-
Step 1
First you'll want to choose between a fixed rate loan or a line of credit. Fixed rate home equity loans come in a lumped sum and are paid back over a certain period with a fixed interest rate. A line of credit home loan works similar to a credit card where you are given a line of credit and have a spending limit. The line of credit is called a HELOC and you pay interest on any money you borrow.
-
Step 2
Avoid getting a home equity loan to pay off other debt. The biggest problem with consumers who get into a bad habit of spending is that they see second mortgages as easy cash to pay off debt, and their cycle of spending continues. If you need to pay off debt, unless you change your spending habits, try to avoid this method of getting out of it.
-
Step 3
Obtain a free credit report to know where you stand. The interest rate on your loan will be mostly dependent on your credit history, or more importantly, your ability to pay your bills on time. Any of the free credit sites are reliable for obtaining your credit history. You can get at least one free credit report each year without hurting your FICO score.
-
Step 4
Only borrow as much as you need to. If you borrow too much, especially more than the equity you already have in your house, then you are paying interest on top of interest.
-
Step 5
Shop around online and do research on companies that give you good rates. Finding loans online is easy because of the multitude of companies who offer loans on the web. Whether you have bad credit, good credit or no credit, there is a site for you. Shopping for a home equity loan online is your best bet for the lowest rates.
