If you are considering a home equity loan, shopping for the best deal could save you a lot of money. Shopping for multiple quotes from a variety of home equity lenders will help you find the best loan you can qualify for. Many homeowners make the mistake of not comparison shopping before taking out a loan; if you neglect to do your homework it is easy to overpay on everything from your interest rate to your closing costs. Here are the basics of home equity loans to help you find the best loan for your financial situation.
Home Equity Loan Basics
When you borrow against the equity, the loan is secured by your home just like your primary mortgage. Equity is the difference between what you owe on your current mortgage and the appraised value of your home. If for example, your home is valued at $200,000 and you owe $50,000, then your equity is $150,000.
Lenders will not typically allow you to borrow the full amount of your equity. You can typically only borrow between 75-80% of your equity from traditional mortgage lenders. The interest rate and terms you receive on your home equity loan depend largely on your credit, loan-to-value ratio, and how much you are borrowing.
Shopping for the Best Home Equity Loan
Collecting home equity loan quotes is not difficult. You can use the internet to collect quotes from a variety of lenders and easily compare interest rates, fees, and closing costs. When you shop for a home equity loan try and collect your quotes at the same time. The reason for this is that interest rates fluctuate on an almost daily basis; if you let a quote sit for too long that interest rate may no longer be valid.
You can learn more about your home equity loan options, including common mistakes to avoid by registering for our free mortgage guidebook: “Mortgage Loans: What You Need to Know.”