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Repayment
Of Home Equity Loans |
The main thing
to be considered before entering into the home equity
loans plan is how you will pay back the money you
borrow. Some plans set up minimum payments that cover
a portion of the principal plus accrued
interest. Other plans may allow payment of interest
alone during the life of the plan, which means that
you pay nothing toward the principal. If you borrow x
amount, you will repay that amount when the plan ends.
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The normal repayment term for a home equity loan is 5
to 15 years.
It depends on:
- Amount borrowed
- Needs of the borrower
- Lender
Many lenders offer a choice of payment options
& it can vary between paying some, a little, or none of
the principal amount of the loan but when the plan ends you may have to pay the entire balance owed, all at once.
this is called balloon payment & if you are unable to make the balloon payment, you could lose your home.
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If your plan has a variable interest rate, your
monthly payments may change,
even if you do not borrow more money from your account.. Similarly, if you are
making payments that cover interest plus some portion
of the principal, your monthly payments may increase,
unless your agreement calls for keeping payments the
same throughout the plan period.
If you sell your home, you will probably be required to pay off your home equity line in full immediately. If you are likely to sell your home in the near future, consider whether it makes sense to pay the up-front costs of setting up a line of credit. Also keep in mind that renting your home may be prohibited under the terms of your agreement.
Repayment is a very important criteria to consider
before going for a loan.
Here are some points regarding
repayment of a loan, you need to consider:
- Find out how often and how much your payments can
change, If your credit line has variable interest
rate.
- Find out whether you are paying back both principal and interest, or interest only.
- If you are paying back some principal,
find out whether your monthly payments will cover the full amount borrowed or whether you will owe an additional payment of principal at the end of the
loan.
- Find out
whether there are some penalties for late payments.
- Find out under what conditions the lender can consider you in default
and demand immediate full payment.
- Find out is there
any balloon payment at the end of your loan term.
- Find out the conditions for renewal of the plan or for refinancing the unpaid balance.
- Ask the lender to agree ahead of time and in writing to refinance any end-of-loan balance or extend your repayment time, if necessary.
To summarize we can say
that there are several repayment options, which one is
best for you, depends on your financial situation and whether your interest rate is variable or fixed.
They are:
- First option is for the mortgager to make payments toward both the principal and the interest accrued.
- Second option is paying only the interest in the beginning, and then gradually repaying the principal.
- Third option is similar to the first option, except that more money is paid each period, resulting in the principal being paid off quicker (although sometimes lenders charge pre-payment penalties).
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