My mother as well as i borrowed 45000 to repair up a house… you have used 42000 of a money,,, We have been profitable upon it for about 7 months… We have paid 2000 to a inttrest as well as 100 to a principle.. When will you begin profitable off a loan instead of profitable a intrest/?
Related solution post:
- Is it a refinance or home equity loan?
- take out home equity loan to pay part of mortgage?
- Should extra payments to a home equity loan be applied to the principle or to both the principle & interest?
- How can I borrow money to fix up a rental property that is paid for through my home equity loan?
- Home equity loans what happens when my mom dies?
Home Equity loans are typically interest only – that means you are only paying the interest and not the principle. The interest only period is usually 5 to 10 years.
Your statement (if you get one) or payment coupon may have a space to specify what portion of your payment to apply to principle. If not , give the company a call and ask them how to make sure your payment is applied correctly.
Something to be cautious about… At some point after the interest only period you will have to start making principle and interest payments. If you only have a few years left then your payment could go up a lot at that point.
A couple of thoughts on how to avoid this… Find out if your loan has a "lock" feature – many Home Equity loans do. If it does you can probably lock in the interest rate for all or a portion of the balance and start making principle and interest payments on it. Your payment will be higher – but you won’t be stuck with a MUCH higher payment or a balloon payment later.
If there is no lock feature, then find a loan calculator on the web (just google loan calculator) that will let you run an amortization schedule. Plug in your balance and approximate interest rate (this will be an estimate since your rate is adjustable so estimate high) and plug in the term (how long you want to take to pay it off.) This will tell you how much to pay monthly to pay the loan off. ou will still have to pay attention to your statements in case the interest rate goes up. If it does you will have to re-run the calculation.
You need to pay more each month. That way you will put more money on the principle. The bank gets their interest first, what is left out of your payment goes on the loan balance.
You have a declining-balance loan, like any mortgage or auto loan. The early payments are allocated mostly to interest. As you continue to pay, the allocation gradually shifts more toward the principal.
Think of it this way: When you get a loan, you are "renting" the bank’s money. The "rent" you pay each month (the interest) is proportional to the outstanding balance.