For the last 10 years or more, you’ve enjoyed living in your home. You may especially be proud of the equity you’ve gained on the home over time. However, because the house is becoming slightly dated, you’d like to complete some remodeling. We’re not saying we’d judge your paneling, but we can’t promise we won’t either. If this scenario sounds familiar, you might be interested in a home equity loan. To secure the lowest home equity loan rates, consider the following 3 important steps.
Determine the Amount of Money You Need
Before you can take out a home equity loan, you must determine the amount of money that you’ll need to complete your project. If you will be using the borrowed money to make substantial improvements to your home, you may wish to talk to a contractor first to get an estimated cost for the job. Talking with a financial advisor is also a good idea because they can help you sort out the interest and tax complications of a home equity loan. While you’re at it, you could contact a realtor or interior designer to see if your project will improve your home equity enough to make it worth the cost.
Decide On the Type of Loan
When borrowing money on against the equity of your home, you have a couple of different options. You can either decide to take out a home equity loan or a home equity line of credit, also called an HELOC. With a home equity loan, you will receive a lump sum payment that you will pay back over a specified period of time. During the duration of the loan period, you will pay a fixed amount of interest regularly.
If you only want to receive funds as you accrue the bills, an HELOC might be the best choice for you. Unlike a home equity loan, an HELOC doesn’t pay the borrower one lump sum of money. Instead, you can request money as you need it. Unfortunately, this type of loan usually comes with a variable interest rate. This practice means that your interest rate will probably change (usually increase) over time. You might enjoy a low-interest rate for a few years only to struggle to pay a high-interest rate towards the end of the loan period.
Do Some Comparison Shopping
Once you know how much money you need to borrow and determine what type of loan you desire, you need to comparison shop. A great place to start is your local financial institutions including banks and credit unions. You can also search online databases for rate comparisons.
Securing the best rate for your loan is crucial. Comparison shopping for a home equity loan is completely different than searching all of your local grocery stores for the best deal on steaks. Even a fraction of a percentage point can mean a difference of thousands of dollars in interest payments over the life of your loan.
Securing the best home equity loan for you might seem overwhelming at first. Fortunately, you can accomplish this important task by following a few crucial steps. Determine the amount of money you need to borrow by talking to professionals such as contractors and financial advisors. Decide what type of loan will benefit you the most. And, don’t neglect to shop for the best available rate. Your kids’ college funds might depend on it.
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