How to Pay Off Your Mortgage in 5-7 Years: Strategies for Financial Freedom

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Imagine the satisfaction of knowing that your home is truly yours - without the burden of regular mortgage payments, the worry of interest rate fluctuations, and the limitations that come with significant financial obligations. If you are ready to find out how to pay off your mortgage in 5-7 years, read on, - I will guide you through practical tips to become mortgage-free quickly.

Why Pay Off Your Mortgage Early?

Mortgages are huge loans that often cover hundreds of thousands of dollars and last a few decades. If you were to pay off your mortgage debt quicker than that, you would save tens of thousands of dollars in interest rates, not to mention the practical benefit of having extra money left over every month to invest elsewhere.

Benefits of Paying Off Home Quickly

  • Save money on interest: By shortening the lifetime of your mortgage loan, you will cut down the total amount of interest you pay over the loan term. Depending on your mortgage amount, interest rate, and original term, paying off your mortgage in 5 years can result in significant savings.
  • Free up money for later in life: The typical mortgage amortization is between 15 and 30 years, - a long time to be burdened with mortgage payments. By paying off your mortgage quickly, you will free up some extra cash to spend on other things when you are older.
  • Increase home equity: Reducing your mortgage balance will automatically increase your home's equity. Higher home equity, in turn, can be used in a home equity loan, a home equity line of credit, or a cash-out refinance.

Average Mortgage Payoff Timelines vs. Accelerated Strategies

Typical mortgage payoff timelines span 15 to 30 years, with initial payments consisting mostly of interest. As time goes on and a larger portion of the loan is paid off, more and more of your regular mortgage payments will be used toward the principal. The faster you pay off your principal, the less your total interest expense will be.

Some accelerated strategies for how to pay off your mortgage in 5-7 years include making extra lump sum payments, increasing monthly payments, or even adopting biweekly payment plans as opposed to monthly ones. Even a single additional payment per year can reduce the total payoff period by a few years and save you tens of thousands of dollars in interest. Depending on the size and frequency of extra payments, you will be able to pay off your mortgage in 15-20 years or less, ultimately achieving financial freedom faster.

Assessing Your Financial Situation

While paying off your mortgage faster provides peace of mind in knowing that you own your home, it doesn’t automatically mean financial freedom. Of course, your mortgage is likely the biggest monthly bill your family has, and eliminating this payment will provide you with extra cash to focus on other financial goals like college education for your kids, early retirement, or even purchasing a cottage.

However, it is not as simple as that. While paying off your mortgage in 5-7 years sounds like a great idea, it may not be the optimal strategy for you. Before taking this road, take a look at your overall financial situation to make sure that your other goals and obligations are still being met.

Reviewing Your Current Financial Health

Before throwing every penny you have into paying off your mortgage, take a step back and review your current financial situation. You should not focus on accelerating your mortgage if you:

  • Have student loans outstanding
  • Have a credit card or other high-interest debt
  • Haven’t saved for your child’s education
  • Don’t have adequate disability and life insurance
  • Aren’t maxing out your company retirement accounts or IRA
  • Don’t have an emergency fund worth 3 to 5 months of expenses

If you aren’t financially stable, or your other financial obligations aren’t fully covered, don’t rush to pay off your mortgage quickly. Instead, work on building your wealth and creating a financial cushion for retirement, education, or emergencies. Once you pay off all high-interest debt and save enough for other priorities, you will feel more confident and comfortable in accelerating your mortgage.

Understanding Your Mortgage Terms

Every mortgage has an interest rate - the higher it is, the more you pay over the length of your mortgage.

  • A fixed interest rate is locked over the entire term of the mortgage. With this type of interest, you know exactly how much principal you will pay back each month and can plan accordingly.
  • A variable interest rate can fluctuate, increasing or decreasing based on the market conditions. While this means that the principal/interest ratio of your payment can vary with the volatile interest rate, it allows you to benefit from favourable market conditions when the interest rate does drop.

If you are looking to pay off your mortgage in 5-7 years, it is important that you choose a mortgage agreement with prepayment privileges. For example, while open mortgages usually have higher interest rates than closed ones, they can be prepaid partially or in full, without prepayment fees. With closed or convertible mortgages, on the other hand, you are often limited to prepaying only 10% to 20%.

Whatever the case, your loan agreement will have all the details on when you can make a prepayment, so review these carefully before finalizing your mortgage. You can also reach out to me, should you have any questions or require assistance with understanding your mortgage contract.

Strategies to Pay Off Your Mortgage Early

If you are dedicated to paying off your mortgage in 5 years, you have a few routes you can take: increase your regular mortgage payments, put lump sum payments towards your principal, or take advantage of large windfall amounts.

Increase Your Mortgage Payments

Increasing your mortgage payments, even by a little, can help you pay off your mortgage faster. Depending on your mortgage contract, you may be able to increase your regular payments by a certain amount each year, - even small monthly increases can make a big impact!

Keep in mind, however, that once you increase your payments, you may not be able to lower them again until the end of the mortgage term. Plus, pay attention not to increase the payments by more than your prepayment privilege allows, or you may be faced with a prepayment penalty.

Lump Sum Payments

Similarly to increases in your mortgage payments, your loan contract will specify any lump-sum payments you are allowed to put towards your principal. Most of the time, you will be allowed to make lump-sum payments:

  • Before the end of your term,
  • At certain times during your term,
  • At the end of your term,
  • On certain dates set out in your contract

Stick to your contract rules and use cash inflows like work bonuses or tax returns to reduce your mortgage principal with a lump sum amount, - this can become the fastest way to pay mortgage balance in the long run.

Utilize Windfalls Wisely

Did you get a work bonus, receive an inheritance, or win a lottery? Whatever windfall comes your way, resist the temptation of wasting it away. Instead, put a lump sum payment toward your mortgage principal. That way, you can speed up your mortgage repayment, reduce interest rate expenses, and pay off your home quickly.

Cutting Costs and Budgeting

If you would love to know how to pay off your mortgage in 5 years but feel like you just don’t have the room in your budget, don’t worry! There are always ways to make room, even if you aren’t ready to increase your income just yet.

Budgeting Tools and Apps

First and foremost, if you aren’t making a budget every month, it’s time to start doing it. You can go old-school and write down your income, list your expenses, and track your spending on paper. 

Alternatively, you can use one of the financial tracking apps to create a budget and stick to it, allocating a certain amount towards mortgage prepayment each month. Try out the following apps, - but don’t forget to include the cost of the app in your budget!

  • YNAB: This app allows users to plan ahead for expenses rather than simply tracking past transactions. YNAB follows the zero-based budgeting system, which allows you to plan for every penny you make.
  • Goodbudget: If you prefer the envelope budgeting system instead, try the Goodbudget app. The system works by portioning your monthly income towards specific spending categories, or envelopes. You will need to manually add your account balances, cash savings, debt, and income, before assigning money to envelopes.
  • EveryDollar: EveryDollar offers a zero-based budgeting system that is slightly easier than YNAB, allowing you to automatically track your transactions. The app also provides custom reports and recommendations based on your spending habits.
  • PocketGuard: If you are looking for a simple, bare-bones budgeting app, PocketGuard may be a great option for you. You can still connect your bank accounts, loans, credit cards, and investments. Plus, you can easily track bills and plan for necessities and financial goals.
  • Honeydue: If you are working on paying off your mortgage faster together with your partner, consider using the Honeydue budgeting app. Designed specifically to show both financial pictures in one app, Honeydue allows syncing credit cards, bank accounts, loans, and investments. You don’t have to share everything, however, as you will be able to choose exactly how much information your partner has access to.

Practical Cost-Cutting Tips to Boost Savings

Once you start living on a budget, you will need to make some adjustments to your life and habits. 

  • Lower your grocery budget: Groceries are one of the biggest line items on the budget of most Canadian families. Consider ways to cut back a little, whether it involves changing stores, shopping in-season produce, or taking advantage of sales and price reductions.
  • Stop eating out so frequently: You may love eating out, but do you really need to do it so often? Eating out is considerably more expensive than cooking at home, and focusing on homemade meals can save you a ton in the long run.
  • Cancel some subscriptions: In the modern age, it is incredibly easy to lose track of all your subscriptions, creating a constant leak in your budget that you may not even be aware of. Review all of the subscription services you pay for and keep only the ones you actually need and use regularly.
  • Downsize: Downsizing can not only reduce your total mortgage amount, but it can help you cut your month-to-month expenses. Owning a smaller home means paying less for utilities, regular maintenance, and even renovation when the time comes.
  • Do an insurance coverage checkup: You are not married to your insurance company, - and you are not obligated to stay with them despite their yearly premium hikes. Work with an independent insurance agent to shop around and find an insurance provider with lower rates than you currently have.
  • Cut back on online shopping: The convenience of online shopping makes it difficult to resist, but it is a worthwhile fight. Once you overcome your shopping addiction, you will notice how your monthly spending decreases, making more room in your budget for mortgage prepayments (and more room in your home without all the things you don’t really need).
  • Reduce your utility bills: Utilities can cost a lot, especially if you don’t pay much attention to how you are using them. Some easy ways to reduce your bills include unplugging electronics when they are not in use, investing in energy-efficient appliances, washing clothes in cold water, and turning off lights when you leave a room. In Ontario, you can also take advantage of different electrical rates, with lower rates available during off-peak hours, such as overnight or on weekends.

Advanced Tips

In addition to cutting your expenses and making mortgage prepayments, you can take more drastic steps, which involve changing your mortgage loan altogether.

Refinance Your Mortgage

By refinancing your mortgage, you will be able to receive a new loan with a shorter term, a lower interest rate, or both.

  • Reducing your mortgage term: By reducing your mortgage term from 30 or 25 years to, let’s say, 15 years, you will be able to pay off your mortgage much faster. Of course, a 15-year mortgage will have larger monthly payments, but it will be worth it in the long run, allowing you to cut down on interest expenses and achieve financial freedom faster.
  • Getting a lower interest rate: Many times, an experienced mortgage agent can help you secure a lower interest rate, thus allowing you to pay off your principal amount faster. If you already have a great interest rate on your 30-year loan, stick with it! You can always treat your 30-year mortgage like a 15-year mortgage and increase your monthly payment accordingly.

Consider Mortgage Accelerator Programs

A mortgage accelerator program is a program that helps a homeowner pay off their mortgage faster than with a traditional mortgage.

Mortgage accelerator programs can take a wide range of shapes and forms. For instance, once popular, was a combination of a home equity loan with a checking account. Under the program, borrowers’ paychecks were deposited directly into the mortgage account, thus reducing the remaining mortgage balance. As homeowners spent money during the month, the mortgage balance rose again, and any remaining amount at the end of the month was used toward the loan’s principal.

Today, the most common accelerator programs in Canada involve making extra payments on a mortgage to reduce the principal faster. For instance, you may use a home equity line of credit to make lump-sum payments towards your mortgage loan - or increase the amount or frequency of your regular payments. If you have the option, always choose bi-weekly or even weekly payment frequency, as it will allow you to make more payments throughout the year and pay off your mortgage faster.

Lifestyle Changes and Considerations

If you are planning to pay off your mortgage in 5 years, be ready to make sacrifices, - and important changes to your lifestyle and financial habits.

Sustainable Lifestyle Adjustments

You don’t need to cut back your expenses drastically, - instead, focus on making sustainable lifestyle adjustments that you will be able to stick to for the next 5 years. For instance, if you won’t be able to go without your Netflix subscription, don’t give it up, - instead, unsubscribe from that fancy magazine you never read past the first page.

Similarly, review your daily habits and prioritize what brings you joy vs. what simply makes a hole in your wallet. Do you always buy avocados but can never catch that “ripe” moment before they go bad? Stop buying them! Do you have two family cars but only drive one? Sell the second car! In other words, review your daily life and get rid of anything that requires extra spending without improving your life in any way.

Avoiding Lifestyle Inflation

Many people increase their income with time, either through a raise, promotion, or side gigs. However, very few people actually pay off debt faster or become wealthier with the income increase. 

Why? Because they start spending more money, which often happens automatically without conscious effort. This trend is known as “lifestyle creep,” as it is natural for humans to see extra cash as an opportunity to treat themselves and spend more.

Of course, a little treat here and there won’t hurt, - but pay attention not to fall into the trap of the “lifestyle creep.” If you want to pay off your mortgage in 5-7 years, treat every income boost as a chance to save more, reducing your mortgage balance and minimizing the associated interest expense.

Conclusion: Finding the Fastest Way to Pay Mortgage

Do you know what happens when you pay off your home and actually own it? You feel free, have disposable income, and enjoy living in your home a little bit more. The best part is that paying off a mortgage in 5 years is not just a dream, - it is possible, with the right strategies and guidance along the way.

Recap of Key Strategies and Emotional Benefits of Mortgage Freedom

Learning how to pay off your mortgage in 5-7 years is easy (in theory): cut your spending, increase your savings, and put anything extra toward your mortgage. 

However, changing daily habits takes time and dedication. To make things easier, start by creating a monthly budget and sticking to it. Next, find a way to cut on everyday expenses and commit to keeping your spending the same, despite potential pay raises or windfall sums. As your income increases but your spending doesn’t, you will have more disposable income for increasing your monthly mortgage payments or making lump sum deposits towards the principal. Soon enough, you will be able to pay off your home and enjoy the peace of mind that comes with knowing that the greatest debt of your life is in the past.

Creating a Personalized Repayment Plan with Professional Guidance

All in all, learning how to pay off a mortgage in 5-7 years is possible, especially with professional guidance offered by my team and me. Get in touch with us, and let us help you create a personalized repayment plan and apply for a mortgage accelerator program or refinance when suitable.

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About Andrew Thake

Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.

Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.

Why not make your mortgage experience a comfortable one?

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