Securing the Best Home Equity Loan Rates

It is not uncommon for people to face expenses that are well beyond the reserve money that they have in their savings or checking account. For this reason, many people have to look for outside sources of funding to be able to handle these issues.housedollars_01

Whether it’s repairs or renovations that need to be made to a home, paying for education or paying off medical bills, there are a wide range of different financial solutions for these problems. However, it’s important that you do what is right by yourself and your family to ensure that you investigate every legal avenue of getting the money you need.

While there are many conventional loans a person can take out to cover these expenses, a very popular way of getting the money needed is for homeowners to tap into the equity of their home. In fact, when it comes to using the equity you have in your home, it is a much less complicated process and, depending on the equity, this type of loan is typically easier for a homeowner to be approved for than it would be for more traditional lending methods.

What is a home equity loan?

Equity, in its most basic form is the value of your home minus your existing mortgage balance. It is basically taking out the interest and the amount of the mortgage loan that exists and it is what you have paid towards the principle of the loan. This equity is what you will be borrowing against when you get an equity loan.

Perhaps you are a long-standing homeowner and you paid a great deal towards the principal of your home’s value. This will mean that you will likely have a great deal of equity from which to borrow against. However, you may question your ability to get an equity loan because of a bumpy credit report.

What if a homeowner has bad credit?

Fortunately, bad credit isn’t necessarily a problem when it comes to getting this type of loan or securing a loan with low home equity loan rates. Your rates are going to be determined by the amount of equity you have in your home. That’s not to say that your credit report won’t carry some weight when it comes to your loan. However, more equity will give you a much better chance at getting a better rate for your loan when you have bad credit.

In some cases, even if you have a great deal of equity in your home, your credit score may disqualify you for optimal rates for an equity loan. In this case, you may still be able to qualify for a loan but your loan will move into the bad credit home equity loan. In this case, your loan will have higher interest rates and will be more expensive than what if your credit score was better.

Are there other loan options for equity in a home?

There is another option when it comes to tapping into your home’s equity for repairs, improvements, education, medical bills, vacations or investments. You can opt for a home equity line of credit or a HELOC. These are slightly different than a loan as you are qualified for a maximum amount of credit. However, this maximum amount of credit isn’t dispensed to you as it is in a traditional equity loan.

In these instances, you will draw from this money as you would with a credit card account. In most cases, your lender will actually issue you a credit card. You can use this money to pay whatever obligations you have.

The benefit to this option is that you only pay interest rates on the money that you use. For example, if your maximum line of credit is $30,000 but you only spend $15,000, you will only pay interest on the $15,000 that you spent and $15,000 (plus the interest rate) is all that you have to repay.

What are typical home equity loan rates?

For a line of credit, a typical interest rate is around 4.5%. For a loan, depending on your credit score, rates can be as low as 2.5% and as high as 7%.

With loan or lines of credit fees, this will greatly depend upon the lender. Some lenders charge a flat fee others charge a quarter percent on increments of $5,000-$10,000. Some charge one to two points for the entirety of the loan. Since each lender is different, it is best to check with the lender you’re considering as to what fees or penalties they will charge for a line of credit or a loan.

Regardless of which equity loan you take, you need to keep in mind what you can and what you can’t afford. It’s very easy to get in over your head when it comes to any kind of loan. What’s important to remember is that this money will require repayment.

The equity in your home is simply the collateral that the lender uses to approve you for certain loan. Since you are adding this on to your current mortgage, much like a second mortgage, you need to ensure that you don’t take out a loan that is too large for you to repay.

An equity loan is an excellent source for covering those large expenses that may occur in life. By understanding your credit score, knowing the various home equity loan rates for these loans and understanding all your options, you will be in a better position to choose the right loan for your needs.

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