How to Pay Off Mortgage In 8 Years
We purchased a condo in 2013 and originally planned to pay it off in 15 years. However, the U.S. economy started to face a strange moment after the pandemic.
(jobs are being left unfilled, used car prices are surging, the pandemic recovery is uneven, the inflation rate increased, etc. )
Therefore, we changed our plan. We were focused on paying off our mortgage as soon as possible.
In June 2021, we paid off our mortgage in 8 years! Here are what we did to pay off a mortgage in 8 years while maintaining a reasonable living.
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#1. Set Realistic Budget
As a freelancer myself, I had no confidence to pay the mortgage for 30 years. My husband is not a freelancer, but he had the same feelings too.
We decided to find a condo that we could pay off in 15 years. At the time, we were living in an apartment. The monthly rent for the apartment was comfortable rent for both of us.
So, we did this:
- The monthly rent for the apartment x 12 (months) = Annual housing cost
- Annual housing cost x 15 (years) = Budget for a new condo
#2. Include HOA Fees and Property Taxes in the Budget
We need to pay property taxes as long as they own that property.
The price of property taxes can vary from location to location, but it’s generally based on the property’s value and tax rate.
- Estimated property tax =property’s value x tax rate
Typically, condos pay lower property taxes than single-family homes. That’s why we decided to buy a condo.
Most of the condos pay an HOA fee such as a homeowners association fee. It’s a monthly payment to help maintain all properties, amenities, and common areas within the association. HOA fees vary drastically, but some estimates claim these fees are between $100 and $700 per month, with roughly $200 as an average.
We did include these property taxes and HOA fees in our budget.
#3. Avoid Private Mortgage Insurance Fees
Homebuyers who use a conventional mortgage with a down payment of less than 20% usually are required to get private mortgage insurance. Yes, it’s an additional cost.
Private mortgage insurance is usually 0.3% to 1.5% of your mortgage, although it can vary. We didn’t want it.
We paid a 20% down payment in cash to waive this private mortgage insurance.
#4. Lower Car Payment
Car is not an investment, and it is a massive expense for a rapidly depreciating asset. For example, you can expect a new vehicle to lose as much as a third of its value in the first year of ownership.
We own good fuel economy, great resale value, and a reliable car for less than $20,000. Saving money on the car helps us to pay off the mortgage earlier.
#5. Make an Extra Mortgage Payment Every Year
Paying additional principal on a mortgage can save thousands of dollars in interest.
Let’s say you borrow $250,000 to buy a home at 4% interest for 30 years. 4% interest for 30 years will be $179,674, so the total cost of a mortgage is $429,674. What does it mean? You’ll pay $429,674 for $250,000 value home.
Sometimes you can buy another condo with only interest payment…
On the other hand, 4% interest for 15 years will be $82,860. In that case, you’ll pay $332,860 for $250,000 value home.
Moreover, if you borrow $150,000 to buy a townhouse at 4% interest for 15 years. 4% interest for 15 years will be $49,716, so the total cost of a mortgage is $199,716. You’ll pay $199,716 for $150,000 value townhouse.
Paying down your mortgage early reduces the amount that you’ll pay over time.
I’m working on multiple side jobs to make extra money online. Gig workers are great ways to make extra money for your emergency fund or mortgage payment.
Keeping track of spending helps us to make a decision when we can pay the extra mortgage payment.
Also, budgeting helps ensure we don’t spend money we don’t have. Our 1st priority budget includes living expenses and taxes. We paid this first priority at first. And then, the remaining money goes to 2nd priority budget that includes an emergency fund, extra mortgage payments, vacations, wants, etc.
We have never used 1st priority budget for extra mortgage payments as well as vacations. 1st priority budget is always paid first.
Our first home strategies were to stay small budget, avoid private mortgage insurance fees, pay less interest and pay off the mortgage early.
Now, it’s your turn. What are your strategies to pay off the mortgage early?