4 Steps to Getting the Lowest Home Equity Rates

Getting the lowest rates for your home equity loan is vital if you want to keep the cost of your loan as low as possible.

After all, lower interest rates mean lower monthly payments.

As with any other type of loan, interest rates for home equity loans vary, based on the lender, the borrower, the location, the term... even the economy.

Here are some steps to take in order to get the lowest interest rates on a home equity loan:

1. Maintain a Good Credit Score

A borrower's 3-digit credit score is the primary tool lenders use to determine the interest rate on that borrower's loan. This makes it very important to maintain a good credit history.

Borrowers with the highest credit scores (given for the best credit records) are usually offered the best (lowest) home equity loan interest rates, while borrowers who have experienced credit problems in the past can expect to be charged slightly higher rates for their home equity loan.

Of course, lenders do provide loans to borrowers with a bad credit history, so good credit is not mandatory to obtain a home equity loan. But to keep the cost of the loan as low as possible, keep your credit score as high as possible.

If your credit score is poor, do whatever you can to improve that score: Keep your debt low; don't max out your credit cards; make every payment on time; never skip a payment.

2. Borrow From a Lender Who Knows You

Often the easiest ane least-expensive way to obtain a home equity loan is to borrow from the lender who provided your original mortgage. This is particularly true if you have a good payment history. So be sure to check with that lender first, when comparing your home equity loan options. It may be a good idea to let that lender know you will be checking with other lenders, to get as competitive an offer as possible. They'll do whatever they can to avoid losing your business (within reason).

When looking for a home equity loan, you can choose any lender. In some cases, your existing lender may offer an acceptable low rate. Before beginning your search, contact the lender and request a no-obligation quote. Mortgage lenders hate to lose business. If you are a customer with a good payment history, the lender will likely bend over backwards to keep your business.

3. Compare Several Lenders

Even if you have a good relationship with your primary mortgage provider, you still need to shop around. Often the best, lowest rate will be offered by a different lender. So get as many "no obligation quotes" as you can before making your decision. Be sure to ask about fees as well as interest rates, monthly payments and other terms. 

4. Pick the Best Offer

Once you obtain and compare several quotes for your home equity loan, you'll see which lender offers the best deal. Verify that there are no hidden fees, that the lender is reputable, and then submit your application.

The money you save by doing some homework can add up over the term of your loan!