Ways to Lower Your Home Equity Interest Rate

Your home equity loan interest rate is determined by the amount of money that you borrow. It is also influenced by your credit score and the amount of loan to value in your home. All of these factors are considered by a lender who is willing to extend this type of loan to you. There are several ways in which you can lower your home equity interest rate. This includes lowering the amount of money that you are looking to borrow, work on improving your credit score and finding ways to increase the loan to value in your home.

Lowering the Amount Borrowed

Regarding the amount that you are looking to borrow, the lower the figure can be, the less of a risk you present to the lender, which may increase the likelihood of receiving approval for your loan. If you can get by only borrowing $30,000 versus $50,000 as a home equity loan or home equity line of credit (HELOC), this may help you obtain a lower rate of interest from the lender. To do this, you will need to look at other sources of capital to help meet the need you have for any additional loan amount. Such sources may include friends and family, a qualified retirement plan (if the purpose of the money is for an emergency, health need or funding a child's college education) or any other savings that you may have.

Improving Your Credit Score

Improving your individual score should be at the top of your list of things that you should be doing at all times, regardless of whether you are looking to borrow money or not. Your credit score affects so many different aspects of your life, and not having good credit will have an impact on your ability to borrow money, purchase a home, or even get a high paying job in some circumstances.

Under the Fair Credit Reporting Act (FCRA) as amended in 2001, you are entitled to a copy of your credit report as maintained by the 3 major credit reporting bureaus. This includes Experian, TransUnion and Equifax. Under the provisions of the FCRA you can get 1 free copy per year by making a request to the credit bureau. It is important to do this once a year in order to see what items have been reported on your credit file. Often times, old and erroneous entries that by law should be removed remain on your report, which will impact your ability to obtain credit. By requesting a copy of your credit report, you can start the process to remove these items, which ultimately should result in a higher credit score. This will improve your home equity interest rate.

Increasing the Home's Loan to Value

Your home's loan to value is a measure of how much equity you have in the home versus how much debt is outstanding. Paying your mortgage on a regular basis when due lowers your loan amount and increases your value or equity. Making multiple payments when you can will accelerate the repayment process and create greater equity for you.   

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