We took out a home equity line of credit on the old house at closing for the new house to temporarily cover the down payment until it sold. We put the old house on the market 3 months later after taking some time to fix it up a bit(I couldn't do it while we lived in the house as we had a new baby). Luckily for us it paid off- the house sold in 1.5 weeks. It was at the start of the real estate collapse (Spring 2008).

One of the biggest problems with any scheme to pay off credit cards by using more credit is most people do NOT change their spending habits. The average consumer will take out a home equity loan to pay off outstanding balances and then only 2 or 3 years later find themselves with a home equity loan and credit cards at their max again. That doesn't solve the problem; it makes it worse. Plus there is the potential to lose you home if you fail to make payments on the home equity loan. In my humble opinion, this is not the best solution to your problem unless you and your significant other make some changes in your spending habits. Switching from one low/no interest credit card can be very damaging to your credit score. One of the components of a credit score is how long your current accounts have been open. Longer is better. New credit cards every 6 months will lower your score which means you pay higher rates or cannot qualify for those "teaser" rates. Also, be aware that the teaser rates will escalate very rapidly if you are ever late with a payment. The solution that I suggest to the personal financial management classses I teach is to stop using credit cards for any daily expenses. Save them for emergencies (a death in the family, an earthquake destroys your house, a hurricane is coming and you have to evacuate). Concentrate on paying off one card by paying extra on that card every month but continue to make the minimum payments on every card you have. When that card is paid off, apply that payment to the next card until it is paid off. If you have trouble avoiding temptation with credit cards, put them in a ziplock bag and seal it. Put that bag in another bag and fill it with water. Put both bags in the freezer and leave it there. Anytime you need a card it is available, but you have to wait to thaw it out to use it which means you have time to think about whether or not you really, really NEED what you plan to purchase with credit. While it sounds "dorky" and simplistic, it does work. Good luck

I don't think you need to do anything right now. If the house sells at a satisfactory price, then both the first mortgage and the equity loan balance will be paid off at the closing, and the balance (minus agent's commission, if your using one) will go to you. You definitely should NOT pay off the loan with your savings. That cash provides you with financial flexbility that you will lose if you pay off the loan. A recent widow should hang on to her cash reserves until life settles down and her financial situation becomes more certain. If the equity loan is a HELOC with a floating interest rate and the house doesn't sell by the end of the summer season, you probably should do a refinance and combine both loans into one so that you don't have to worry about the possibility of rising interest rates inflating the size of the HELOC payments.

I realize the original post is relatively old, but here I go: You need to review your documents and contact your lender. This varies widely from company to company and loan program to loan program. With the finance company I work for, in my state, any payment in excess of the interest owed on the date of the payment is automatically applied to the principal. You don't have to ask. You don't have to write two separate checks. You don't have to do anything but pay more than the interest that has accrued on the loan. We also don't have prepayment penalties in my state (with my company). You need to contact the lender, but definitely review your documents. A representative can tell you anything (a lot of people are just plain stupid or misinformed, and they have jobs with banks, finance companies, hospitals, and a number of other places where their ineptitude will seriously impact people like you and me), but it will never be as legally binding as the documents you signed. If you no longer have copies of your documents, you are well within your rights to request them. This question can't be adequately answered in a forum like this without access to your loan/line of credit documents.