Financial Tips for Paying Off Your Home the Smart Way

August 20, 2025

Purchasing a home is one of the most significant financial decisions in a person’s life. At Elation, we believe that thoughtful planning and disciplined strategies are the keys to managing your mortgage with confidence. By following proven financial guidelines, homeowners can achieve stability, balance, and long-term security while paying for their home.

The 28/36 Rule for Housing Costs

A widely recognized guideline is the 28/36 rule:

No more than 28% of gross monthly income should go toward housing costs (including mortgage, property taxes, and insurance).
No more than 36% of gross monthly income should be allocated to all debts combined (housing, credit cards, auto loans, and student loans).

Example: If you earn $6,000 per month, your total housing costs should not exceed $1,680, and your total monthly debts should remain below $2,160.

Recommended Income Distribution

An adapted version of the 50/30/20 rule works particularly well for homeowners:

50% Needs: Mortgage, utilities, transportation, groceries
20% Savings & Investments: Retirement contributions, emergency fund, long-term financial growth
20% Debt Payments & Lifestyle: Credit cards, loans, leisure activities
10% Additional Allocation: Toward extra mortgage payments or enhanced savings

This balance helps you stay current on obligations, build wealth, and pay down your mortgage more effectively.

Emergency Fund

Establishing a strong safety net is essential. Financial experts recommend setting aside three to six months of necessary expenses in an emergency fund. This reserve protects against unexpected events such as job loss, major repairs, or medical expenses, ensuring that your mortgage remains secure even during challenging times.

Stay Alert to Market Conditions

Beyond personal budgeting, it is equally important to pay attention to real estate market trends and interest rate changes. Timing your purchase or refinance when rates are favorable can save you thousands of dollars over the life of your loan. Staying informed also helps you identify opportunities to invest in property at the right moment.

Income Required to Purchase a Home

A simple calculation can help determine the minimum income needed:

Monthly Income ≈ Estimated Monthly Housing Payment ÷ 0.28

Example: On a $500,000 home:

With a 20% down payment, the loan amount would be $400,000.
At 6.5% interest over 30 years, monthly payments are approximately $2,528 (closer to $2,800 including taxes and insurance).
According to the 28% rule, a buyer would need to earn at least $10,000 per month ($120,000 annually) to afford this home comfortably.

Recommended Loan Terms in the U.S.

The most common mortgage terms are:

30-Year Fixed Mortgage: Lower monthly payments, greater flexibility.
15-Year Fixed Mortgage: Higher monthly payments, but faster payoff and significant interest savings.
20- or 25-Year Mortgages: Less common, but available as a middle-ground option.

A popular strategy is to choose a 30-year mortgage for flexibility, while making additional payments toward principal to achieve a payoff schedule closer to a 15-year loan.

Final Thoughts

Homeownership requires more than simply qualifying for a loan; it demands ongoing, disciplined financial management. By following the 28/36 rule, maintaining a balanced budget, and selecting the proper mortgage term, you can pay off your home strategically and secure long-term financial stability.

At Elation, our experienced agents are here to guide you through every step of homeownership, offering financial guidance and real estate advice to help you reach your goals with confidence. Contact Us.