Introduction: - 

Those 30 years of interest to purchase a home can feel like a hurdle especially compared to the lower–interest–loans available in the market, and you may think of paying off your mortgage early. However, only a few buyers keep a 30–year loan for its full term. Rather, surveys find people payback, on average, in 13 years, or they try to get shorter lifespan loans if they refinance at some point.

Homeowners who want to sell their home or refinance usually aren't concerned about paying off their mortgage early.

Each mortgage is divided into two - the principal and interest. The monthly loan repayment goes toward interest during the first few years, and if you owe less in interest, you can pay down your principal, which is the amount you borrowed. But the larger percentage of your revenue will go toward the principal at the end of your loan.

You can pay extra directly to the balance of your mortgage, which will decrease the additional principal payments and lower the amount of money you'll pay on interest. As a result, it takes several years off your mortgage term. 

Many home buyers realise that they can save at least a few thousand bucks in interest with a small monthly extra expense. It is especially true when you pay more on loan in the initial years. The best candidates for such early payoffs are those with adequate funds for an emergency who can conveniently fulfil the monthly expenses.

You will require liquid cash for household expenses for at least 3 to 6 months before you focus on paying the mortgage amount. It may not be easy to withdraw money from savings to make a large mortgage payment. In addition, an alternative source of funding like credit cards, personal loans, or student loans comes at higher interest rates.

You can save more by paying debts down than putting the most money in mortgages. So you need to calculate all the expenses, keep the money for emergency and household expenses and then determine how you can get funds for paying towards your mortgage. 

You may assume you need to provide hundreds of extra pounds each month to pay off the mortgage early. But, in reality, even a small monthly or one-time annual fee can make a major difference throughout your loan tenure. Some tips on How to Pay Off a Mortgage In 5 Years? is given in the article below.

What Is A Mortgage Payoff Calculator?  

What should be the process of paying off the mortgage early? First, you need a mortgage calculator to make accurate calculations. Early mortgage payoff calculator is the tool that measures the additional amount to help you end your loan term early. First, you have to fill in your details such as the total amount required, loan term and others. Then, the software will give you the exact sum you should pay off to complete the mortgage within five years.

Some of the details required to get the calculations are –

• Principal and annual interest rate

• Original mortgage term

• Years remaining

• Original mortgage amount

• Current mortgage outlay

• Monthly accelerated expenditure

• Total savings

Although there are many early mortgage payoffs calculating software, you can check Nerd Wallet or Every Dollar to get an idea.

What Is the Fastest Way to Pay Off A Mortgage? 

If you are paying off your mortgage early, it will save you from the late or missed payment penalties. If you pay before the pre-determined tenure, you will never have to face the risk of default or foreclosure. The two best ways to pay off the mortgage early are -

Make a down payment greater than 20%: - 

Proposing a down payment of over 20 per cent can make you mortgage-free in a few years.

Calculate your mortgage term with part payments: -

Part pays will surely reduce the loan amount in a shorter time. Consult a financial advisor to know how to calculate the EMIs to help you finish the mortgage repayments in five years. 

How to Pay Off Your Mortgage Early? 

Would you like to pay off your mortgage in five years or sooner? Should I pay off my mortgage in a shorter period? What is the best way to pay off a mortgage early? If you're in a comfortable financial situation, you might consider paying off your mortgage sooner rather than later.

Some of the ways of paying off the mortgage are

• Pay every two weeks.

• Each year, you can set aside some money for an extra amount.

• Refinancing your home loan.

• Each month, you can send additional funds to cover -up the loan amount.

• Choose a flexible term that gives you some time to pay.

These steps will help you in paying off the mortgage early.

What Are the Positive and Negative Consequences of Paying Off A Mortgage? 

Paying off a mortgage before the completion of tenure is beneficial in many ways -  

Paying off your mortgage before time decrease the amount of interest. In addition, it averts penalties on delayed instalments. 

For example – A $200,000 mortgage monthly payment extending up to 30 years requires you to pay $1,150 per month ( if the interest rate is 3.75%) as the total interest amount increases with each additional year. But if you can pay over  $2000 a month or pay off the mortgage early in a lump sum amount, you will be able to pay a 30 years mortgage in 5 years.

Some lenders impose prepayment penalties to restrict clients from withdrawing their mortgage. In addition, the early mortgage payment may not get you long term tax relief, but such a tax benefit may not apply for a second home. Also, you may not be left with extra funds to invest in other options like stocks or bonds. 

How Long Will It Take to Pay Off My Mortgage?

Several factors like the interest rate and monthly EMI determine the mortgage repayment tenure. Certain banks provide a long tenure to clear loans. The best way to pay off a mortgage is to get an assessment of your financial condition from an expert, or you can use the loan calculator to determine your monthly dues and tenure. You can seek advice from a bank professional to know you should pay off your mortgage early or not. Finally, you can opt for refinancing to change the tenure. 

Or you pay a lump sum toward the loan, and the bank will adjust your payoff schedule to reflect the new balance. As a result, it will decrease the loan term. It is called mortgage recasting. One advantage of recasting is that the fees are significantly lower than refinancing. Typically, the mortgage recasting price requires a few hundred pounds, and a refinance closing costs may be in thousands.

What Happens When You Pay Off Your Mortgage?

Once you pay back your mortgage, you get total authority over your home. If there is any balance, the moneylender repays the amount. You will receive a bank statement mentioning the dues are over. In addition, the lender will cancel your promissory note.

You can also get an additional payoff letter from the bank stating you don't owe any more money in the bank. The documents will give details to show how and when you made an early repayment for the loan amount (say an $80000 mortgage in 5 years). The documents will contain all the evidence of the transactions.

Also, you should see if your credit score has been reviewed and updated. You can focus on other debts and interests once you pay back the mortgage. Paying off the mortgage before the completion of tenure can reduce the complications of home insurance. In addition, you can save funds for future commitments and retirement. 

Should I Pay Off My Mortgage?

If you want to pay off your mortgage because you want to reduce expenses on interest, you need to calculate how much you're spending on interest.

If you're simply worried about the mortgage interest rate, consider refinancing to a lower rate – or a shorter term – instead of paying towards your existing loan.

But if you already have a competitive rate and a perfect term, you probably don't need to refinance. Instead, you may be tempted to pay less interest by paying off your mortgage faster.

Clearing off your mortgage loan earlier can help you get rid of the extra financial burden, and once you are mortgage-free, you can invest in other ventures.

How to Pay Off $80,000 Mortgage in 5 Years?

If you plan to settle your loan amount before the scheduled time, you need to modify the ways you spend to generate additional income.

Depending on individual circumstances and lifestyle, the monthly expenses and other debts, you can determine ways to pay off an $80,000 mortgage in 5 years. You can use a mortgage calculator to evaluate your loan amount to get the repayment amount for the required time. 

Suppose you want to clear your $80,000 loan amount within five years. In that case, the best way to pay off your mortgage is to calculate your total loan amount, where you need to add the total amount you will pay as a monthly interest rate to the principal to calculate the downpayment and instalments.

To save money for extra repayments, you can follow the steps like 

• Cut down unwanted expenses. 

• Refinance to a shorter mortgage term

• Pay more each year

• Recast your mortgage

• Offer a lump–sum - at least 20-25%.

• Do not pay more than the estimated expenses, and you need to hold some amount for emergency requirements. You can try to earn more or save more to pay.

How to Pay Off 15 Year Mortgage in 5 Years?

On paper, paying off your mortgage in 5 years appear pretty simple; all you have to do is devise a schedule to know how much you must pay each month and find ways to make it.

Typically, you can make this happen by making larger or more frequent payments than your lender requires. But for most people trying to pay off their mortgage quickly means they will have to cut back on expenses in other areas of life or find ways to increase their income each month.

You may call your mortgage holder or look at the latest statement to fund the current outstanding balance. Once you derive that number, you'll need to calculate the amount to pay off the mortgage in five years. You can ask the mortgage provider to do the math or do it yourself by using an online mortgage calculator. 

If you do it yourself, you can use the following formula in Excel. The first step is to set a target date for paying off your mortgage by a five-year goal. Then you need to write down this target date and keep it somewhere; you may often have to see it during the calculations.

You can set multiple dates to stay on track and determine the amount for monthly or quarterly repayments.

Let's say your outstanding balance is X and your interest rate is 5%, and you wish to pay off the balance in sixty instalments in five years. Then, you can fill in the formula in a file in the Excel PMT function (interest rate, number of payments per year, total number of payments, outstanding balance). 

You should know that refinancing for a shorter term will increase your monthly expenses. Therefore, you should do the math to derive the value also cover the extra financial burden before making any move.

What Happens If You Make 1 Extra Mortgage Payment A Year?

If making an additional payment on top of what you are already paying through a biweekly schedule or committing to one extra annual is a feasible financial option, doing so can be a great way to get full ownership of your home before time. However, you should only consider the option if it won't put your ability to pay for your other financial obligations at risk.

Some of the ways you can use to keep funds for the extra month are - 

• Paying off a mortgage before time requires you to make additional repayments to add extra to the monthly payments in a structured manner. For example, you can divide your monthly sum by 12 then add that amount to each monthly amount. As a result, you end up making 13 payments instead of the required 12 for each year.

• You can deposit one-twelfth of the monthly dues into a savings account then use it to pay back more.

• Bear 50 per cent of the mortgage repayments every two weeks. You make 26 half-payments, equivalent to 13 full a year. 

Conclusion: - 

Paying off a mortgage before the completion of tenure can save a lot of money in the long run. Even a small additional amount can allow you to possess your home early, and it will reduce the risk of penalties of delays / missed payments. Ensure you keep some money aside for emergency requirements. Also, save for retirement and other obligations before making any additional payments.  

You can use strategies like refinancing, recasting or switching your repayment schedule to pay off your mortgage early. However, consult a financial planner before making any such changes in your preexisting loan plan.