Home Equity Loan Rate

Home Equity Loan Rate Basics

The loan rate that you pay is determined by a variety of factors:

• The lender you choose
• The amount of the home equity loan
• Your credit history
• Average interest rates
• The term length of your home equity loan

The Federal Reserve establishes interest rates, but every home equity loan lender is free to charge as much or as little interest as they want (providing they don’t break any lender laws). In general, their decision is based on risk assessment.

To assess the risk involved with loaning you money and to determine what kind of home equity loan rate you qualify for, lenders will look at your credit history and the amount that you want to borrow. They also consider the length of the loan term. Often, longer loan terms have higher interest rates because there is a greater possibility of default.

Qualifying for a Low Home Equity Loan Rate

Qualifying for a home equity loan is relatively simple. In fact, a home equity loan is generally much easier to obtain than a first mortgage. There is one simple reason behind this—you will be borrowing from your home’s equity and using your house as collateral. Therefore, you will be the one accepting almost all of the risk. If you default on the loan, the lender will seize your house and sell it to recoup the money that was borrowed.

Even though home equity loans are easy to get, qualifying for a low rate isn’t quite as simple. You will need to have good credit. If your credit report does not show a positive credit history and isn’t free of major blemishes, you will end up paying a much higher rate. As mentioned above, this will significantly impact your monthly home equity loan payments. It will also increase the overall amount of money that you are required to pay back. The less your interest is, the better off you will be.

If your credit isn’t quite up to snuff, don’t fret. There are many different methods of credit repair that you can employ to remedy the situation. To start, pull your credit report to see exactly what the problem is. Then:

• Dispute any errors or false charges. Mistakes can happen. If you don’t catch them, nobody else will.
• Look for signs of identity theft. Your bad credit may not be your fault.
• Contact creditors to see if old debts can be reduced, settled, or dismissed completely.
• Pay off old debts that can’t be settled or removed—health care bills, utility bills, student loans, etc.
• Start paying off your high interest credit card debt. If possible, get the balances below 30 percent of your credit limit.
• Make your loan installment payments on time. Late payments wreck havoc on your credit score and will make it much harder to qualify for a reasonable rate.
• If you don’t have one already, get a credit card and use it occasionally. As long as you pay it off immediately (before the interest is due) you can establish an excellent credit history.

Shopping for a Home Equity Loan

The key to getting a low home equity loan rate is shopping around. By comparing lenders and the loan terms and conditions that are being offered, you can get the best deal possible. Try to get quotes from at least three different lenders. This will give you a chance to evaluate your options and make a decision that’s right for you.