Home Equity Loan Comparison

When looking for a home equity loan it is a necessity to shop around to make comparisons. What one company offers you in way of Annual Percentage Rate (APR) and the amount you have to pay each month can vary greatly when you ask another company. You want the banks to compete for your business to get the best rate and the lowest monthly payment. You may also want to compare home equity loan options like adjustable rate mortgages (ARM), fixed rate mortgages, home equity lines of credit (HELOC) as well as the possibility of getting an FHA (Federal Housing Administration) loan or a VA (Veterans Affairs) loan.

APR and Lenders
When you shop around for home equity loans you should at least go to three lenders and get quotes. By doing this, you let the banks know that they need to compete for your business and you can get a lower interest rate. The Federal Reserve is usually responsible for setting interest rates but it is up to the individual bank to enact them. As an example, the Fed has recommended an annual percentage rate of 4.5% for a 30 year home equity loan. Bank of America has decided on 4.59% and Quicken Loans has gone with 4.45%. This is a hypothetical situation, but it shows how rates vary just a little bit in relation to the Fed’s recommendation. The difference may not seem like much, but a tenth of a percent on a 30 year mortgage can add on thousands of dollars to the overall total the borrower has to pay back.

Home Equity Line of Credit
A HELOC loan may be a better way for some homeowners to go when compared to a traditional home equity loan. It acts like a revolving credit card; you buy something and then the amount you pay back can be borrowed again. In some cases a HELOC may have a lower interest rate than a home equity loan. If you decide on a HELOC, it also pays to shop around to get a good APR.

FHA and VA Home Equity Loans
If you qualify for an FHA or VA loan your interest rates and monthly payments will more than likely be lower than a conventional mortgage or home equity loan. When shopping for loans, you should ask about the banks policy concerning these types of loans and whether or not you qualify.

Fixed Rate vs. Adjustable Rate Mortgages
On some occasions, the differences between these two types of loans when compared side by side result in the same overall cost to the borrower. The difference is in the necessity of the homeowner. If you are looking to finance your home for a few years while you are going to college and then you plan to move after you graduate an ARM may be better because it has a lower interest rate. The worry is that if the housing market improves and interest rates go up you may be stuck paying more than if you had financed with a fixed rate home equity loan.

Home Equity Loan Comparison of Options
What one lender offers you in ways of options, another may not. Some of these options include settlement costs, escrow, application fees, monthly payments, etc. Some lenders may be willing to roll the closing costs into the loan or maybe they will include appraisal fees. You may also find that settlement costs themselves vary from lender to lender. One may charge you a $200 loan application fee and another may charge you $300. Keep that in mind when you compare home equity loan options.