A home equity loan allows you as a homeowner to get a loan by using the equity in your home as collateral. The equity consists of whatever funds you have invested in your property in order to own it or improve it.

Home equity loan vs. Home equity line of credit

A home equity loan can be obtained in a lump sum or used as a revolving home equity line of credit.

A home equity loan can be either of the following:

• A fixed rate mortgage
• An adjustable rate mortgage

A homeowner who requires more money in large amounts usually applies for a home equity loan. Some expenses that make a home equity loan useful are:

• Debt consolidation
• Home repairs
• Medical bills
• College tuition for family members

Tax benefits of home equity loans

A home equity loan is also beneficial because the home equity loan rate charged is usually tax deductible, as the loan is used for its primary functions. You can use our home equity loan calculator to check what various home equity loan rates will mean for your monthly payments. Always compare offers from several lenders and brokers to obtain the lowest home equity rate possible.

There are several choices available for homeowners to free up the equity they possess in their homes.

When applying at any bank for a low rate home equity loan, there are certain things that you should keep in mind. Banks looks at three particular items before they will even consider the lowest rate home equity loans. They check your credit rating, your income and your loan to value ratio. These three factors will help determine if you qualify for a low rate home equity loan and what your payment schedule and interest rates will be.

Your credit rating is the most straightforward. Before any bank will promise you a low rate home equity loan, they need to make sure that you are someone who they can count on paying them back. Your credit report will show them your credit history, whether you’ve paid your bills on time and who you may be in debt to.

In order to get you the lowest rate home equity loans, the bank also needs your income information, because they will obviously not lend you more money than you’d be able to repay within the Equity Loan timeframe. The bank will also want information such as how long you’re been at your job, and your debt to income ratio (how much of your monthly income goes towards paying bills).
Finally, the lender will look at your loan to value ratio. This ratio is what you owe on your house versus how much it is actually worth. Ideally this ratio should equal out to be less than 80% since lenders want to be confident that you’re actively making payments on the property.

If these three reports come back favorably for you, it will now be time to discuss loan sizes and rates. There are two kinds of low rate home equity loans: the basic equity loan and the line of credit.
The home equity loan is when you get a set amount of money that is to be paid back over a fixed period at a fixed rate. This is a good loan to get if you know how much money you need and don’t want your repayment schedule to be affected by varying interest rates and other economic factors. The home equity line of credit is a more flexible loan that allows you to take out various amounts of money when you need it. If you want to be able to adjust your loan funds and don’t mind if your repayments are affected by interest rates, then this is the loan for you.

Keep in mind that when you apply for these loans there are several costs that you will have to pay. There are the general loan fees, which includes interest, as well as the closing costs. The interest on the loan is the highest fee you will pay, and it’s either fixed or variable as mentioned above. The other fees usually equal out to roughly 5 percent of the loan and include everything from title search to lawyer fees to document preparation to property appraisal. These fees usually do not apply to equity credit lines, with the exception of property appraisal fees. Credit lines may also come with transaction fees as well as inactivity fees.