Can You Pay Off A Home Equity Loan Early?
Posted by @TopMortgageRate
ome equity loans, also referred to as second mortgages, allow homeowners to borrow large sums of money based on the value of their homes. They offer more attractive interest rates than credit cards or other loans, and interest is tax deductible. Closing costs are lower with home equity loans than first mortgages, but their fixed rates are usually slightly higher. Review the monthly payment terms outlined in a home equity loan contract carefully, and don’t agree to repayment terms that you can’t afford. Because your home is used a collateral, you risk losing it if your fail to make payments. There are several ways you can pay off a home equity loan. Paying it off faster can help you spend less on interest.
Pay more than the minimum payment each month. Be sure to specify on your check or the portion of the statement you return with your payment that the extra money is to be applied directly to the principal. If you pay with an extra check, indicate that the extra money is to go toward the principal balance. Verify with your lender that every extra dollar has been applied correctly to your account. This will save you money on interest and allow you to pay off your loan much sooner.
Refinance to a shorter term, but only if you can get an interest rate at least one point lower than your current rate. Lenders usually offer lower rates on shorter-term loans, which allows you to pay off the loan early. As a general rule of thumb, it only pays to refinance if you do it before you reach the halfway point in your mortgage term. This is when you will finally be paying more in principal than interest. Keep in mind, too, that most times lenders charge fees to refinance, and this adds to the cost of the loan.
Pay off your home equity loan when you sell your house. This is a requirement. Therefore, make sure that you can ask a high enough price for your home to cover the loan and pay off your first mortgage.
Read entire article on TheNest.com