I see Videos Daily on how to “Payoff Your Mortgage In 5 Years”.
I have been in the Mortgage industry for 30 Years and I have not been able to pay off my Mortgage in 10 Years or even 20 Years. SO I finally decided to watch several of the videos and also read as many articles as I would for my personal use and also as a tool for my Mortgage clients.
Is it Possible to pay off your home in 5 Years or even 10 Years? YES
Is it Realistic? NO
So let’s go over what 99% of the advisors will tell you and then let’s go over some Realistic ways to get your Mortgage Paid off in LESS THAN 30 Years.
- They will advise you to do is to take out a 15 Year Mortgage.
- Apply Extra Principle Payments Monthly.
- BAM…………..Your House will be paid off in 5 Years
Now for REAL LIFE:
Let’s look at how much a typical family earning $60,000 can afford on a 30 years Term -VS- 15-year Term
My numbers are going to assume a few things:
- Other debt of $400 a month. This can be a car loan, credit card payments or student loan payments
- Real Estate taxes of $4000
- Home Owners Insurance of $1200 a year
- Conventional financing with a 47% Debt Ratio. Debt Ratios is your (Expenses / Monthly Gross Income) MAX Payment to qualify would be $1936.
- Mortgage Interest rate of 5%
- 20% Down Payment
Breaking down the numbers to see how much you can afford at the 47% Debt Ratio
- $60,000 a Year in income comes out to $5000 a month in Gross Incom
- Real Estate Taxes $334
- Home Owners Insurance $100
- Other Debt $400
Qualifying with a 30 Year Term: You would be able to qualify for a $280000 Loan amount.
Qualifying with a 15 Year Term: You would be able to qualify for a $190,000 Loan amount.
How much would you need to pay extra on the mortgage to pay off the home in 5 years:
Using an Amortization schedule above:
You would need to send in an EXTRA $2,100 a Month toward your mortgage payment. This would bring your total mortgage payment to $4,036 a month.
If you are capable of making this $4,036 payment, this is GREAT NEWS. The average person making $60,000 paying 25% in taxes
When I am consulting clients on ways to pay off their homes years early is by consolidation other debt:
By consolidating credit cards and other high-interest debt is the BEST WAY to pay off your mortgage early.
Your monthly credit card payment comes to $1000 a month and you owe $20,000. By paying off these accounts you will no longer have the $1,000 a month in credit card debt. The extra $20,000 added to your mortgage would increase your payment by $592. This means the difference of $408 ($1,000- $592) would go directly to principle.