How to Compare the Rates for Home Equity Line of Credit

A home equity line of credit allows you to tap into the equity in your home. A home equity line usually carries a variable interest rate. When you shop for the best line of credit, you need to consider a variety of factors.

Interest Rate Margin

The margin is the percentage added to the market interest rate to find the interest rate for your loan. For example, if you had a margin of 2.25 percent and the market rate equals 5 percent, the interest rate on your home equity line of credit would be 7.25 percent. The lower the margin the better.

Interest Rate Index

Different home equity lines of credit use different indexes. Common indexes include the London Interbank Offered Rate (LIBOR) and the Cost of Funds Index (COFI).

Annual Percentage Rate

The APR is a measure of the interest rate that takes into consideration the closing costs and fees imposed by the lender. The lower the APR, the better.

References

• Federal Reserve: What You Should Know About Home Equity Lines of Credit
• MSN Money: 5 Tips for Wisely Tapping Your Home Equity