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Let’s talk about the best way to buy a house and pay it off fast.

Most people start by finding a real estate agent, who takes them to a bank or mortgage broker to get pre-approved for a mortgage. The bank collects the buyer’s financial information, runs a credit check, and tells them the maximum loan they would qualify for.

Now, the bank assumes your mortgage payment, insurance, and property taxes can equal up to 42% of your income, which is far too much. That is how you end up with a house you cannot afford.

Housing should take up 25% of your income or less. Anything more than that will crowd out your ability to save. So, you want to be clear with the agent up front. “We are only looking at houses up to $X.” Then hold your ground—don’t let him drive you around town looking at “42% houses.”

Throw Money at It

Once you settle into your “25% or less house,” it’s time to start paying off your mortgage as quickly as possible.

Say you have an ordinary, 30-year fixed-rate mortgage. You can prepay the mortgage by sending in additional principal. When you do that, you shorten the length of your mortgage. So instead of a 30-year mortgage, you have a 29-year mortgage, or a 28-year mortgage, etc.

The more additional principal you pay, the shorter your mortgage gets, until you finally pay it off.

• There’s also another, lesser-known way to quickly pay down your mortgage…

It’s called “recasting,” and a lot of banks offer this mortgage feature, pretty much for free. It might cost you a few hundred dollars.

When you recast your mortgage, you send in additional principal, just like you did in the first scenario. But this time, it’s a large lump sum. The bank might require anywhere from $5,000 to $20,000—at minimum.

In this case, the length of your mortgage stays the same, but your monthly payments go down. So, you would still have a 30-year mortgage, but with lower payments.

When you recast, you pay less interest overall, which is good. But you’re also freeing up cash flow—which you can put to work.

For example, say you recast and your monthly payment drops from $3,400 to $2,600. You’ve just freed up $800 a month. Now, instead of spending $800 on this or that, you could send it in as additional principal. That’s where the magic starts.

It’s certainly worth recasting once, maybe even twice. After that, just keeping paying your new lower mortgage, plus additional principal. That’s how you pay off a mortgage really fast.

What an Extra $250 Gets You

Most people have no clue how much interest they’re paying if they don’t prepay.

Say you buy a $500,000 house. You put down 20%, so that’s $100,000. Then you get a $400,000, 30-year fixed mortgage at 3.5%. Over the life of the mortgage, you’re paying $247,000 in interest. So that $500,000 house costs you $747,000.

It doesn’t take much to soften the blow here. If you pay an extra $250 a month, you will pay off your mortgage in 24 years instead of 30. And you’ll only pay $193,000 in interest. That’s $54,000 less!

Be Aggressive

My suggestion is to prepay your mortgage as aggressively as possible. Your goal should be to pay it off in 10 years, maybe even five.

Recasting is a great tool for this, especially if you’re taking out a larger mortgage. The loan officer at the bank isn’t going to bring it up. So, ask. You can probably get a loan with a recasting feature, and it shouldn’t cost you much.

Jared Dillian