For many people, paying off their home mortgage is a lifelong goal. And rightfully so. A large portion of your mortgage payment is nothing but interest that you are paying to the bank for the privilege of taking out that money. On a $350,000 loan at 4% interest over 30 years, you are gonna be paying that bank $250,000 just on interest on that loan. And that’s assuming that you never took out a home equity line of credit or refinanced your loan. In which case, you may be paying the bank a whole heck of a lot more. So by paying off your mortgage early, you may be eliminating tens of thousands of dollars, if not hundreds of thousands of dollars that you would be paying the bank in interest and you’ll be eliminating another one of your monthly bills.
And for many people, eliminating this monthly expense is the difference between retiring and not. So today, I’m gonna teach you 10 strategies to pay off your mortgage in the next five years. So strategy number one is bi-weekly payments. Now you’ve probably heard of this strategy before but you may not fully understand how it works or the impact that it can have on your mortgage. So typically, you make a mortgage payment once a month and that works out to 12 mortgage payments a year. Now, if your bank allows you to make a half payment every other week instead, that works out to 26 half payments or 13 whole payments a year. So in the end, you’re making one extra mortgage payment every year but because you’re paying it every other week, you’re not really seeing a big difference in your monthly expenses.
Now, you’re probably saying right about now, but how big of a difference can one extra payment a year actually make? And the answer is a big difference. With a $350,000 loan at 4% interest or 30 years, you would pay off your mortgage four years early and save over $35,000 in interest just by making a bi-weekly payment instead of a monthly payment. Now if you wanna see how big of a difference bi-weekly payments make on your mortgage, follow the link down to the description to my favorite online calculator to figure this out. It’s over on Now I don’t agree with Dave Ramsey on everything that he teaches, but I do really like his early mortgage payment calculator .
So my second strategy is pretty similar to the first one, but it’s just structured a little bit differently and it’s what I personally do. And that is to keep your monthly payments but make extra payments to the principle every month. Now, if you wanted to keep the same benefit as the previous example, what you do is take one month’s mortgage payment and divide that amount by 12 and then add that amount to each of your 12 monthly mortgage payments. Personally, I found it just a little bit easier to track this in my head rather than making the bi-weekly payments. So, in our $350,000 example, your monthly payments would be about $1670 a month. If you divide that by 12 months, that works out to $140 a month. So by adding $140 a month to every one of your monthly mortgage payments, that’d be the equivalent of making one extra mortgage payment a year.
Now, you don’t have to stop at making just one extra mortgage payment a year. Instead of adding an additional $140 a month to every mortgage payment, if you just bump that up to $200 a month, you would save $52,000 in interest over the lifetime of the loan and pay off your mortgage five years six months early. Now, if you really wanted to hustle, and could make the equivalent of one extra mortgage payment every quarter instead of every year, you would save over $105,000 in interest over the lifetime of the loan and pay off your mortgage 11 years five months early. And what I love about this strategy is that it’s completely optional. You can turn these extra payments on and off whenever you choose.
So as an example, when I was in the military, I was paying extra towards my principle every single month. When I got out of the military and started my career as a real estate agent, actually turned those extra mortgage payments off for about a year until I kinda got established in this new career. Now if you contrast that to, let’s say, getting a 15-year mortgage instead of a 30-year mortgage, on a 15-year mortgage, you are stuck paying those higher mortgage payments. You don’t have the option to turn that off and on at will. So personally, I love the flexibility of going with a 30-year loan and making extra payments to the principle every month, just because I have the flexibility to turn that on or turn it off, or ramp it up or ramp it down as I see fit.
So my next strategy may seem like common sense but it’s the truth. And that is to simply not take out a large mortgage payment to begin with. Just because the bank says you can qualify for a $500,000 loan does not mean that you should get a $500,000 loan. If your goal is to truly pay off your mortgage and live debt free, you have to ask yourself, is that a higher priority than having a large home or having a large yard or having a two-car garage. And for some people, it’s not. Some people, having that larger home is a higher priority than being debt free. So let’s say you’re approaching retirement, you need to ask yourself, is downsizing an option for you so that you can reduce your mortgage debt. Can you go from owning a detached home to living in a town home that may be $50,000 cheaper or maybe even living in a condo that’s $100,000 cheaper? Can you move to another area that may give you a longer commute into work but has more affordable housing? Can you move to another state like Delaware that may have lower property taxes, lower school taxes or lower sales tax? Because if so, you could then take that savings and put it towards the principle of your mortgage.
If paying off your mortgage and living debt free is really your top priority, then you will seriously take a look a few of these options. My next strategy is to make a one-time payment to your principle. So let’s say you come into some money, maybe it’s a tax refund or inheritance or bonus at work. You can put that money straight towards the principle of your mortgage. With that $350,000 loan example, just a $20,000 payment towards the principle at the beginning of that loan would save you over $42,000 in interest over the lifetime of the loan and pay off your loan three years one months early. So now that we’ve shown how much of an impact additional payments to your principle can have, my next strategy is gonna seem like common sense but it’s simply increase your income.
Now the longer you work with any given company, you’re most likely gonna get raises along the way. So one common strategy is that every time you get a raise, you actually keep your living expenses exactly the same but put that additional income towards your principle. Another strategy that I like is actually use your property itself to earn you more income. I’ve even heard of people building sheds on their properties and renting them out as storage space or charging people to leave RVs or boats on your property.
There’s also services like Uber and Lyft that allow you to drive cars on your own schedule and you may be able to bring in a few extra hundred dollars a month with these. Now before we get to the final five strategies, I wanna kinda give you a bonus tip. And that tip is that paying off your mortgage early should not be the top priority for everybody. There are some situations where there’s some other things that should be a higher priority. So just an example, mortgages are usually pretty low interest rate. Right now they’re between three and 4%. If you have other debt at a higher interest rate, that should be your top priority. Let’s say a credit card at 15 or 20% interest, you should be paying off your highest interest debt first, and then focus on your mortgage. Luckily for you, a lot of the strategies that I’m teaching you will also apply to credit card debt as well.
Another situation would be if your employer is offering to match your 401 K contributions and you are not already maxing out that opportunity. So if you put $500 in your 401 K and your employer also puts $500 in your 401 K, that is an instant 100% return on your investment. So I really recommend that you max out that opportunity first before you start focusing on paying down your mortgage. So the last exemption would be if you don’t already have some sort of emergency fund of three to six months of living expenses. And I know this doesn’t sound very exciting, but here’s the truth. Unexpected expenses are going to happen. Your home’s air conditioning is going to break down at some point. Your roof is going to have a leak in it at some point. Your car is gonna need some sort of major repair at some point.
And when these expenses do occur, you do not want to have to resort to a credit card with a 15 or 20% interest rate in order to pay for them. That is a real reason why you need to have an emergency fund to keep you from going further in debt in the future. So we increasing your income and now we’re gonna talk about my number six strategy which is reducing your expenses. Every dollar that you save is another dollar that you can put towards your principle without really affecting your quality of life all that much. So you need to ask yourself, do you have any monthly expenses that you can live without? Could you live with a slightly slower internet speed and save $20 a month? Could you live without Netflix or Hulu or Disney+? Can you go a few years without upgrading your phone rather than upgrading it every year and then paying it off monthly? Instead of eating out once a week, can you change that to only eat out once a month? You need to take a long hard look at all of your monthly expenses and once again ask yourself, is this expense a higher priority than paying off my mortgage early? So my number seven strategy is to maximize your credit card rewards. So generally speaking, I’m against credit cards at all. But here’s the truth.
If you are not taking advantage of credit card reward programs, you’re essentially paying for those people who are taking advantage of them. There are cards out there that offer you up to 5% cash back on things like grocery stores, gas stations, Amazon.com. And if you’re already spending this money monthly, you might as well put it on your credit card and earn 5% back. The trick is that every time you redeem your points for cash, you need to make an equivalent one-time payment to your mortgage for that exact same amount. And if you put all of your living expenses on a credit card like this, this could easily add up to several thousand dollars additional payments to your principle every single year, which could save you tens of thousands of dollars on interest and pay off your mortgage a few years early. Now this can be a dangerous game to play and you really need to make sure that every single month, you are paying off your entire balance before they charge you interest on your balance.
What I personally do is I have two reoccurring reminders on my calendar to go into my credit card and pay off my entire balance. So my next strategy ties in to the last two strategies and that is to create a household budget. Now they say that 90% of all diets work because no matter what diet you’re following, it’s just making you more conscious and aware of how much food you’re actually eating. And I think creating and following a budget has the exact same effect on people. And after you track your expenses for a month, you may be very surprised of where your money is actually going. No matter what you budget for yourself for things like entertainment or eating out or clothes, just having that budget in place will really make you think twice about every single purchase that you make.
And set a goal that if you stick to your budget for the entire month, you’ll then make an extra payment towards your principle. So my ninth strategy is to get to 20% equity in your property as soon as possible to eliminate any PMI. So for many loans, if you put less than 20% down on the property, your lender is gonna charge you private mortgage insurance, which is an additional monthly payment and it covers the lender in case you default on the loan. In our $350,000 loan example, your PMI payment may be anywhere from $150 to $300 a month. And this is a big chunk of change but the good news is once you get to 20% equity in your property, your lender will eliminate your PMI payment. And if this is the case for you, you wanna get to that 20% mark as soon as possible.
So when your lender does eliminate your monthly PMI payment, you wanna actually keep your mortgage payment exactly the same, but put that funds towards paying down your principle instead. So my tenth strategy is do not refinance your property every time the bank offers it to you. So here’s the truth. Offering you an opportunity to refinance your property every few years is one of the scams that the banks run to make more money off of you. So banks usually wait until interest rates drop a bit or you build up equity in your property to offer you the opportunity to refinance. And even if your monthly payments become lower, in many situations, it’s still not worth it. So first off, your bank’s gonna charge you an upfront fee of several thousand dollars to refinance your loan into another 30-year loan.
But more significantly, if you remember when you purchased your property, your lender probably showed you a 30-year amortization schedule of your loan. And what that schedule showed you was at the beginning of your loan, the majority of your monthly payment goes straight to interest to the bank and only a little bit of it goes towards your principle. As you move along that 30-year schedule, that ratio flips to where your last few years, most of your mortgage payment goes towards your principle and only a little bit of it goes towards your interest. It’s actually in the bank’s best interest to keep you in those early years of your 30-year loan as often as they can and that is why they keep offering you an opportunity to refinance your loan.
So once again, let’s look at our example of $350,000 loan at 4% interest over 30 years. On your very first payment, only $504 would go towards your principle while $1166 goes straight to the bank’s pocket in interest. After 10 years, $751 of your payment goes towards your principle and $919 goes towards your interest. After 20 years, $1120 would go towards your principle, $550 would go towards the interest. And after 30 years, on your final payment, $1665 would go towards your principle and $5.55 would go towards interest. So as you can see, it’s in the bank’s best interest to keep you in those earlier years of a 30-year mortgage while it’s in your best interest to get to those last few years as soon as possible.
So even if the bank offers you a lower interest rate and a lower monthly payment, you need to look at where you’re at in your amortization schedule and how much of your monthly payment is going towards the principle. And this is one of the biggest traps I keep seeing people fall into is that they keep resetting their 30-year loan and they never make any real progress towards paying down their principle.