreclosure process.

The Three Phases to Pay Off Your Mortgage Early

Phase 1: Financial Priorities

1. Pay Off All Consumer Debt:

   • Before you can tackle your mortgage, you need to eliminate all high-interest consumer debt like credit card debt and student loans. These debts typically have higher interest rates than your mortgage, making them more expensive in the long run.

2. Emergency Fund:

   • Build an emergency fund with 3-6 months of living expenses. This fund acts as a financial cushion to protect you against unexpected expenses like medical bills or car repairs. Having an emergency fund ensures that you won't need to dip into your mortgage payoff funds for emergencies.

3. Fund Retirement Accounts:

   • Allocate 15% of your income to retirement accounts such as a 401(k) or IRA. Ensuring your retirement is on track is crucial before focusing on paying off your mortgage. The power of compound interest makes early retirement contributions incredibly valuable.

Example: If you earn $70,000 per year, you should be contributing $10,500 annually to your retirement accounts.

Pro Tip: Automate your savings to ensure you consistently contribute to your retirement and emergency fund.

Phase 2: Looking for Opportunities

1. Budget Analysis:

   • Go through every line item in your budget tracker and find margin. Identify areas where you can cut back on spending, such as eating out, shopping, or subscriptions.

2. Spend Less and Make More:

   • Cut down on discretionary spending. Look for ways to save on necessary expenses like groceries by using coupons or buying in bulk.

   • If you can't find enough margin, it's time to increase your income. Look at opportunities for promotions, picking up extra shifts, starting a side hustle, or freelancing.

Example: Sarah, a teacher, reduced her eating-out budget from $300 to $100 per month and started tutoring on weekends, earning an extra $500 per month. This $700 in additional funds was directed towards her mortgage principal.

Pro Tip: Use a budgeting app to track your expenses and identify potential savings.

Phase 3: The Execution Phase

1. Extra Payments:

   • Put any extra dollars towards the principal on the mortgage. It's crucial to specify that these extra payments go towards the principal rather than future interest payments.

Example: If your monthly mortgage payment is $1,700, and you can find an extra $500 each month through savings and additional income, direct this $500 to your principal payment. Over a year, this adds $6,000 towards your principal.

2. Biweekly Payments:

   • Instead of making monthly payments, make biweekly payments. This method results in 26 half-payments per year, which equals 13 full payments, reducing the interest paid over the life of the loan.

Example: If your monthly mortgage payment is $1,700, your biweekly payment would be $850. This results in one extra full payment per year.

Pro Tip: Set up automatic payments to ensure consistency and avoid missed payments.

Detailed Financial Terms and Definitions

1. Principal:

   • The amount of money you borrow to purchase your home. Each mortgage payment reduces this balance, eventually paying off the loan.

2. Interest:

   • The cost of borrowing money from the lender, expressed as a percentage of the principal. The lower your interest rate, the less you pay over the life of the loan.

3. Amortization:

   • The process of paying off debt over time through regular payments. An amortization schedule shows how much of each payment goes towards principal and interest.

4. Equity:

   • The difference between your home's market value and the outstanding balance on your mortgage. Building equity increases your net worth.

5. Refinancing:

   • The process of obtaining a new mortgage to replace the original one. Refinancing can lower your interest rate or change your loan term, potentially saving you money.

6. Foreclosure:

   • A legal process in which the lender takes possession of the property due to the borrower's failure to make mortgage payments.

Examples and Stories

Story 1: The Smith Family The Smiths bought their home for $250,000 with a 30-year mortgage at a 4% interest rate. They decided to pay off their mortgage early and set a goal of 10 years. By cutting unnecessary expenses and picking up extra work, they were able to put an additional $1,000 towards their principal each month. This additional payment saved them over $90,000 in interest and allowed them to pay off their mortgage in just under 10 years. Today, they are debt-free and using the money previously spent on their mortgage to invest in their children's education and their retirement.

Story 2: Emily's Journey Emily, a single mother, bought her home with a 30-year mortgage but was determined to pay it off early. She created a strict budget, eliminated all discretionary spending, and started a side hustle as a freelance writer. Emily directed all extra income towards her mortgage principal, making biweekly payments instead of monthly ones. Within 8 years, she paid off her $200,000 mortgage, saving tens of thousands in interest. Emily's financial discipline not only freed her from debt but also provided a sense of security and peace of mind.