Mortgage Killer Accelerator

Strategy 11 of 107

Right-size: sell, keep the tax-free gain, buy smaller

Depends on markets or variable ratesFrom an asset you already own

What it is

Sell a home you have owned and lived in for at least two of the last five years.

Steps

  1. Sell a home you have owned and lived in for at least two of the last five years.
  2. Up to the IRS limits, the gain can be excluded from income (IRC §121).
  3. Buy a smaller home with a smaller mortgage, or none.

Repeat: Once every two years at most, under the two-of-five-year rule.

Measure: Equity freed against the new home's price and mortgage.

Try it in the calculator Enter its amount in "One-time amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • Selling and moving costs.
  • A smaller home is a lifestyle change.

Who it fits

Grandmas and grandpas (62 and over), Married couples, Higher net worth, with assets

Needs

Any homeowner with a mortgage.

How predictable

Depends on markets or variable rates

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (grandmas and grandpas (62 and over)). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: sell a home you have owned and lived in for at least two of the last five years.

Suppose it brings a one-time $30,000 on principal. The loan would be paid off in 22 years 10 months instead of 30 years, saving about $134,798 in interest. To finish in five years, they would still need about $3,387 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Stay-put stack for 62 and over: Lower the bills and add rent while staying in the home; right-sizing is the last step, not the first.
  • Two live-in flips, then no mortgage: Two sales two years apart, each gain excluded up to the limit, the last purchase made for cash or close to it.
  • Later-life cycle: Right-size with the home-sale exclusion, or retire the payment with a HECM. Both trade equity for freedom from the payment.

Sources and more information

Where to get help

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