Home Equity Loan To Pay Off Mortgage
A home equity loan is often used to get into more debt: go on vacation, buy luxuries, etc. It does not have to be that way. You can use it to pay off your mortgage faster and get out of debt.
This is what we did. When our balance on our mortgage reached $51,000 our credit union was offering home equity loans at a low interest rate with no closing costs. You did have to keep the line of credit open for two years or face a $250 fee, which was fine. We realized that we would do well by refinancing our mortgage to that home equity loan.
Having a home equity loan gives you the freedom to be more aggressive in your payments on the principal. If you experience a financial setback and happen to need some of the money you have already put into the loan you can take it back out with no penalties, only benefits. You will have saved yourself the interest on the extra money for the period between the payment and withdrawl. You cannot do that with a conventional mortgage.
Another advantage of our home equity loan was that the mandatory monthly payment was a fraction of the principal. As our balance went down, our monthly payments did too. We could now afford to have a bad month, and we could still make the payment without much stress on our budget.
Using this freedom, we paid every extra penny we had towards our loan. After three years, we had it paid off. What a great relief to be out of debt!