How to get the best home equity loan rate in today's economy
After months of interest rate hikes by the Federal Reserve, home equity loan rates remain high. But if you need a large amount of cash now, a home equity loan is a cost-effective way to get it.
"One of the primary advantages of home equity loans… lies in their generally lower interest rates compared to other loan options," says Mike Qiu, real estate agent and owner of Good As Sold Home Buyers. "Secured by the equity in one's home, these loans provide borrowers with the opportunity to tap into their property's value at a more affordable cost. This lower interest rate translates into significant savings over the loan term."
In addition, credit card interest rates change based on the federal funds rate. This can make it harder to plan for payments and strain your budget if rates go up. Home equity loan rates, however, are fixed.
"A home equity loan with a known and predictable interest rate over a long period of time can provide financial certainty and peace of mind," says Noah Damsky, CFA and principal of Marina Wealth Advisors.
And, fortunately, there are ways you can ensure that you get the best rate possible if you're taking out a home equity loan today.
Check out today's home equity loan rates online now.
How to get the best home equity loan rate in today's economy
Rates may be high, but at least you can take steps to find the best one out there.
Review your credit score
The first step toward getting a good home equity loan rate is to check your credit score. A credit score of 700 or above makes you a prime candidate for the best interest rates, but the closer you can get to that, the better your rate will be.
So, before applying for a home equity loan, request your credit report from all three major credit bureaus and check for errors and inaccuracies. If you notice any, contact the bureau to dispute them and potentially boost your credit score.
Compare multiple offers
One of the most important things you can do, after making sure you're in a strong position to meet lender requirements, is to research and compare current offers. Lenders are competing for your business, so take advantage of that.
"Make sure you shop around," says Deni Supplee, Realtor and cofounder of SparkRental. "You may be surprised at not only the difference in interest rates but also the other fees and costs involved. These can be as much as 2% to 6.5% of the loan amount."
You can compare today's top home equity offers here.
Don't borrow more than you need
Lenders typically allow you to borrow as much as 85% of your home equity, but that doesn't mean you should. The more you borrow, the higher your rate is likely to be and the more you'll pay in interest. So, carefully consider how much you actually need, and don't borrow more than that.
Consider a shorter loan term
Another factor that can affect your home equity loan rates is the term of the loan. Shorter loan terms typically come with lower rates, so if you can afford to make larger payments and pay off your loan faster, it could save you thousands of dollars in interest.
Consider a variable-rate loan
While most home equity loan rates are fixed, some loans offer variable rates. With a variable-rate loan, your rate fluctuates according to the federal funds rate. If rates go down, so will your loan's rate.
"Today's interest rates are likely higher than they will be longer term, therefore choosing a variable rate is the wiser option in many cases," Julia Colantuono, CFP, APMA, financial planner and founder of One Financial Design, previously told CBS News.
However, nothing is guaranteed, so you should be confident you can afford higher payments if rates go up.
Review your home equity loan options online now.
The bottom line
Home equity loan rates may not be as low as any of us would like, but if you're in the market for a loan now, there are ways to ensure you pay the lowest rate possible. By following the tips above, you can minimize your interest charges while accessing your home equity to pay for whatever large expense you're facing.
Bear in mind that you may also be able to refinance your home equity loan to take advantage of future rate decreases. And with rates expected to rise even further this year, now is the time to lock in today's rates if you anticipate needing a home equity loan in the near future.
