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One possible glitch in the system is a variable rate loan. If your home equity loan has a higher interest rate, the potential exists you could have more out of pocket expenses than you had before.
While equity loans usually offer a lower interest rate, the closing costs could be higher. And, some lenders could charge a pre-payment penalty, almost forcing you to stay in your home rather than sell if a potential buyer makes an offer.
One way around these restrictions is a home equity line of credit. Those usually don’t carry any closing costs, and there usually aren’t any pre-payment penalties.
If you have extremely good equity built up, you may want to consider cash-out refinancing. No matter what your home is worth, borrow only enough to pay off the existing mortgage and a specified amount you need to spend. For example, if your home is worth $300,000, but you only have $100,000 to pay-off. Borrow more than the existing mortgage, but less than the homes market value. You will then have lower payments, and probably less restrictions for an early pay-off.
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