A guide to repaying your home loan

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Access to your home equity can provide additional financial flexibility, which can be helpful in managing large purchases and household expenses. But how are you going to repay your loan until your debt is settled?

What is a home equity loan?

You can find the equity in your home by taking its current value (including any capital gains or losses since your purchase) and subtracting the remaining principal of your mortgage. Some of this equity can be used as collateral or collateral when you ask to borrow money.

You may be able to borrow a lump sum with a home equity loan separate from your current mortgage. As with a personal loan, you will make regular repayments until the lump sum is repaid plus interest.

Alternatively, your home equity loan could be a line of credit that works similar to a credit card. You’ll be able to borrow up to a maximum credit limit, choose when to make your repayments and how much to repay, and only pay interest on what you’ve borrowed, rather than the maximum limit.

Another option for accessing the equity in your home is to refinance and “top off” your current mortgage by borrowing more money. This means that your home equity loan payments will be handled as part of the rest of your mortgage.

Retired Australians who own their homes may also be able to access the equity in their property as an income stream through a reverse mortgage.

How do you repay a home equity loan?

Your options for paying off a home equity loan quickly may depend on the type of loan structure you have chosen.

If you have combined your home loan with your mortgage, most of the methods for paying off a home loan faster can be applied. These could include:

Adding a mortgage to your mortgage can mean your home loan takes longer to pay off, costing you more in interest charges over time. But if you can control your principal and interest repayments and make enough additional repayments, you may be able to minimize these additional costs in the long run.

Paying off a home equity loan can be a lot like paying off a personal loan – keep making payments and you’ll eventually clear the debt. If your lender allows it, you may be able to make additional repayments to pay it off sooner, although fees may sometimes apply.

A line of credit can be repaid much like a credit card. There is no standard loan term and depending on the lender you may only need to make a small minimum repayment or just cover the interest charges. Some lenders will allow you to capitalize the interest charges on the line of credit into the loan, until you reach your maximum limit. But the sooner you can pay off what you owe, the less interest you’ll have to pay.

A reverse mortgage also does not need to be repaid in regular installments. While you’re living in your home, you probably won’t have to make any repayments, but you can if you want. However, when you sell your home, move into a retirement home, or die, the loan and its interest and fees will have to be repaid, either by you or by your estate’s executor.

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