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Thread: Question about paying on a Home Equity loan.

  1. #1
    Senior Member CathyA's Avatar
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    Question about paying on a Home Equity loan.

    In some areas, I'm very smart. But in others, that area of my brain is dark and quiet.

    We've needed to use our Home Equity loan for various important things lately. I want to pay it off ASAP, but money is sort of tight and unpredictable.
    I know that we have to pay interest every month on the monthly due payment. After that is paid monthly, then I can pay towards "only principal". I'm thinking doing that is a good thing, since there's no interest taken out, right?

    Isn't the interest only taken out of the monthly "due" payment? Is my thinking wrong, that it's best to pay just towards principal as often as I can? Does the bank somehow screw me over for doing that, so that it really doesn't matter in the end?
    We're allowed to pay off this type of loan as soon as we can.
    Is my thinking correct that when paying towards "principal" often, it reduces the total amount that interest is charged on and that's why it's good to do?

    Sorry I'm slow. My brain is a curious thing. And DH gives me info that isn't always correct, and I can't always understand bank people when I call them.

    Thanks!

  2. #2
    Senior Member catherine's Avatar
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    Cathy, I am by far not the most knowledgeable about these things on this board, but I have had many loans, home equity and otherwise.

    My understanding is that you pay the regular payment, which is amortized such that the proportion of interest:principal is set for that particular loan (I'm honestly not sure if HELOCs are amortized like mortgages, though). As you know, the proportion of interest you pay relative to principal with a regular mortgage is extremely high when you first start paying the loan.

    You should be able to pay, in addition to the regular payment, additional principal every time you pay the monthly payment. (A lot of payment forms--both paper and only)--have a box for that specifically--it would say "Additional Principal").

    My belief is that any time you throw money towards the principal, you will wind up paying less interest and obviously you'll pay off the loan faster. If you can do it, I would definitely do it.

    Here's a payoff calculator: https://www.bankrate.com/calculators...alculator.aspx

    There are many online. If this one isn't user friendly just google to find another.
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    I tried not to get hung up in the details. Basically, the lender will charge interest on the unpaid balance due. So any additional amounts you pay, over the required payment, will reduce the overall interest paid on the whole loan. Be sure and identify where they should apply any additional payment so they dont mistakenly apply to your next month's payment. Stranger things have happened.

    We always looked at our overall debt and the interest rate being charged on any balance due. Then we decided where any additional funds would have the most impact.

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    Paying the principle should be like a mortgage. You remove payments from the end of the loan and pay less overall interest. You interest doesn't go down your next payment as the rate is the same.

  5. #5
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    We paid off our hone equity loan recently.

    here is how it works - each payment includes the interest accrued since the last payment, plus a little bit of principal. If I make a second payment on principal at the same time, it reduces the loan by the full payment - interest continues to accrue on the unpaid balance, and the next regular payment includes slightly more principal than it would have. If I wait two days, my second payment would be applied toward two days of interest, and the rest would reduce the principal, but slightly less interest would acrue before the next regular payment.

    basically, just keep making extra payments. It reduces the total amount you pay.

  6. #6
    Senior Member CathyA's Avatar
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    Thanks everyone. Now I get it.

  7. #7
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    Quote Originally Posted by CathyA View Post
    Thanks everyone. Now I get it.
    Do clarify with your lending institution. Some may apply to future interest and you are required to state "against principle". I concur this doesn't seem right but it's allowed.

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