How to Pay Off Your Home Equity Loan

Discover the best way to start paying off home equity loan debt early and save money

If you're making regular payments on your home equity loan, you may be wondering how you can pay off your debt sooner and pay less interest over the life of the loan. Creating a home equity payment plan and sticking to it could help you pay off debt sooner. In order to determine the right approach to pay off your home equity loan, you'll need to look at your existing payment structure.

Examine the current structure of your home equity payments

There are four main factors to consider before creating a new plan to pay off yourhome equity loan.

  • First, take a look at your current household income and all account balances to better understand if you have extra funds to put towards paying off a loan.
  • Next, think about how much time it will take to pay back your loan under your currenthome equity payment plan.
  • Then, understand how your current payment is structured, including how much you pay monthly and whether those payments are amortized or interest-only.
  • Finally, factor in how much interest you're currently paying and any other debt you may have (car loans, credit cards, etc.).

Once you have a thorough understanding of your current situation, you can move forward and create a new plan, paying off your home equity loan even sooner.

Create a new home equity payment plan based on your current situation

Analyze your current income to decide if you have enough to continuously contribute to paying off your home equity loan. Consider why you want to pay off your home equity loan early and what other debts might be affected by this decision. If you determine you have a little cash left over in your budget at the end of each month,consider putting it towards the principal of your home equity loan.


Regardless of whether you're making amortized or interest-only home equity payments, you may be able to contribute more to the principal each month than is outlined in your bill. With amortized payments, paying more towards the principal will help lower your monthly home equity payments. It may even mean you can pay off the loan before it's due. In this case, make sure you're aware of any prepayment penalties in your loan agreement.


If you're making an interest-only payment each month, regularly contributing funds to the principal is even more important. This will help reduce the balloon payment at the end of your borrowing term. The balloon payment is the entirety of the principal that is owed when the interest-only period ends. When contributing additional funds to your home equity payments, be sure to specifically write a letter or confirm with your lender the additional money should go towards the principal.

Be aware of prepayment penalties on some home equity loans

Before you decide to pay off your home equity loan early, check for any prepayment penalties in your loan agreement. A prepayment penalty is put in place by the lending institution to protect their investment since they may lose income from interest payments if you pay your loan off early. However, it does not generally last for the full term of the loan. Whether you're selling the home, refinancing or just want to pay off debt early, a prepayment penalty could be an unexpected charge.


In the case of selling your home or refinancing, you might have to pay off your entire home equity loan before it is due, potentially resulting in a prepayment penalty. If you know you're looking to sell or refinance, you may be able to work with your lender to eliminate a prepayment penalty in exchange for securing a higher interest rate or paying points at closing.


You should not face prepayment penalties for contributing a small amount above the required monthly payments. Therefore, you could begin paying off your home equity loan with small advances towards the principal. After the prepayment penalty period ends you can pay it down in full and avoid any fees. However, you should carefully read your loan agreement and discuss the terms with your lender before making a decision.

Refinance your home equity loan with a trusted lender like Citizens Bank

Create a plan to pay off your home equity loan with help from Citizens Bank. We'll work closely with you to restructure your home equity payment to eliminate your debt faster or help you manage current monthly payments. Speak to a Home Loan Originator for more information on home equity loans or start the home loan application process by answering a few questions online and we'll contact you by the end of the next business day to complete your application and discuss the next steps in the process.