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    rhouse30's Avatar
    rhouse30 Posts: 306, Reputation: 1
    Full Member
     
    #1

    Mar 27, 2015, 02:19 PM
    Equity Loans
    I am trying to understand equity loans better. I would like to give a scenario:

    A person get a equity loan at 4.24% for $15,000.00. He uses the whole $15,000.00. He is paying interest only at $83.00 monthly and $65.00 yearly fee. He has to start paying in 10 years on the principle.

    At the 10 year period, paying interest at $83.00 monthly, he would have paid $9,960.00.

    My question is when he started paying on the principle and interest after 10 years, would the $9,960.00 that was already paid in interest in anyway lessen the amount of the $15,000.00 loan?

    If you could explain that for me, it would be greatly appreciated.

    Also, any tips will be appreciated.

    Thanks in advance.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
     
    #2

    Mar 27, 2015, 02:41 PM
    There are two types of home equity loans; A regular loan with a defined payment and term or a HELOC (Home Equity Line Od Credit), which is a revolving line of credit more like a charge card. What you are describing sound more like a HELOC. In that case, if you pay interest only, then you are not reducing the principal at all. So, at the end of the term when you must start repaying the loan, the principal is the same as the original line.
    Fr_Chuck's Avatar
    Fr_Chuck Posts: 81,302, Reputation: 7692
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    #3

    Mar 27, 2015, 06:27 PM
    If he is paying interest only, then the full amount will still be due. Interest payment does not take anything away from the principle.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
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    #4

    Oct 24, 2015, 06:01 AM
    David, I don't understand you response. Also note this is a 7 month old thread.

    An equity loan is a second mortgage when the value of a home is much greater than the balance of the first mortgage. I don't know what government you refer to but the US government isn't in the business of making mortgage or equity loans.
    joypulv's Avatar
    joypulv Posts: 21,593, Reputation: 2941
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    #5

    Oct 24, 2015, 10:52 AM
    None one told OP back then that he was getting ripped off anyway - 4.24% of 15,000 is 53/mo.

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