Comparing Home Equity Loan Rates
Thinking about using your home’s equity to obtain affordable financing? Take the time to research and compare home equity loan rates. By understanding the rates and terms of your loan options you can make a smart choice and responsibly consolidate your debt, renovate your home or finance a lifelong goal.
What is a home equity loan rate?
A home equity loan rate is the interest rate you pay on a home equity loan. This amount is typically a fixed rate, but some loans have a variable rate based on market conditions. In many cases these rates are lower than a credit card APR or personal loans because the value of your property is used as collateral. The mortgage payments you make on this interest rate may be deducted at tax time as well depending on how you use the loan (consult your tax advisor to see if you qualify).
How is a home equity loan rate calculated?
In general, rates are calculated based on your current home value, mortgage balance, payment term, loan amount, verifiable income and credit history. A loan applicant with a high loan-to-value ratio on their home and an excellent credit score is likely to get a lower rate than an applicant with little home equity and a spotty credit history. However, individual loan providers may use different qualifications to determine home equity loan rates.
How should you compare one home equity loan to another?
The biggest factor in most home equity loan decisions is the APR. Do your homework and receive quotes from many lenders in order to find the APR. Locking in a rate at just half a percentage point lower can mean saving hundreds on a 15-year loan.
But the APR isn’t the only factor to consider in comparing loan options. For example, there’s a significant difference between a fixed and an adjustable rate loan. With a fixed rate you know what your monthly payment is every month without question, which makes it easier to responsibly manage this debt. Adjustable rates can fluctuate with the market, meaning that a year from now your rate could be much higher than the day you signed up for the loan.
Another factor is the fees and closing costs associated with the loan. Some home equity loans have application fees, and appraisal and closing costs. Others have penalties for making extra payments or paying off the loan before the full term. If you plan to hold the loan for its full duration, paying origination fees on a loan with a lower APR may make sense. If you plan to pay down the loan quickly, a lower or no fee loan may be a better option. These costs can vary from state to state and from lender to lender so be sure to follow up with a loan officer to receive an accurate quote for your particular situation before making your decision. Discover Home Loans does not charge application, origination, or appraisal fees, and no cash is required at closing.