The popular train of thought amongst real estate investors is to delay paying off the mortgage on your personal residence in lieu of investing money in rentals to generate more cash flow. However, there comes a time when debt becomes tiring, even if it is good debt, and you just want to be done—usually around the time of retirement—and your attention inevitably turns to your personal mortgage.
According to Realtor.com, more Americans are heading into retirement carrying a mortgage as the cost-of-living crisis affects everyone—even real estate investors.
Ultimately, freeing up another monthly payment leaves money for other things such as healthcare and travel. It also gives you greater equity to serve as a safety net later in life, particularly for ongoing repairs on rentals or a personal residence.
The Interest Rate Conundrum
The validity of paying off a mortgage depends on the interest rate. If you have a sub 3%-to-4% rate, the reasons to pay off the debt diminish.
Recent ICE Mortgage Technology showed just over 50% of borrowers currently have rates under 4%, as reported by CNBC. There comes a point, though, for many people, especially those thinking about their legacy and heirs, that the idea of being debt-free becomes more attractive.
Strategies to Pay Off Your Mortgage
Here are a few strategies to pay off the mortgage on your personal residence quickly.
1. Overpay your mortgage (specifically the principal)
Let’s start simple and old school: overpayment. It was the technique your parents might have used to whittle down their mortgage before fancy leverage concepts took over the investment milieu. Making an accelerated or extra payment directly to the principal chops down debt like a chainsaw inhabited by a poltergeist.
To quote Jake Vehige, president of mortgage lending at Neighbors Bank, as referenced on Realtor.com: “Due to how amortized loans are structured, much more of your payment goes toward the interest at the beginning of the loan. The more quickly you pay down the principal, the more of your payments go toward principal.”
There are many ways to go about doing this:
- Add a fixed amount to each monthly payment.
- Make one extra full payment per year.
- Make biweekly instead of monthly payments. Sending half your payment every two weeks results in 26 half-payments per year, totaling 13 instead of 12, taking several years off a standard 30-year mortgage.
- Apply occasional windfalls—such as tax refunds, work bonuses, side gig money, larger rent surpluses from your portfolio, or insurance refunds—directly to the principal. Just make sure the bank applies these payments to the principal, not just to service the prepaid interest.
The key with all these methods is consistency. Treating additional payments as you would any other payment, such as an insurance or tax bill on a rental, will ensure you stay ahead of the game in paying down your personal mortgage.
2. Use your portfolio wisely to power lump-sum paydowns
Sometimes, underperforming rentals can generate more net income by being sold and applied to your principal mortgage, which can then be recast or refinanced to a lower rate and lower payment, depending on your lender and interest rate. Even after getting rid of PMI, if you put less than 20% down on your main residence, you can still save significantly.
3. Rent rooms in your home
Again, this is not a new concept. Taking in a “lodger,” as it was once referred to, has been around since Biblical times. Not sure Mary and Joseph paid rent for the stable, and I’m pretty sure the owners didn’t have an Airbnb account, but they were doubtless rewarded in other ways.
Applying the extra rental income from renting a spare room to the principal will vanquish a mortgage fast—it’s not a miracle, just common sense.
4. Use an ADU for extra real income
If you don’t have spare rooms, building an ADU—a converted basement, attic, or garage, or a stand-alone dwelling at the back of the house—for rental purposes can earn extra income, which, once applied to paying back the cost of the ADU, can turbocharge principal payments.
5. Live in your ADU and rent your home
If you’re an empty nester and no longer need the space of an entire house, moving into your ADU and renting out your primary residence will boost additional income while allowing you to live nearby to keep tabs on everything.
6. Move into one of your rentals and rent your primary residence
Assuming your rentals are places you want to live, switching places and deriving extra income from your primary residence could be a good short-term move if the rent difference is significant.
7. Lease your primary residence for high-demand times of the year
If you live in a popular area (near World Cup games, tourist attractions, or college towns), leasing your primary residence as a short-term rental during high-demand periods could yield significant additional revenue.
During this time, you could either stay with relatives, rent a cheaper short-term rental, or schedule your own vacations, using responsible property managers who can keep an eye on your primary residence.
8. Lease your home to film companies
Your home might be the ideal location for the next Hollywood blockbuster—assuming AI doesn’t re-create it for a fraction of the price. Fortunately, I don’t think we’re quite there yet, and websites such as Giggster, Set Scouter, and Fresh Locations will pitch your home to studios looking for the ideal location for their next movie, with a bumper payout for your troubles.
Final Thoughts
There comes a time in every investor’s life when the goal must be to be debt-free, both for their rentals and their personal residence. That could eventually mean selling off their portfolio, which is another way to pay down a personal mortgage. But if they want to keep their rentals for retirement income, these strategies will help flatten the amortization curve, giving you one less major bill to worry about.
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