Looking At Home Equity Loan Payoff Options

In these economic times, more people are paying attention to their overall financial picture, which includes their debt levels.  Over the last decade, rising real estate values have led to wave of home equity loans as homeowners looked to tap their grossly overvalued home values.  Now these same people are looking to pay off their debt, but how best to pay off an outstanding home equity loan can require a bit of thought.

Let’s look at the two common methods:

Loan Refinance:

Provided you qualify for a lower rate on your existing loan, you could refinance at a lower rate.  Assuming you continue making the same payments, you will pay off your loan faster since more money will be going towards principal with each payment.  But you also have to factor loan fees, such as origination and application fees, which you will be required to pay with a home equity loan refinance.

Now if you have a 1st mortgage and home equity loan on your home, and the combined value of both loans is less than 75-80% of your home’s current market value, you could refinance both loans into one primary mortgage. But considering how far housing prices have fell in recent years, this isn’t likely an option for most homeowners.

Extra Principal Payments:

If you are fortunate enough to have some extra income, you could always pay more than is required every month. Every extra dollar you pay will go straight towards your loan principal.

Ultimately what works best for you will be determined based on your budget, timeframe, and other factors.

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