How to Pay Off a Mortgage in 7 Years

Owning real estate free and clear is very satisfying. It can free up cash for a down payment on a retirement plan, a legacy for children, or simply be valued as a major life accomplishment. It can also give you a safety net in case of hard times. Paying off a mortgage early takes discipline and resources, and paying one off in seven years will take a strong effort and genuine commitment.

Instructions

1. Determine the market value of your property, your mortgage balance and your current payments on all of your monthly bills. Pull out statements for all bills (including property taxes) and a recent pay stub and your W-2 from last year. If you're self-employed get together all of your taxes and bank statements going back at least six months. Gauging by this information, determine if you're in a position to spend drastically more than you are currently paying.

2. If you currently have a 30-year mortgage, recalculate the amortization schedule. This is the repayment schedule which breaks down your monthly payment: how much goes to interest and principal, and the year it will terminate.

3. If you've determined you can pay more than your schedule calls for, visit the site in the Resources section below. This site offers a free mortgage calculator where you can recalculate your debt. Enter the market value of your house, your remaining balance on your mortgage, enter seven years for the term, select today's date (as you are essentially restarting your loan on a seven-year plan) as the start date. If you have taxes in your payment, calculate their percentage in your monthly payment (taxes should be on your mortgage statement), and do the same if you have PMI. If you have taxes and insurance separate, leave these fields at zero. The infographic will show how much interest and principal you will pay, as well as your monthly payment to pay off the loan in seven years.

4. If you haven't yet obtained a mortgage, it may be in your best interest to take a 20- or 30-year term on the paperwork. The reason being, if you run across hard times and you become unable to pay the seven-year term payment, you can fall back on the 20- or 30-year payment. Once you have a mortgage, follow the above steps to recalculate the amortization schedule. Only if you are absolutely positive that you are able to make seven years of payments on a seven-year mortgage, get the mortgage signed on a seven-year term.

5. Make a plan to pay off the loan in seven years. One possible helpful tool is a direct withdrawal. If you get direct deposit, you may have your bank or lender directly withdraw your payment each month, thereby taking your involvement out of the equation. It will also ensure your payment is made on time. Another tool is to set a reminder on your calendar that alerts you to pay your mortgage.

6. Reassess your payments if you run into financial troubles. Adjust your payment schedule as your finances change. It's important to not fall behind on a secured loan payment simply because you are paying too much. If you find a seven-year plan unmanageable, scale back a try a 10- or 15-year amortization schedule. Cutting years off a mortgage will save you interest payments, but you need to be realistic about your ability to repay.

Resources

• Mortgage Calculator