Why pay it off early
Interest on a home equity loan is charged on the balance you still owe. Each extra dollar you pay toward principal lowers that balance, so less interest builds from then on.
Paying it off also gives you breathing room. You'll have one less monthly payment, and the equity you borrowed against is fully yours again.
Ways to pay it down faster
- Add a set amount to each monthly payment
- Make a lump-sum payment from a bonus, tax refund or other windfall
- Round your payment up to the next even hundred
- Make one extra payment a year
- Refinance into a shorter term, if it lowers your total cost
Check your note first
Your loan documents explain whether there's any prepayment penalty and how extra payments are handled. Many home equity loans can be paid early without a penalty, but read your own terms or ask your servicer to be sure.
Make sure extra money hits principal
Some servicers treat an extra payment as an early payment of next month's bill. That doesn't cut your interest the same way. When you pay extra, mark it as a principal payment, or choose that option online. Then check your next statement to confirm it was applied as you asked.
Is it the best use of your money?
Paying off a fixed-rate loan early is a safe, sure return. Still, it can make sense to cover other goals first.
- Build an emergency fund so you don't need to borrow again
- Pay off higher-rate debts, such as credit cards, first
- Keep up with retirement savings, especially if you get an employer match
- Think about whether you'll need the cash for a near-term expense
Paying it off in full
When you're ready to close out the loan, ask your servicer for a payoff quote. It shows the exact amount due through a set date, including interest up to that day.
After the final payment, the lender releases its lien. The release is usually recorded with your county or city. Keep a copy of the paid-in-full letter and the release for your records.