Home Equity Loan Rate : Advice and Tips

By Sam Ferdi

Home Equity Loan Interest Rate

Definition.

A home equity loan is what you take out and uses your home as collateral.

One of the most important factors to consider in a home equity loan is the home equity loan rate.  Not every lender uses the same factoring system, and not all lenders have the same home equity loan rate.

When it comes to the interest rate on a home equity loan you can usually choose from two different kinds of loans:

• Fixed rate loan which is based on prime. A fixed rate home equity loan operates the same way that a fixed rate mortgage does. The fixed home equity loan rate makes payments very predictable and easy to budget
• Variable rate loan which has a rate that is variable, which means it will   fluctuate with the prime rate. If the prime rate goes down, than the rate on your home equity credit line will go down and if the prime rate goes up, the rate on your home equity credit line will go up as well. If the bank does not feel that you are a borrower worthy of a fixed rate loan then they will only offer you a variable rate loan.

Reasons to get a home equity loan

• To consolidate high interest loans or credit cards as the interest rates offered for home equity loans are lower
• Home equity loans give the best interest rates of any type of loan there is available.
• To pay for large purchases or pay large bills.

Factors that will affect your home equity loan rate.

o Loan to appraised value. The higher ratio of loan to appraised value, the higher your home equity loan rate will be.

o Repayment term. In some cases, a lender will offer a more favorable home equity loan rate if you accept a shorter repayment term.

o Improving credit ratings. The higher your credit score is, the lower interest rates you will be offered.

o Higher fees might lower interest rates

o Balance of low interest rates, flexible loan terms, lenders fees and repayment options.

o Employment history, equity in your home, income to loan ratio, and total assets.

You should begin requesting loan quotes from lenders so that you’ll be able to better compare the loans that each lender is offering. When you start comparing the home equity loan rates that different lenders offer, you should make sure that you look carefully at the interest rate on each potential loan and find the lowest home equity loan rate that you can.