Home Equity Loan Interest Rate: Getting The Most Advantageous Rates

If you are in the market for a loan on the equity in your home, the way in which you prepare your application can make a sizable difference in the home equity loan interest rate. When it comes time to repay the loan, you will find that a rate fluctuation of only one-tenth of one percent can result in thousands of dollars difference in the interest charges over the payback period.

Defining the Terms

A home equity loan is an amount of money borrowed against the collateral in the home that has accrued over a period of time. The original mortgage may have been paid down over a period of time to that the amount still owing is significantly less. The market value of the home may have increased. In either case, the amount of cash value of the home is greater and can be used as the security for an additional loan.

Where are the Best Loans Found?

The Internet is a good place to start looking for a home equity loan. Many companies offer home equity loans along with regular mortgages. Other lending institutions specialize in second mortgages. You can start with the original mortgage lender on your home, but the wider market on the Web often makes interest rates more palatable.

What Factors Affect the Interest Rate?

The interest rate for your second mortgage is affected by several different factors. If your credit score is high, the interest rate is likely to be somewhat lower than if you have a poor credit score. The amount of the loan you are seeking will affect the interest rate. Your rate may be higher if your loan-to-value ratio is high.

Types of Interest Rates

Interest rates on a home equity loan are usually either fixed or variable. Variable rates tend to be somewhat lower than fixed rates at the beginning, because they offer more protection to the lender. If interest rates in general increase, the rate charged on the individual loan can be adjusted upward. If interest rates in the economy are low, a fixed rate is advantageous for the borrower, since the cost of the monthly payment won’t increase over the repayment period.

Why Do Borrowers Choose a Home Equity Loan?

If you have a financial obligation that cannot be easily structured as a low interest rate loan, a home equity loan is a relatively easy way to pay for the debt. An example is large medical bills. A home equity loan almost always has lower interest rates than credit card or installment debt. The homeowner may use a home equity loan to pay for schooling or for home improvements.

How Long to Repay?

The loan term is the length of time allowed for repayment of the loan. It may be as long as 25 or 30 years in some instances, or a short as two or three years. The lender is usually willing to structure a loan so that you can afford the payments within your budget.

You should always use credit wisely, but if you need to obtain a home equity loan, be certain that you obtain a home equity loan interest rate that not only matches your ability to repay, but that is consistent with market trends and patterns. Interest rates vary widely, even within a relatively small geographic area. With the availability of loans on the Internet you can usually find even better deals on the interest rate.