Question:

How will I pay off home equity loan?

Answer:

Before you tap your equity, you have to think how you will pay off the home equity loan. There are payment plans which allow minimum payments, covering portion of the due interest but the interest that remains unpaid will be added to the Home Equity Loan (HEL) amount.

Or, there are payment options with which you only pay due interest. When the HEL payment plan ends, you will still owe what initially was borrowed.

For example, if you borrow $12,000 for 5 years you may end up owing $12,000 and more if you never repay any principal during these 5 years of the loan.

Home equity loans use your house as collateral.

Remember that with first and second mortgages, home equity loans and lines of credit your house is used as collateral for the loan. That is, when the payment plan is over you will need to either make a balloon payment, refinance or somehow satisfy the debt or your house may be taken by the bank.

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