How to Pay Down Principal on a Home Equity Line of Credit

A home equity line of credit is a loan taken against the value of your home. It depends on the equity you have built in your home. For example, if your home is worth $200,000 and you owe $100,000, your home equity line of credit is up to $100,000--although most lenders will only give you a percentage of the $100,000.

Difficulty: Moderate

Instructions

1. Use your home equity line of credit only when necessary. You probably have only set this up because you want to have major repairs or upgrading done on your home, but be sure to use it wisely.

2. Study your options for paying the home equity line of credit. Your monthly payments can include interest and principal or just interest. However, even if your monthly payments include principal it may not be enough to pay off the loan when the life of the loan is over.

3. Pay extra each month in order to pay down the principal. You can add an amount to your monthly payment or you can make an extra payment each month to pay the principal faster. Either way make sure your lender knows that the extra is to go toward the principal or they may just give you credit towards your next payment.

4. Send an extra amount at the end of the year toward the principal of your home equity line of credit. This not only helps to pay the principal faster, but may help you on your taxes as well.

Tips & Warnings

• Your monthly payments may vary with a home equity loan due to interest usually being variable instead of fixed.
• Always be sure that your lender is aware that the extra money you are paying is toward the principal and not an extra monthly payment.
• Some home equity lines of credit have a penalty attached if you pay the loan off early--check on this before you take the home equity line of credit.