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In the current high-rate environment, some of the most popular borrowing options are now simply too expensive for many Americans. For example, the most recent Federal Reserve data reveals credit card rates are averaging 22.80%, with some new card offers approaching 30%. Similarly, 24-month personal loan rates average 12.32% annually, close to their highest levels since the early 2000’s.
Fortunately, home equity borrowing is still one of the more affordable ways to access cash right now. This type of borrowing lets you tap into a portion of your home’s equity, whether you need to pay off debt, tackle home renovations or cover just about anything else.
Home equity loans and lines of credit (HELOCs) are the most popular ways to tap into home equity, and they’re currently more affordable than many other borrowing options. Still, you don’t want to pay more than necessary to borrow money. That’s why it’s important to take steps to secure the best possible rate.
Compare today’s home equity borrowing rates to find the best options now.
4 expert tips for getting the lowest home equity loan rate this March
Here are a few tips to help you do just that.
Shop and compare loan offers
Lenders set their own rates, which means your first offer might not be the best one. It makes sense, then, to shop around and compare offers from multiple lenders to make sure you’re getting the best rate.
“Rates vary from one lender to another based on the risk tolerance they want to incur as well as the profitability they want to earn,” says Jeremy Schachter, branch manager at Fairway Independent Mortgage Corporation. “It is recommended to compare rates between lenders to see who has the most competitive offering. Some lenders may offer a no closing cost option but have higher rates than paying for the costs to the lender to get a lower rate.”
Find out how affordable home equity borrowing could be today.
Improve your credit score
Your creditworthiness is one of the primary factors lenders consider when calculating your interest rate. Your credit score provides lenders with a quick snapshot of your credit health and helps them gauge your reliability as a borrower who will pay back the loan as agreed.
Borrowers with higher credit scores generally qualify for lower interest rates than those with lower credit scores. So if your credit score is below average, it may be worth improving it before applying for a home equity loan or HELOC. Paying down existing debt, making on-time payments consistently and disputing mistakes on your credit report are just a few effective ways to fix your credit fast.
A higher credit score offers another as well, explains Mason Whitehead, branch manager at Churchill Mortgage.
“Many programs will limit the loan-to-value (max loan amount you can get) for lower credit scores. So a person with a 740+ credit score may be able to go up to 80% loan-to-value, whereas a borrower with a credit score of 650 may only be able to access 70% of the home’s value in an equity loan,” says Whitehead.
Shop when interest rates at the right time
Since interest rates consistently fluctuate, when you apply for a home equity loan or HELOC may be as important as the rate itself. For example, if interest rates are rising, you may want to lock in a rate sooner to save money. Conversely, when rates are falling, waiting a bit could result in a lower rate.
“With a HELOC, the rates are variable and tied to the prime rate,” says Schachter. “So when the prime rate is reduced, your HELOC rate will go down. On a home equity loan, the rate is fixed. If you are hearing in the news the Feds may lower the rates, I would recommend holding off on locking in the rate until the reduction is announced. Some lenders require you to lock in the rate at application. But it varies from one lender to another.”
Don’t overborrow
Remember, the more money you apply to borrow, the higher the lender’s risk and, consequently, the higher the rate you receive. Borrowing only what you need can not only help you lock in a lower rate but also keep your loan payments more manageable. This is especially important since home equity loans and HELOCs are secured by your home, which means missed payments could lead to foreclosure.
Thomas Scanlon, a financial advisor with Raymond James Financial Services stresses the importance of not overborrowing.
“The lender will appraise your house. They will generally loan up to 80% of the market value. They will subtract from this any existing mortgage. If this is more than you need, request a smaller amount. The key here is to know exactly what you need,” Scanlon says.
The bottom line
While home equity loans and HELOCs remain among the more affordable borrowing options, it’s still important to compare rates from multiple lenders to secure the best deal this March. A little preparation can go a long way, so before applying, check your credit to see if boosting your score could help you qualify for lower rates.
Also, you should borrow only what you need and can comfortably afford. Every dollar you borrow accrues interest, and borrowing more than necessary could strain your finances and put your home at risk.
