The following tips will help you get the best home equity loan that you can qualify for.
- Pay Off Any Debts That You Can Before Your Application. This Will Raise Your FICO Score. The Higher Your Score, The Lower The Rate You’ll Be Eligible For.
- Apply For An Appropriately Sized Loan. Don’t Ask For More Money Than You Need, Even If You Qualify For More. If You Do, You’ll Be Paying More Interest For The Home Equity Loan, Which Means More Money Out Of Your Pocket. With A HELOC, You May Be Tempted To Draw More Money Than You Really Need, Just Because It’s There.
- Don’t Say Yes To The First Offer. Even If You Think The Rate And Terms Are Amazing, It Pays To Shop Around With Other Lenders. You Can Also Use Your First Offer As Leverage To See If Another Bank Will Meet It Or, Even Better, Beat It.
- Know What You’re Getting Into. Take The Time To Upgrade Your Mortgage Vocabulary, So You Can Intelligently Make Comparisons Between Lenders. You’ll Be A Lot Better Off If You Understand Terms Like Spread, LIBOR, Amortization, Floor, And Ceiling When You Talk To Prospective Banks.
- Get It In Writing. Lenders May Quote You Rates Over The Phone, But Unless It’s Written Down On A Paper That You Can Hold In Your Hand, It’s No Guarantee. Once You Submit Your Application, The Lender Will Send You A Quote That Contains All The Terms Of Your Loan. Read It Carefully, To Confirm That It’s Exactly What You Applied For.
- Know The Different Between A HEL And A HELOC. This May Sound Ridiculously Simple. The Mortgage Crisis, However, Was Fueled With People Who Didn’t Understand How An Adjustable-Rate Mortgage Works. If You Think You’re Applying For A Fixed-Rate Home Equity Loan, But Actually Wind Up With An Adjustable-Rate HELOC, You May Not Be Able To Meet The Monthly Payments When The Rate Changes.
- Avoid Prepayment Penalties. If You Are Lucky Enough To Get Some Extra Cash, Contribute It To Your Principal Balance To Pay Down Your Loan. Even One Prepayment Can Save You Money Over The Long-Term. Make Sure That Your Loan Has No Prepayment Penalties, So You Won’t Be Hit With Extra Charges If You Pay It Off Early.
- Know Your Terms. This Is Especially Significant With A HELOC, Since Terms Will Greatly Vary From Lender To Lender. Make Sure You Know Which Index Your Loan Is Tied To, And What The Margin Is. Check To See How Frequently The Loan Will Adjust. Most Importantly, Know Your “Life Cap” – The Maximum Potential Increase That Your Interest Rate Can Adjust To During The Life Of The Loan.