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Step 1
The first step to a proper home equity loan comparison is to compare the interest rates of the loans. Obviously the lower the interest rate the better. List out the loans available to you on a sheet of lined paper and write in the interest rates next to each loan. Starting with the lowest interest rate put a number 1 next to the loan and work your way up the list adding a number each time the interest rate increases. So if the first two loans were both 5% they would both be #1, but if the second were 5.25% it wouold be #2.
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Step 2
Note whether the loan is a fixed or adjustable rate loan. This is very important for home equity loan comparison because the adjustible rate loan will change over time, so the lowest rate now might not be the lowest rate later. For instance if you select a low adjustible interest rate loan and the rates go up later, you could end up paying much more in interest over the long run than you would have with the fixed rate loan. This would also increase your monthly payments on the loan.
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Step 3
Look for deceptively low payments when doing your home equity loan comparison as this may signal that you will be making payments on interest only or nearly so. That will leave a balloon payment on the end that could cause you to lose your home altogether.
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Step 4
Check whether any of the loans are non-recourse loans. When doing your home equity loan comparison you will probably find that all of them are recourse loans which means that if you go into default you are personally liable for the balance of the loan. It is not held by the equity alone. If you do find that one of the loans is a non-recourse loan this can be a great safety net advantage for you should something go wrong down the line.
