Secrets to paying off a mortgage in 10 years
Katie and John Johnson were newlyweds in August 2003 when they borrowed $205,000 for their Salem, Ore., home.
Just nine years and a dachshund later, they’re counting down to their final mortgage payment.
"I think it will feel really good," Katie says of the May 2013 milestone. "We’re looking forward to the next goal."
So what's this couple's secret?
Katie, 35, and John, 49, have taken an aggressive approach to paying off their loan.
Today, they pay thousands of dollars more to their lender each month than they're required to. Over time, as they've retired other debts and earned more income, they've gradually increased payments. (Read our 3 free ways to pay your home loan faster for more tips.)
Katie, a civil engineer with the state of Oregon, and John, a federal aid highway program construction specialist with the state, initially had two mortgages.
The Johnsons had taken out the second home loan so they could avoid paying private mortgage insurance, because their down payment was less than 20% of the sale price of the home.
Their first mortgage, a 30-year, fixed-rate loan for $173,000, is the one they’re about to pay off. It carries an interest rate of 4.875% and a monthly payment of just over $900.
The second mortgage, a 15-year balloon loan for $32,000, charged 8% interest and a monthly payment of about $200.
"We attacked that one aggressively," Katie says.
Pay early, save big on your $200,000 home loan
|Extra annual payments||Interest paid||Savings||Payoff time|
|$900||$106,988||$17,129||26 years, 3 months|
|$1,800||$94,259||$29,858||23 years, 5 months|
|$2,700||$84,398||$39,719||21 years, 1 month|
|Source: Interest.com mortgage calculator.|
Katie admits the thought of being stuck with a large payment at the end of the balloon loan made her nervous.
The Johnsons immediately began paying an extra $110 a month toward the balloon loan's principal, which they bumped up to an extra $350 a month in 2004.
Later that year, they made a lump-sum payment of $4,000 and also upped their monthly payment to $512.
At the same time, the couple began paying an additional $85 a month on their 30-year loan.
Katie and John were able to increase their monthly payments after they paid off an auto loan and when they each earned cost-of-living raises.
The Johnsons figured they were already used to living without the extra income so wouldn't miss the additional cash.
They made the lump-sum payments from savings, because their regular contributions weren't earning enough interest to justify maintaining a large balance.
By 2006, the Johnsons were paying an extra $862 a month on the 15-year balloon loan and that December made a lump-sum payment of just over $5,000 to pay it off.
They rang in 2007 with only their 30-year loan and — again applying their we-won’t-miss-what-we-never-had principle — began paying an extra $1,200 a month, for a total payment of $2,100.
In 2010, they added another $1,000, for a monthly total of $3,100.
"That will take us to the end," Katie says. "We’ll have it paid off in May of 2013 on that schedule."
To help the countdown, she created an amortization table and crosses off each month after they make their payment.
"This last part is very fun, to actually get to the very end," she says.
Katie says that only having house debt has made their aggressive payoff plan possible.
While the Johnsons use credit cards, they pay the balance in full every month. They also save up for big purchases, like their annual vacation to Hawaii, instead of charging them.
The couple also eats at home the vast majority of time and avoids paying for a gym membership by running outside for exercise.
"Our standard of living is really comfortable," Katie says. "We don’t go without anything, and we do have those times when we have fun."
When the Johnsons no longer have a house payment, they plan to treat themselves to a new mattress and perhaps a cruise.
After that, they’ll boost their emergency savings and retirement account contributions, Katie says, and then start saving to either build a home or buy a vacation home.
The Johnsons’ tips for paying off a loan early:
- Set a goal. The couple was determined from the get-go to have their loans paid off before the due dates.
- Pay more than the minimum. Katie says they initially figured out that paying just $110 extra a month on their 15-year balloon loan would prevent them from being stuck with a big payment at the loan's end.
- Keep track. Katie created and updated amortization charts on their loans so they could see their progress. And stay motivated.