5 Year Plan

Source: Dilbert

How do you pay off a mortgage in 5 years?

When we first started with our home loan I didn’t have much of an idea what to expect. I didn’t have any specific type of “plan” to follow besides the social default of pay it off for 30 years. It took me quite a while to suss everything out, learn what matters and what doesn’t. Now I’m fully confident at paying off a mortgage really, really quickly.

I’ve often said that if I had this website from the day I started paying off our mortgage it would have only taken us 5 years not 6.

A year or so ago I sat down and wrote out a very detailed and non-specific post entitled The Official Mutilate The Mortgage Strategy. If you haven’t read this I’d highly recommend you do. It’s the main theory behind the more detailed figures below. Once you’ve read it, come back here and this post should make more sense.

Although the article above is very general and does cover the below case, I thought I’d run through specific figures. Hopefully it gives everyone a better understanding of how it’s done with a specific use case. If you’d like, feel free to post a comment below with other starting details and I can do another article if those are popular.

This specific 5 Year Plan is for a couple that has the following:



  • Combined income of $150,000 (50/50 each)
  • No children
  • Want to be debt free within 5 years so they can do _______

A very common issue with paying off a mortgage so quickly is that it “can’t be done” with children. Well besides from the fact that it can be done, in this scenario I would imagine the couple might want to pay off their mortgage first in preparation of having children.

Income:

According to the ATO’s Simple Tax Calculator:

Jack’s Base Income: $75,000.00Jill’s Base Income: $75,000.00
Jack’s Current HELP Debt: $0.00Jill’s Current HELP Debt: $0.00
Jack’s Annual Tax: -$15,922.00Jill’s Annual Tax: -$15,922.00
Jack’s Take Home Pay: $59,078.00Jill’s Take Home Pay: $59,078.00

Total Income After Taxes: $118,156.00
Total Income: $4,544.46 / Fortnight

Expenses:

Normally I’d run out a big long list of expenses you might have. Ultimately it really doesn’t matter as they should only account for 30% of your after tax wage or $1,363.34 per fortnight in this example. If they don’t, get to work on cutting those expenses!

The Loan:

As 30% is going to expenses, 70% should be going to the loan or $3,181.12 per fortnight. Given their goal is to have their mortgage paid off within 5 years we jump over to a Loan Repayment Calculator and punch in the figures.

I’ve assumed an ongoing interest rate of 5.5% p.a. here. Do note these historically low interest rates likely won’t stay around much longer. It’s quite likely interest rates will rise to 8%+ in the future. Regardless, at 5.5% and repayments of $3,181.12 per fortnight it shows this mythical couple can borrow $360,000 and pay it all off in that 5 years.

Pay off a Mortgage In 5 Years

Assuming that this is a 80% loan to value ratio mortgage (ie. the mortgage is only for 80% of the total cost of the house) this means we get a house valued at $360,000 / 0.80 = $450,000.

The Results:

So in the end this couple can rock this exact plan and be free in 5 years if they:

  • Put 70% of their after tax wage to their mortgage
  • Buy a $450,000 house with a 20% deposit ($90,000) or otherwise end up with a $360,000 mortgage

And that’s it!

It might seem like a pretty “light on details” plan. That’s because at the heart of it paying off your mortgage IS very simple. Force that repayment amount to 70% and burn through that mortgage as fast as you can!

There are ways to live a very comfy life on $1,363.34 per fortnight when you have no kids. If this is where you’re having issues read the other posts on decreasing expenses and focus on that. I’d strongly recommend just upping your repayments to 70% of your after tax pay and seeing how you go. So long as you have a free redraw or offset account that you can easily get the money back out of if things are really sticky.

As mentioned before, feel free to shout out in the comments some other scenario’s and I’d be happy to draft them out in other Use Cases posts.

Pay Off Your $360,000 Mortgage In 5 Years was first posted on www.MutilateTheMortgage.com!



Got a mortgage? Learn how to kick it's ass fast!
You can pay off your mortgage early. So early that you can be mortgage free before you even have kids, before you hit 30 and you can do it without cutting back on the things you love too.




Alex Shoolman

How To Pay Off A Mortgage Early - What if you could be mortgage free in under 10 years, automatically and without cutting back on the things you love?
Editor in Chief at Alex Shoolman - Learn how to improve your life with technology, see where it's going in the future and how you can take advantage of it.
Editor in Chief at Mutilate The Mortgage - We help people go from "no idea" to mortgage free in under 10 years.

  • Tim

    I’d be quite interested to see how this scenario works for those on a lot lower salaries. say the $40k to 60k bracket.

  • Ranil

    Have to say, great article and over all good advice through out the site.
    I have almost paid my mortgage with in around 10 years for a house worth around 4.6K and after reading this post, happy to say I have done most of the things mentioned in these articles, and it works !!

    I can say this can be done, but remember no pain .. no gain !
    We had to sacrifice some things to get to this point, like having kids late in life, have a very routine and tight budgeting constraint and and my wife was not making 75K P.A either. I was on a good salary through out.

  • Rose

    Hi, I just found your blog and its great reading… thanks for sharing your tips! I wanted to throw out my position which is very different to your high and double income. So I owe $138K on my mortgage but I am going to take around 10K to build a third bedroom…. which would bring it back to around 148K. My income is approx $47k per year…. I am a sole mother so its just have what i earn. I pay around 320 going in weekly which is 100 more than required and i have an offset account. Would love any advice you can give. Kind regards

  • Rose

    I was just following up my post… i was under the impression that you were after scenarios for examples… I have kept checking back but havent found a reply….please let me know if you do post Thank you Kind regards Rose

    • Hey Rose,
      Sorry yes I did see your comment before! I’ve read over it and it does sound like an interesting case. At $320pw on a $148K loan at (just guessing) 5% interest, it will take around 11.5 years or so which is quite good considering your single income.

      Whilst I can’t give any direct “financial advice” to you due to Australian Law, I’ll try and get out a general case scenario for something similar to your case soon :-)

  • Rose

    Thank you so much! Much appreciated

  • Garry

    Hi Just read your article. The only drama is my credit cards. I owe $365,000 and at the age of 60 I would like to have this paid off in the 5 year period. Is there a good tip to combine paying off the cards. I owe approx $25,000 on credit cards.

    I would appreciate any feedback.

    Garry

    • Hi Garry,
      Unfortunately I can’t really give any specific advice due to Australian law but also because I don’t know your FULL financial situation and so anything I suggest might actually be BAD for you. That being said it’s usually better to attack the highest interest debt first, sometimes you can even combine debts together and get lower interest rates too. The best thing though is to go in and see a professional financial adviser service. Some are free, some cost money but all will likely save you far more than what they cost. A quick one or two hour meeting with them should be all they need to see your full financial position and then better advise you of the best path to get what you want. Hope this helps and thanks for reading!

  • Garry

    Hi

    Many thanks for your reply. Yes interest rates on credit cards are massive and the Government should step in but they will not.

    Regards

    Garry

    • Lennie

      Hi Garry, hope you get your finances sorted. I am 60 also and through bad investments etc and have a house debt to the tune of $380K, I am making weekly repayments of $1500 pw so that hopefully will have the house paid off by age 65

      • Mil

        Hope you get it paid off by 65, I am in a very similar to yourself at the same age

  • Mark

    Hi just read your blog it was great. I have $324,000 owing at 4.8% fixed for one more year and it is rented out currently returning about $360 pw. Am on $100,000 pa but $33k is tax 23k is child support and my partner has just had a baby. Have done an expenses sheet and we are not left with much to play with. Currently renting a house off family for $250 pw and we top up the mortgage payment $200pw. Currently trying to cut out stuff but it is a real struggle. I want the house paid off in less than 10 years. Would like a scenario done thanks

  • Congratulations! That is a huge accomplishment!

    I myself am in the second year of mortgage ownership. My goal last year was to pay in principle the same amount as charged in interest. While I didn’t quite make my goal, this year I am on pace to surpass the interest charged. Like you say every little crumb helps!

    Thank you so much for your posts as they open new doors for me and inspire me!

  • As a mortgage broker I read your article with great interest and I fully endorse that your strategy is fully workable. In fact I try to council my clients (especially first home buyers) to employ a mortgage reduction strategy to enable them to climb the property ladder faster. The hurdle for many though, is tightening the belt and trimming their expenses. Nonetheless, for those that do, the far reaching financial consequences can be spectacular. Thanks for the great article.

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