
I have a habit of asking homeowners what their life would be like without a mortgage. Would they take more family vacations, pay off debt, or accelerate their investing strategy? You have the option to make these scenarios a reality if you learn how to pay off your mortgage in 5 years. I know this to be true because my wife, Natali, and I made it a reality in our lives.
A while back, we stumbled upon a surefire way to pay off our primary residence super fast. Now, we utilize this strategy consistently to meet our ultimate goal, which is purchasing more rental properties and continuing to walk down the path of financial independence.
Let’s dive into what we discovered so you can pay your mortgage off much faster than the bank would like you to.
How to Pay Off Your Mortgage in 5-7 Years
Not everyone realizes it’s possible to pay your mortgage off sooner than the designated timeframe; well, at least that’s what the banks are hoping. So, the fact that you’re here is fantastic. It means you’re ahead of the game and ready to keep more of your hard-earned money in your pocket instead of sending it off to your lender. That said, I’m going to discuss strategies for quickly paying a home loan down.
Before we get into the specifics of how to pay off your mortgage in 5 years, give or take one or two years, I’d like to tell you what you’re up against when dealing with a mortgage, which will be your motivation for fast-tracking your payment timeframe.
Attack Your Enemies – Time & Interest
Traditionally, you pay off your mortgage in 15-30 years, with your initial payments going mostly towards the accumulated interest year after year, typically for about 5 to 8 years. Interest is a fee the lender charges you for using their money. Of course, they are entitled to their fees, but it can get excessive, to the tune of hundreds of thousands of dollars.
An Eye-Opening Scenario – $150,000 in Interest Fees
You can find a “how to pay off your mortgage in 5-7 years calculator” to plug your own numbers in for a glimpse of how much interest you’ll pay, but for now, I’ll provide this quick example of how the interest can add up over time and look similar to this scenario:
Let’s say you obtain a $200,000 30-year loan with a low interest rate of 4%. Once you reach the 30th year, you’ll have paid back the $200,000, plus an estimated $150,000 in interest. With the deposit of $50,000 that would have been paid upfront, the total cost you paid toward the property would be around $400,000 instead of $250,000. With all that said, wouldn’t you rather pay less than $150,000 in interest fees? I don’t know about you, but paying much less is what I always strive for.
So, to combat paying such large amounts of interest, you simply attack interest and time with the goal of quickly shrinking the principal, which is accomplished with periodic lump sum payments fired at your principal, while still making your required monthly payments. This will reduce the balance much quicker and shorten the life of the loan.
The bottom line is that I know it’s possible to pay down a mortgage at an unbelievable pace because I have years of experience making it happen with my properties. And because so many family members and colleagues were asking me how they could do the same, I ended up putting a book together on the topic, co-authoring it with Natali. You can easily grab a copy on Amazon – How to Pay Off Your Mortgage in Five Years.
Let’s jump to the part you’ve been waiting for – how to easily knock years off your mortgage so it’s not a ball and chain pulling you down financially for 30 years.
Use a HELOC – Main Strategy for How to Pay Off Your Mortgage in 5 to 7 Years
Using a home equity line of credit (HELOC) to pay off your mortgage is a strategic way to pay down your loan balance quickly, in five years or less, if you follow through with what needs to be done. Even if you’re a procrastinator or slip up and don’t follow through here and there, you can still pay down your loan, in, let’s say seven years, instead of five, which will still save you thousands upon thousands of dollars in interest. If you’re unfamiliar with how equity works, take a moment to read my article Harnessing the Power of Home Equity.
For those who are skeptical about using a HELOC, and I know you’re out there because many people have come to me with statements like, “That’s not possible,” or “You’re just moving the balance from one loan to another.” Because of this, I’d like to elaborate a little further on why it’s possible, which is the fact that you’re dealing with two different loan products.
A mortgage is an amortized loan with a set payment amount that sports a fixed interest rate for a large lump sum. A HELOC is more like a credit card with a revolving line of credit that starts with a zero balance and typically a variable interest rate. You can fight the expensive time factor you’re dealing with by periodically firing lump sum amounts of money from the HELOC to your primary mortgage. Then, you pay back the HELOC and repeat the process all over again – and I’ll elaborate on how you can do this next.
Rapidly Slashing Mortgage Debt with a HELOC – The Basics Steps
For those who qualify for a home equity line of credit, here are my recommended steps on how to pay off your mortgage in 5-7 years:
Step 1: Apply for a HELOC
Visit your bank to see if you qualify for a HELOC, and if so, apply for one. If you’re new to the game, know that the bank will give you 75 to 80 percent of the equity sitting in your home. You’ll be able to access this money via checks or a debit card which the lender will provide.
Step 2: Arrange for Your Paychecks to Be Directly Deposited into the HELOC Checking Account
Next, and this is optional, but I highly recommend it; you’ll want to ask the bank to set it up so your W-2 paychecks are deposited directly into this new HELOC checking account. If someone gives you pushback, it just means they’re unfamiliar with the fact that this is perfectly ok to do. Just ask to see a manager if they can’t make it happen for you.
When I had a day job, I always set up a direct deposit so that my paychecks were dumped straight into my HELOC accounts like clockwork every month because this pays down the balance quicker. It’s also helpful because I didn’t even have to think about it; money just poured into the account, filling it back up. Since this is where your main source of income will be held, you’ll also be paying your bills and groceries from this HELOC account.
There are too many details on utilizing the HELOC checking account, so I won’t be able to cover it all here. However, I have a whole section on this in my book that you can dive into, though, where you’ll also have access to downloadable charts and graphs. If you want to truly grasp how to pay off your mortgage in 5 to 7 years, then it may be worth grabbing a cup of coffee and reading this book. It’s a short but powerful read with 108 pages.
Step 3: Fire a Hefty Payment at Your Primary Mortgage Balance
Now, with your HELOC checking account in place and a blank check in hand, write a check out to the primary balance of your mortgage in the amount of $10,000, or a number that’s right for your situation. So if your primary balance is $120,000, and you shoot $10,000 at it, the new balance would be $110,000, which means interest is building on a lesser dollar amount, which reduces the number of years you’ll have to pay on the loan. Natali and I put together a free “how to pay off your mortgage in 5-7 years calculator” that you can use to play with the numbers that apply to you.
Something worth mentioning – it’s imperative that you make sure the payment you’re making to your mortgage is actually going to the principal, not the interest. All payments will go directly to interest if you don’t specify that you would like it to be applied to the principal balance instead. Additionally, even if you let the lender know your preference, you might just find they sent it to pay off the interest anyway. If this happens, it defeats the purpose of what you’re trying to achieve. With that said, always double-check that they did it correctly. I’ve actually had to go down to the bank occasionally to let them know they applied my payment incorrectly.
Step 4: Once Your HELOC Balance is Paid Off – Rinse & Repeat
After you knock down your primary balance with a lump sum from your HELOC, your direct deposit from your W-2 job will automatically pour into your HELOC checking account each pay period, pushing down the balance. Once it’s paid back, repeat the process and fire another $10,000 at your primary mortgage balance, and keep repeating the process.
This is what I did and my mortgage was paid off in less than five years. I didn’t have to wait 30 years, sending my hard-earned cash to the bank over a timespan that stretches out almost half of my life. No, I was able to cut out 25 years of the schedule the bank set up for me. Sorry, bank, I’m only paying you over a timeframe of five years or less!
What if You Don’t Qualify for a HELOC – Use Your 401(k) Instead
Despite what most people have been taught, which is to get a job, sign up for a 401(k), and never touch it until they retire, know that you can benefit financially from tapping into your 401(k). Before I get into the details of how to pay off your mortgage in 5 years with your 401(k), I’d like to clarify a few things first.
Although most people believe that using a 401(k) is a great strategy for saving for retirement, if you do the math, you’ll find it’s actually not. A 401(k) was created and designed to supplement a pension plan, which most employers are not offering these days. It was never meant to be a stand-alone product for someone to support themselves over the 20 to 30 years they will spend in retirement.
There’s just not enough money to live out that many years on a 401(k). As I mentioned, please do the math, and you’ll see what I’m talking about. You can also dive into my article for a more in-depth look – Reasons Why the 401(k) is a Bad Investment Vehicle to Retire On. Once you read it, you’ll think twice about relying on this type of retirement account. I also suggest checking out my other related write-up – How to Retire Early Using Real Estate Investing.
Borrow from Your 401(k) to Pay Off Your Mortgage in 5 Years
Ok, now I know some of you are saying, “Hey, this is bad advice because if I use my 401(K) funds, there’ll be a hefty penalty thrown at me.” That’s a legitimate concern. However, you won’t have to worry about it because you’re only charged a penalty when you withdraw funds early, and in this case, you’re not even withdrawing anything; you’re borrowing. Not only that, but the interest you pay on the 401(k) loan gets paid directly back into your account. So, you’re actually borrowing from yourself, like you’re the bank; therefore, interest is paid to you.
The beauty of how the interest works is that a 401(k) has a yearly cap on how much you can contribute, and you’re legally allowed to exceed that limit with the interest being paid to your account.
Once you set things up so that you have access to your 401(k) funds through a loan, then throw $10,000 at your primary mortgage balance, or whatever amount is appropriate in your specific case.
I put together a post on this concept, but instead of using your 401(k) funds to pay down your mortgage, it’s about using it to buy rental real estate. Either way, my article will give you the information needed to see how it all works if you’re considering using your retirement account to shrink your mortgage. Here’s that article, plus a related post if you would like to bookmark them for future reading: Borrowing From Your 401(k) to Invest in Real Estate, and my write-up on Turnkey Properties.
Put These Strategies in Place to Eliminate Your Mortgage in Just Five Years
If you want to put the HELOC or 401(k) strategy in place but feel you need more details on how to make it all happen, grab my book on Amazon that goes into great detail, with a step-by-step process – How to Pay Off Your Mortgage in Five Years.
In addition to this, feel free to give Morris Invest a call if you have questions about paying down your mortgage, or if you’re interested in using a HELOC or 401(k) to invest in a cash flowing rental property. If you would like to research the topic more, this article is a great place to start – Can You Use a HELOC to Invest in Rental Real Estate?
You can also sort through the following resources if you’re interested in increasing your financial IQ and your wealth:
- The Financial Freedom Academy
- Freedom Number Cheat Sheet
- 90-Day Financial Empowerment Bootcamp
- Morris Invest & SDIRA Program Overview
Also, for those who feel they have gained helpful insight on the topic, you’ll also like this video on YouTube on how to pay off your mortgage in 5 to 7 years: