Repaying Your Home Equity Loan

By Kelly Richardson
LoanPage.com Columnist

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A home equity loan is a powerful financial product that allows you to borrow against a percentage of your home's value for debt consolidation, home improvements, or anything that requires cash. But before you sign, you should know these guidelines for repaying the mortgage debt and not getting overextended.

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A home equity loan, sometimes called a line of credit, can be structured a variety of different ways to suit your particular financial needs. Most offer a variable percentage rate, low or no closing costs, and a variable length of repayment. However, there are some things to consider before you take out a home equity loan. The main thing to keep in mind is that your home is the collateral for this loan, so repaying the debt is paramount.

Home Equity Loan Tips

  • » Borrow Wisely. Just because you can borrow up to 85% of the value of your home doesnt mean that you should do it. Setting limits, budgeting, and playing it conservatively is always good advice. And when your borrowing period ends, it's wise not to attempt to extend it under any circumstances.
  • » Examine the Interest Rate. Ask your mortgage lender to provide an extensive explanation of the terms of interest. Find out what the interest cap will be, if and when the rate will become variable, and if the initial rate is an introductory offer. These small details will make a big difference.
  • » Know the Repayment Terms. If you have a variable term loan, chances are that your payments can and will change over time. You should receive an amortization schedule with your loan documents that will explain the terms.
  • » More Payment Issues. As you near the end of your payment schedule, find out if you have to make a balloon payment on your home equity line of credit. A balloon payment is a large lump sum due on the final payment.
  • » Safeguards. You always have a three day period after you sign the loan in which you can cancel. If you're unsure about any portion of the deal, let your lender know in writing for a full refund of any closing costs involved.
This home equity loan information is designed to give you an idea of things to look for. Make sure you check with any potential lenders for their specific mortgage details before you borrow.

Sources
Home Equity Credit Lines
When Your Home is on the Line

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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