The peace you feel when your mortgage is paid off is amazing. Here’s how we got our mortgage paid off early even on a low income, and 7 tips to pay off your mortgage faster.
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Our mortgage is paid off!
I’m so excited to write this and almost can’t believe it but…
We paid off our mortgage!!!!! 🎉🎉🎉
Our little family is 💯 debt-free!
(socially-distanced high five)
Being able to have our mortgage paid off early is not something that dropped into our laps.
We didn’t come into an huge inheritance from a rich uncle or aunt.
Neither one of us have high-paying jobs. My husband is a draftsman and I work part-time.
But we paid off any student loan debts a while ago, have no consumer debt, and now no mortgage debt either.
(If you’re more than ready to kick your debt to the curb, here are 10 practical and mindset tips to help you pay off your debt)
How do we have a paid off mortgage then?
And what are our plans now that we’re mortgage-free?
Settle in friends with a cup of coffee and I’ll spill our secrets (and hopefully not my coffee – I can be a little clumsy).
What does it take in general to pay off a mortgage early?
If you have a high income it would be easier to pay off your mortgage faster if that’s a priority for you.
Paying off our mortgage early was something that both my husband and I wanted to focus on.
We’re both frugal and have similar goals when it comes to where we live, overall spending less money, and how much we save.
Paying off a mortgage is easier if you have a partner who is on the same page as you. If one of you wants to pay down mortgage debt quickly while the other of you wants more money freed up to spend, it’s going to be hard to do. Having a family money meeting is a good place to start if you want to open up the topic of paying off your mortgage.
We were on the same page, but we have a lower household income than the average in North America.
If you’re struggling financially read this for 15 money tips from people who are never broke
4 main ways you can get your mortgage paid off faster
1. Making lump sum payments
2. Increasing your frequency of mortgage payments (ex. from monthly to biweekly or weekly)
3. Increasing the mortgage payment amount (ex. Increasing the monthly payment by 10%)
4. Choose a shorter amortization period (ex. 15 years instead of 25 years)
To pay off our mortgage faster, we mainly used the second option and increased the frequency of mortgage payments. Our bank let us increase our mortgage payments by up to 100% of our original mortgage payment amount each year so that’s what we did.
We doubled up on mortgage payments. Instead of making mortgage payments monthly, we made payments on our mortgage biweekly for the last year of our mortgage.
Making lump sum payments are another way to pay off your mortgage faster. The rule with our bank was that we could make a lump sum prepayment of up to 15% of our mortgage principal every year.
Here are 16 extreme saving tips from total cheapskates that will help you squirrel away more money.
7 Tips for paying off a mortgage early
1. First organize your finances before working on getting your mortgage paid off
It’s going to be hard to have a paid off mortgage if you have no idea where you are financially.
Don’t keep your head in the sand when it comes to your money.
If you like to write everything down and prefer paper planners to saving everything in an app, our Budget Binder will help you get your money organized. It’s a minimalist Personal Finance Binder and I think you will love it.
We’re not all the same though, potatoes/potahtoes and all that, so if you’re an e-person, the best personal finance app is Personal Capital. It includes a myriad of free financial management tools to organize and grow your money and savings, and track your progress in paying down debt. You can also track your net worth in real time. It is super motivating to see your net worth go up as you pay off your mortgage. You can find out more about Personal Capital here to see if it’s right for you.
It doesn’t matter which way you use to figure out where you are financially, just that you do.
If you have a lot of high interest rate credit card debt, you might want to look at paying down that debt first, before tackling mortgage debt and getting your mortgage paid off.
Be honest with where you are financially, and work towards one financial goal at a time. When you smash that goal, move onto the next financial goal.
If you’re generally in a good place financially, let’s move on to the meat and potahtoes of this post – actionable steps to get that mortgage paid off.
2. Only buy as much house as you can afford
A major decision we made that helped us pay off our mortgage early is we only bought as much house as we could afford. Actually in our case we bought less house than we could afford.
This is a powerful but underused way to be financially successful if you don’t have a high income.
With your bank or mortgage lender or using an online calculator, figure out how much house you can afford. If you can comfortably afford mortgage payments of $1000/month, find a home that only requires $750 in monthly payments.
Mortgage affordability calculator
This mortgage affordability calculator will help you calculate how much you can afford when you’re looking to purchase a house.
Enter the monthly mortgage payment you can afford, the down payment you’re prepared to spend, interest rate on the mortgage loan, etc. The mortgage affordability calculator will give you a rough idea of the house price you can afford.
From that number, I would suggest to look for a house that is priced LESS than the value you’re given with this calculator. Don’t look at this number as the average house you can afford (how it’s presented) but as the upper limit asking price. This will help get that mortgage paid off faster.
If you want to try out the mortgage affordability calculator, click on How Much House Can I Afford? below and a small window will open up with the calculator. ⬇️How Much House Can I Afford?
Here is a mortgage calculator you can use to figure out your monthly payments based on the mortgage amount, interest rate of your mortgage loan, and the mortgage term. It will show you what your monthly mortgage payments would be and how much total interest you would pay over the length of your mortgage loan.
Play around with the mortgage calculator to see how decreasing the number of years in your mortgage means you pay MUCH less interest over the years. It’s a huge motivator to see how much money you will save by getting your mortgage paid off 10 years early or 5 years early.
3. Consider downsizing your home
If you already purchased your home and you stretched your budget uncomfortably tight, consider downsizing.
This sounds like a drastic way to pay off a mortgage early and maybe it is but it works. It is so common to upgrade your home by adding on more square footage or moving to a larger home. It’s easy to forget that the opposite IS an option. You can sell your home that is probably bigger than you need, and buy a smaller home instead.
This doesn’t have to be a tiny home (though if you’re in the market or just want to browse some adorable minimalist homes for sale, check this out). You can still live comfortably in a smaller home. And your smaller mortgage payments mean that you can pay off your mortgage earlier.
Also check out does a minimalist lifestyle actually save you money
4. Renegotiate your mortgage
If you think the interest rate or terms on your mortgage could be improved, do a comparison with what mortgage rates and terms are being offered today.
Loans change all the time and it’s worth taking a bit of time to see if you could find something better. This could save you tens of thousands of dollars over the length of your mortgage.
Go to this site and under mortgage type choose refinance. Enter all the information: your zip code, loan amount, loan term, etc.
The rate will show you refinancing loans that are available to do based on the information you inputted. If there are vastly better mortgage rates or terms than what you have now, you might want to do the work and refinance.
A mortgage renegotiation could mean a lower interest rate. But you could also renegotiate a mortgage to lower the amortization period of your mortgage. If you have calculated that you can afford the extra payments, you could renegotiate a 30-year amortization to a 25-year amortization. This will save you thousands of dollars in interest payments and you will have your mortgage paid off 5 years faster.
5. Increase your income to get your mortgage paid off
If your income is just not keeping up with your house payments, consider increasing your income with a side hustle.
Put all the money from your side hustle into paying down your mortgage. You can either make occasional lump sum payments, or increase the amount of your mortgage payment (if your mortgage contract allows) by the amount you make from your side hustle.
But dedicate all this extra side hustle income to getting your mortgage paid off. It would be so easy to spend it all on Amazon or Starbucks (speaking from a bit of experience) but future you will feel so much freedom when you have a paid off mortgage.
To make it easier, whisk that side hustle money away right away to eliminate the temptation to spend it. Set up a free account and deposit your side hustle money into that one so it’s not mixed in with your regular income.
Once you see how much money is coming in with your new side hustle, you can set up monthly transfers to pay down your mortgage. Or quarterly or once a year, make a lump sum payment from this side hustle account. Make sure you know the terms of your own mortgage so you don’t get any penalties for paying off extra on your mortgage – you don’t want that!
Here are 7 profitable home-based businesses you can start now (all flexible and can work around kids, another job).
If you don’t have much time, you can still make extra money to put toward your mortgage. Here are 7 ways to get paid to search the web – no experience needed.
6. Save more money to put toward mortgage payments
Take a look at the different areas where you spend money. The three main expenses for most people are food, shelter, and transportation. We are trying to save money on housing, so let’s look at food and transportation.
Can you walk or bike to work, or to the store? I’m not going to suggest carpooling right now, for pandemic reasons, but hopefully that becomes an option again in the future. Does your job allow you to telecommute?
After the pandemic hit and most places were forced to close and have employees work from home, employers re-evaluated how many people really needed to be there in person. If you can work from home, this will save you a lot on transportation, as well as on meals and snacks when you’re away from home.
Figure out your saved costs on transportation and food, and put that amount each month towards an extra mortgage payment.
There are also apps that will automatically save you money. One is called Trim, and it analyzes your expenses and figures out ways to save money. It even helps negotiate bills for you! Trim negotiates cable, internet, phone, and medical bills, cancels old subscriptions, and more. Trim has saved its users more than $1,000,000 in the last month. You can try out Trim here.
Another app you can try is Acorns. It rounds up your purchases and automatically invests your spare change so your money can grow. More than 7 million people use Acorns to make these micro-investments which add up over time. You can dedicate the money from Acorns towards getting your mortgage paid off. It only takes 5 minutes to set up. You can try out Acorns here.
I recommend signing up for Rakuten, a reputable cash back site. Don’t go out of your way to make extra purchases, BUT it will give you cash back on online purchases you’re making anyways. The cash back money goes into a special account. You can withdraw that money and use it to make extra mortgage payments to get your mortgage paid down faster. If you sign up here you will get a $10 bonus into your account.
7. Sell for money what you don’t need; put that money towards getting your mortgage paid off
Take a deep dive into the material things you own. Do you really need that giant truck? Unless you’re a contractor hauling lumber (or some other equivalent), you probably don’t. Consider downsizing your vehicle and putting the difference into a lump sum mortgage payment.
My husband and I have made thousands of dollars over the years, just by selling things we’re not using anymore, or not using much. You can take a look at this post where I share the best places to sell things online to get you the most money.
If you’re not using it, or not using it much, it is essentially clutter. Take the money you make by selling these things, and put it towards paying your mortgage down.
What you need to consider before you pay off your mortgage early
Not every type of mortgage can be paid off early without a large penalty.
This is very important and can lead to losing lots of money if you don’t have the type of mortgage that you can easily pay off early.
If you have an open mortgage, you have much more flexibility than a fixed mortgage in terms of being able to pay your mortgage before the amortization period on your mortgage is up.
Even if you have an open mortgage, many lenders will make you pay a prepayment penalty. A mortgage is a financial contract; so many banks will charge a penalty for paying it off early.
Depending on your mortgage contract you might have to a few months interest. Our bank charged us 3 months interest for paying off our mortgage early. We didn’t have a lot of money left on our mortgage, so 3 months interest wasn’t much money to pay.
In general, a fixed rate mortgage will have a higher prepayment penalty than an adjustable rate mortgage but check with your lender.
There was also a discharge fee (ours was around $250).
What happens when you pay off your mortgage?
Well nobody at the bank throws you a party. There are no donuts.
This part of having a mortgage paid off was a little anti-climactic.
Paying off a mortgage early feels like a big huge deal (is a big huge deal) and it was basically down to paperwork.
You finish your payments, and have to sign some documents from your bank or lender. These papers are often called a mortgage release or a mortgage discharge.
These documents, though boring, are super important. They show that you have paid off your house in full, and the bank has no rights to it.
That right there is security and peace of mind and is so worth the potential sacrifices it takes to pay off your mortgage early.
Your paid off house cannot be taken from you. If you get into a bad financial situation, your house is still your house.
Some people have a Home Equity Line of Credit (HELOC) on their home, combined with their mortgage, which you might need to pay off and close before you can discharge the mortgage.
Benefits of paying off mortgage early
There are so many benefits of a paid off house but they fall under two categories – financial and emotional. A lot of the benefits overlap and can be summed up into this very mathy equation (don’t tune out now because math):
No mortgage = less financial stress = less overall stress/more peace of mind
Emotional benefits of paying off your mortgage early
- It is incredibly freeing to not have to make mortgage payments every month or twice a month
- You will feel peace of mind to know that your home is the cheapest place for you to stay
- There will be reduced stress as you’ll have one (or more) less bill coming in each month
Financial benefits of paying off your mortgage early
- You will have more money every month
- This allows you the option of working less and still covering your expenses
- You can contribute to or start an emergency fund
- Maybe you can become a single income household
- You can save for a bigger purchase or future trip
- Save more money for retirement
- Some people might be able to retire early
So we have a paid off mortgage – now what?
For us it’s been life as usual since we paid off our mortgage. Or more accurately the new normal since the pandemic hit.
We are traveling less so we’re not spending much travel money. We have kept it to long day trips so far and won’t be traveling by plane any time soon. Hopefully my husband can get our VW camper van fixed up (they’re old and always need TLC) so we can overnight camp in that. If not we’ll start tent camping again (using some of my frugal camping hacks!)
Our Amazon budget has gone WAAAY up (see this post on recent impulse buys on Amazon).
I haven’t been putting more money into our retirement accounts but this is something I want to do.
Since we don’t have any consumer debt, the extra money from the paid off mortgage either goes towards extra saving or spending, not debt reduction.
If you have recently paid off your mortgage here are some things you can consider doing:
Increase your emergency fund
Traditional thought is to save the amount of money you would need to live for 3-6 months.
I’m conservative when it comes to money (not conservative about much else) so I would suggest saving money into your emergency fund until you can cover 1 full year of living expenses.
Add to your retirement funds
I’m a big believer in boring investing. Invest long-term in index funds or ETFs with low interest rates and ride out the (sometimes big) dips and rises.
Save for your kids’ education fund
Start or increase the savings in your child’s education fund.
Do nothing but relax as you see the money in your bank account increase, even during these turbulent times.
Have you read this yet? 7 Financial lessons you should have been taught (but probably weren’t)
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