Options for Repaying Your Home Equity Loan

By Karen Lawson
LoanPage.com Columnist

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You got a home equity loan when rates were low and home prices were at record levels. Now the market is cooling, and your equity is diminishing. If you're concerned about repaying your home equity loan, you may have several options depending on the terms of your loan.

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How Real Estate Markets Affect Your Home Equity

Home equity is generally defined as the difference between the current market value of your home less the balances of your mortgage and home equity loan. As real estate markets change, the amount of your home equity can also change. As interest rates rise, home values may decrease, as fewer buyers can qualify for mortgage loans. If your home's value decreases, your equity will decrease, too.

Loan Repayment Options

Home equity loans may offer several repayment options: Depending on the terms of your loans, your financial situation, and market conditions in your area, you may be able to choose a repayment option that best suits you such as:
  • » No payments due until your home is sold or refinanced
  • » Interest only payments
  • » Regularly scheduled monthly payments
  • » Refinancing your first mortgage and home equity loan into a new first mortgage
If you have home loans with adjustable rates, you may want to consider refinancing your current mortgage and home equity loan into one fixed rate mortgage. Although this option may raise your monthly payment, it can stabilize your payment amount. Other options include paying interest only on your home equity loan, or making scheduled payments. If your loan terms permit, and you have substantial equity, you may not have to make payments on your home equity loan, but the interest accrued may be added to your loan amount. This can be tricky if property values decline. It's a good idea to keep track of market trends in your area, and to know exactly what you owe on your home loans. This information can help you make a good decision about how and when to repay your home equity loan.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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