Payment Schedule

• You should make at least the minimum payment on your home equity mortgage every month. If you do not, your lender could initiate foreclosure. However, if you have a home equity line of credit (HELOC), your minimum payments could be as little as interest only, meaning that you are not reducing the amount you owe at all. In this case, determine when and how you plan to pay back the loan. If there is a balloon payment due at the end of the repayment term, you should be paying it down now unless you have a plan for how to make the balloon payment.
  
  

Interest Rate Considerations

• Your strategy for paying down a home equity mortgage depends on what your interest rate on that mortgage is. In particular, if you have a fixed interest rate, it is not risky to take the full repayment term to pay off the mortgage because your interest rate stays the same. However, if you have a variable interest rate that currently is relatively low, paying down your mortgage will save you from having to make high payments later if the interest rate increases.
  
  

Investment Tips

• If you have investments that consistently earn a rate of return that is higher than the interest rate you pay on your home equity mortgage, you might be better off putting your extra money in the investments. This is because you can earn interest until your home equity mortgage payments are due and subsequently take your money out of the investments and use it to pay off the home equity mortgage. You keep the interest you have earned in the investments. Plus, most people qualify for a tax deduction on interest paid on home equity mortgages, which further increases the return.
  
  

Other Debts

• If you have other debts that charge a higher interest rate than your home equity mortgage, you should probably tackle those first. For example, if your home equity mortgage charges 7 percent interest and you can deduct it on your taxes, but your credit card charges 15 percent interest, which is not tax-deductible, paying down the credit card first will save you money.