How to Choose the Best Home Equity Loan

There is no shortage of opportunities, both locally and nationally, to apply for a home equity loan. One has only to enter the term "home equity loan" into an Internet search engine to find thousands of possibilities for maximizing the value of your home when you need some extra cash.

The following is just some simple, common-sense advice on how to choose the home equity loan that is right for you and your circumstances. Hopefully this will assist you in any loan decision you may have to make in the future.

Difficulty:

Easy

Instructions

Things You'll Need

• Notebook--keep track of rates offered at lenders you contact
• Bank brochures

1. Decide on a line or a loan?
   There are two ways to tap into your home's equity. Understand that the equity of your home is the difference between its appraisal value and what you actually owe on your mortgage. Depending upon the lender, you may or may not be able to take the full equity amount. Then you need to decide if you require all of the money at once, or if you would like to take "draws" from a line of credit as needed over a period of time. With the actual home equity term loan, you will receive the loan amount in one lump sum payment, less any bills you were paying off with the proceeds. Monthly payments on the full amount of the loan will begin 30 days after the loan closing date with a fixed rate of interest for the life of the loan. For a home equity line of credit, you will be approved for a certain limit, upon which you make take varying amounts at your discretion, up to the limit amount, over a period of time. You may have an annual fee for the line of credit, but monthly payments will not begin until you make your first draw, and you will only be paying on the amount you have taken. The interest rate will vary from month to month, but the rate will still only apply to the amount drawn, not the full amount of the line.

2. Do Your homework.
   Any bank in your immediate area will be offering home equity term loans or lines of credit. Your best bet is to actually go into each banking center to sit down with one of its loan specialists to ask questions. The reason I advise this is because you will get a better sense of the bank's willingness to serve you, and the bank personnel will take you more seriously than they would from a phone call. A bank that wants your business is going to work to show you why you should choose their institution over another, even if someone else is offering a lower rate of interest. That is a bargaining tool for you to use as well. If you are treated indifferently, with no real acknowledgment of your intentions, keep going until you find a place whose staff shows genuine interest in meeting your needs. Many times when you approach a willing staff with a competitor's lower interest rate, the bank will meet the rate to potentially ensure more business from you later on, such as checking or savings accounts.

3. Consider the Internet.
   All you have to do is type the words "home equity" into any Internet search engine to come up with countless lenders near and far willing to negotiate a good loan or line of credit for you. Like anything else, there are advantages and disadvantages, with location being the primary factor. In the event you have any questions or concerns during the life of a loan you get online, you will not be able to simply drive to your local lender and talk to your original loan specialist. You will end up making a few phone calls and never speaking to the same person twice, or your loan may be sold to a different lender entirely, and the process will begin again of addressing any issues that may arise. It is very easy to brush off long-distance customers when the lender is not facing them personally, so that is a mindset you may encounter from an internet loan experience. The details and loan process, however, will be the same, and you will get to do everything from the comfort of your home. You will simply need to fax or scan signed documents back to the lender once they are sent to you, and the money can either be directly deposited into your bank account or a check sent by secure mail for the loan amount.

4. Take notes and compare. Take the business card of every lending specialist at every place you visit. Ask for brochures about other products and services to give you an idea of their ability to service your loan. Ask about the dollar amount of loans they have "on the books." This will assist you in determining the amount of lending experience they have as well as the level of customer satisfaction with their services. Keep track of everyone's rates and terms. Take your time. This is an important decision that you shouldn't enter into on a random impulse. Your home is on the line, so make sure not to take an unnecessary risk for the sake of instant money.

Tips & Warnings

• Any legitimate lender will understand your interest in comparisons. If you encounter someone who seems too eager to close the loan as soon as possible, that is enough reason to take your business elsewhere. Remember that your home is collateral for this loan. Even if you remain current on your first mortgage, if you default on your equity loan or line of credit, you can still lose your home.