A home equity loan is a line of credit based on your home's value. It is often a much more affordable option for borrowers because the interest rates are typically much lower than with credit cards. Another positive attribute of the home equity loan is that the interest you pay each year, or a portion of it, is tax deductible unlike interest paid on credit card balances. However, the home equity loan can be a risky endeavor because your home is used as the collateral to secure the equity loan, meaning you could lose your home if you default on the loan.
Calculate how many payments remain on your loan. There are some very helpful calculators online to help you such as the one at mortgage.com (see Resources below). Now figure out how much you will need to increase your payments in order to pay off the loan in the amount of time you desire. Remember to specify the additional payment be applied to the principal of the loan when you pay extra on your payments.
Determine if you will have to pay a penalty or balloon payment for early payoff. Check with your lender or loan documents to find out. Many lenders will penalize early payoff, so be prepared.
Request a payoff in writing. Many lenders require you to submit a written request to pay off your loan before they will accept the payment.
Use the profit from the sale of another property to pay off the equity loan quickly. If you own a timeshare or condo, you may consider selling it in order to pay off your home equity loan.
Refinance your home. If the appraised value is high enough, you may be able to refinance your home in order to pay off the loan and return to one consolidated payment.
Shop around before choosing a lender for your home equity loan to ensure you get the best rates. Be sure you understand what you are agreeing to before you sign the paperwork.
You must pay off your home equity loan before you will be able to sell your home.