Paying Your Secured Loan Off Early: The Home Equity Loan Closing Cost

Paying Your Secured Loan Off Early: The Home Equity Loan Closing Cost

Home equity loans are a great way of borrowing to consolidate debts, pay for a one-off purchase or to fund improvements to your home. They let you borrow against the equity in your home and can be spread over a long term.

However, not all home equity loans will run their full course. There are lots of reasons why you may want to repay your loan early. We examine these and the home equity loan closing cost.

What Is a Home Equity Loan?

If you are a homeowner, you may well have equity in your home. Your equity is the difference between the value of your property and any mortgages or loans secured on it. For example, if your home is worth £175,000 and you have an outstanding mortgage of £100,000, your equity is £75,000.

A home equity loan is a loan that is secured on your home and allows you to borrow some or all of this equity. It is generally separate from your main mortgage which is why this type of loan is often called a ‘second mortgage’. As with a mortgage, the lender will take a legal ‘charge’ over your home as security.

You can use a home equity loan for almost any purpose including paying for a one-off item such as a new car, paying for home improvements or consolidating other debts.

Why Might You Want to Pay Back Your Home Equity Loan Early?

You can typically take a home equity loan over a term of between 3 and 25 years. However, there may be lots of reasons why you want to repay your homeowner loan before the end of the term.

Firstly, you may decide that you want to sell your home. As a home equity loan is secured on your property, the loan has to be repaid when you complete a sale. Just as your mortgage has to be redeemed at that time, your home equity loan must also be repaid. Even if you move house and take out another loan, the secured loan on your property must be repaid when you sell.

In addition, you may find another way of repaying your home equity loan. Perhaps you manage to arrange a low-rate remortgage which incorporates the homeowner loan and you want to pay it back early. Or, you may have a savings plan, bonus from employment, pension lump sum, investment maturity or inheritance that means you have a capital sum that you can use to repay the loan in full.

The Home Equity Loan Closing Cost

Most home equity loans are regulated by the Consumer Credit Act. This means that there are limits to any penalties (or ‘early repayment charges’) that apply when you pay back a home equity loan early.

You should check the specific terms and conditions with your own lender, but you will typically pay no more than 1-2 months of interest as a charge when you repay your secured loan early. If you are able to provide 1 or 2 months written notice of your intention to repay the loan you may avoid paying any interest charges at all.

Any home equity loan closing cost that is charged will normally be added to the settlement figure that you are quoted by your lender.

To access the money tied in your home equity and get a great loan rate, book an appointment with the Mortgage Genie.

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