How are home equity loans repaid?

The way you repay your home equity loan depends on the terms of the plan that you agreed to with your lender. Sometimes you only pay the interest throughout the duration of the loan and, at the end, when the loan is due, you pay back the whole principal. If you have a balloon payment like that facing you, you can choose to use the money you have on hand or possibly refinance your loan. Another option is to borrow from a different lender to pay back your equity loan. The catch with a home equity loan is that if you don't pay back the borrowed money on time, you could lose your house.

Normally, your payment plan won't be that rigid. You can pay off more than the minimum each month, and that extra money goes toward the principal. That way, you're not stuck with a massive payment at the end. If you want to sell your home before you've repaid your equity loan, you'll have to pay off the loan before the sale can go through.

Before you go ahead with a home equity loan, you need to decide whether you'll be able to handle the debt. This depends partially on the stability of your employment. Credit counseling agencies can be helpful when it comes to figuring out your financial situation. Generally, home equity loans are recommended for people with a specific need for the money, like a remodeling project. And before you commit to any lender, get an estimate of all the charges you'll incur with your proposed loan. By law, the lender owes you the estimate within three days of your loan application. Examine the terms and ask around to make sure that you're getting a fair deal and that the loan-to-value ratio is under 80 percent. Anything over that will carry huge interest rates that will make repayment more difficult.


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