If you want to update your home or go on a cruise around the world, you may need a loan to fund such a plan. One of the best loans you can get is a home equity loan, a loan for mortgage owners. Here, a person borrows money based off of their equity. Even if you have an interest only home equity loan, commonly called a fixed rate loan, you still want the interest to be as low as possible.
After all, if you are borrowing a large sum of money, the higher your interest, the more you end up paying the lending institution. The following are some things to think about when it comes time to look for home equity loans with competitive interest rates.
Before you even look for a home equity loan interest rate, you first need to know how much equity you have. Thus, you need to subtract the value of the home from the mortgage balance. You can subtract the sale price of the house – what you paid for it – or you can have the house appraised if you think it is worth more now. The resulting amount from this basic subtraction is the amount of equity you have to work with (i.e. the amount you can borrow against).
How Much You Need
Once you know how much equity you have to work with, you can then focus on the amount of the loan. Just because you have $100,000 to work with doesn’t mean that you need to take out all of this money. Remember that this is not free money: you do have to pay it back, and with interest. Thus, try to estimate what your proposed project, trip, or expense will really cost and borrow only this amount. This will help you secure a competitive home equity loan interest rate because the bank will know that you have specific plans for the money you borrow.
Length of the Loan
The last thing you need to think about when looking for the best possible home equity loan interest rate is the length for which you plan to have this loan. Thus, if you have a high home equity loan interest rate, you may want to go with a short period or length for this loan. However, you need to make sure that you can make the monthly payments.
The higher your loan amount and the shorter its duration, the higher you monthly payments will be. Thus, you should always start by thinking about the amount of money you can afford each month and how this corresponds to your proposed home equity loan interest rate.