How To Save When You’ve Hit Your Home Equity Loan’s 10-Year Amortization Period

Learning from the Past
Moments before the Recession, borrowers hit the 10-year mark on their Home Equity loans, beginning the repayment (amortization) periods of their HE loans in mass. When those borrowers turned to their bank for refinancing and extend their interest-only payment term, their applications were denied.

That’s where LendingTree comes in. LendingTree’s services were designed to remedy the lack of choice in the mortgage market, removing the banks’ advantage by creating an online marketplace where users are given a surplus of options so they can find the perfect offer. Simply, when you’re looking to Refinance your Home Equity loan, LendingTree matches you to multiple lenders in minutes.

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What Happens At Your Home Equity Loan’s 10-Year Mark? (& How You Can Save!)

1. The biggest change is that you must start paying your principal:

  • Once your draw period ends, the principal can elevate your monthly payment to twice as much as it was previously. But don’t worry, Refinancing your Home Equity Loan eliminates that financial fiasco by delaying the amortization period another 10-years (i.e. you keep paying interest only). Per the below chart, that’s 10 more years of paying half of what you would otherwise.
  • Difference In Monthly HELOC Payments
Loan Amount interest only draw period Interest plus principal during repayment period
$10,000: $25  $55
$30,000: $75  $166
$100,000: $250  $555

 

  • How You Can Save: Using the $100,000 amount owed as an example, refinancing your home equity loan saves you $36,000 in the next 10-years of your monthly payments.

2. In 2018, Home Equity Loans can no longer be written off as tax deductible:

  • With the exception of loans used for home improvement, the interest portion of your monthly payments is no longer tax deductible. How much will this cost you? Again, using the $100k example, that’s about $30k in interest that you can’t deduct from your taxes over the next 10 years.
  • How You Can Save: You can still write off the interest on your loan as tax deductible by Refinancing your home equity loan into a Cash-Out Refinance loan. Cash-Out Refinance falls within the definition of a first mortgage, and so interest remains tax-deductible up to $750,000.
  • Other Options: If your Credit Score is holding you back from getting a Home Equity Refinance, Cash-Out Refinance is additionally a strategic option borrowers with mild credit can use to get their hands on much needed cash as it often takes a higher Credit Score to refinance your home equity loan. Cash-Out works by allowing you to collect cash based on the new value of your home minus the current value of your mortgage. The rest is yours.

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