How to get the best home equity loan for you
Best home equity loan are second mortgages, which allow you to borrow against the home’s value, if it is worth more than the mortgage balance. They typically have fixed interest rates and pay out in one lump sum.
If you are looking to improve your home’s value, consider a home equity loan. Another reason to consider a home equity loan is if you have a large expense that cannot be paid in another way. One example is education costs.
The interest rates for home equity loans are typically lower than those on personal or credit cards.
Don’t forget that home equity, which is the amount of your house less the loan amount, can be converted into cash. If you are unable to repay your first or second loan, your house will be used as collateral. You could lose your home. You should only use your home equity to fund expenses that will protect and grow your wealth. What should you consider when looking to increase your home’s equity and how to get the best home equity loan rate?
Get the best home equity loan rates
When deciding the amount of interest you will pay on a home equity loans, lenders consider two factors: your credit score as well as your existing debt. You can get the best interest rate possible on a home equity loan by doing your research, comparing offers, and improving the factors listed below.
Polish your credit score
Check your credit report and correct any errors that could lower your credit score to get the best home equity loan rate. Before applying for a home equity loan, make sure you have your credit reports in order.
You could get a lower rate and savings of up to thousands if you improve your credit score. Knowing your credit score is the first step to comparing home equity rate offers.
Calculate your LTV
A lender will lend you more money if you have more equity. However, for the best rates, you should aim for a loan to value ratio (LTV) of 80% or lower.
To find out how much your home is worth, click the button below. Plug that value into our loan to-value calculator to calculate how much equity you could take out, provided your credit is in order.
Know your debt-to-income ratio
Your property is the collateral for approval, so you might be eligible for a home equity loan even if your credit score is low. Your debt-to-income ratio, which is the sum of what you owe and what you make, can have an impact on your interest rate. You should aim to achieve a low DTI. Your DTI can be reduced by paying off your debts and avoiding new debt. NerdWallet’s DTI calculator will help you determine your ratio.
Compare rates with your bank or lender first.
Compare home equity loan rates by checking with your bank, credit union, or current lender to see if they offer home equity products. You may find it convenient to work with an existing lender if you have multiple credit cards or accounts.
Compare their rates with those offered by at least two other lenders. To determine the true cost of a loan, don’t just look at rates. Also consider fees, special promotions and the annual percentage rate (or APR).
Look into other options for home equity loans
A home equity loan is a good choice because of its one-time payment and fixed rate. However, home equity loans can provide funds with flexible draw periods. Many lenders also offer HELOCs with variable rates, which can increase in cost.
You can cash-out your mortgage to replace it with a larger mortgage that pays you cash. However, you may end up with a mortgage with a higher interest rate.
Personal loans may be available for home improvements depending on how much and how long you need it for. However, they are based more on your credit history and payment history than your equity in your home.