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If you’ve been looking for good borrowing options in today’s high-rate landscape, you may have realized that the choices are limited. Credit cards could be worth considering, but the average credit card interest rate is nearing record highs right now — which vastly increases the borrowing costs. Personal loans are another, but with rates averaging over 12% currently, and limits to the amount you can borrow, these loans can also be a lackluster option.
One option that does stand out, however, is tapping into your home’s equity. If you’re a homeowner with equity in your home, a home equity loan or a home equity line of credit (HELOC) could allow you to borrow the money you need at an affordable rate (especially compared to other options). That’s because these loans are secured by the value of your home, which typically leads to more favorable terms.
Most homeowners also have a significant amount of tappable equity available to them right now — about $200,000 on average — which means there’s considerable borrowing potential with this option. But if you’re going to tap into your home’s equity this fall, it’s still important to find the best possible deal. Below, we’ll show how you can do that.
Ready to access your home’s equity? Compare your best home equity borrowing options here.
How to get the best deal on a home equity loan this fall
These strategies could help you get the best deal on a home equity loan this fall:
Lock in a rate after the Fed’s September rate decision
With inflation cooling over the last four months, the Federal Reserve is now widely expected to lower its benchmark rate by about 0.25% during its September 17 and September 18 meeting — which would mark the first rate cut of the year. Should that rate cut happen, it could potentially drive down the cost of home equity borrowing, even if only marginally.
For example, the average home equity loan rate is currently 8.52%, and if home equity loan rates fall by 0.25% in September, it could mean locking in a rate of 8.27% instead. By waiting to take out a home equity loan until after this decision, then, you could save on the interest costs tied to your loan. Just remember that rates can change daily and are impacted by more than just the Fed, so you should be prepared to act quickly.
See how affordable today’s home equity loan rates can be now.
Don’t limit yourself to one type of lender
Don’t settle for the first offer you receive — and don’t limit yourself to just one type of lender, either. Take the time to research your options and compare rates, terms and fees from multiple lenders. This includes traditional banks, credit unions and online lenders.
After all, each lender sets its own rates, and each one may have different criteria for evaluating borrowers. That means that one lender could consider you a well-qualified borrower and offer you the top rates while another may not. So, casting a wide net can help you find the most competitive offer.
Improve your credit score before applying
Your credit score plays a significant role in determining the interest rate you’ll be offered on a home equity loan. Before applying, then, it makes sense to take steps to improve your credit score. This may include paying down existing debts, correcting any errors on your credit report and avoiding new credit applications in the time leading up to your home equity loan application. After all, even a modest improvement in your credit score could translate to meaningful savings over the life of your home equity loan.
Boost your home’s value with strategic improvements
Before applying for a home equity loan, you may also want to consider making strategic improvements to your property. You’re typically required to have an appraisal done before your home equity loan is approved, and if the appraisal results in a higher home value, it can potentially increase your available equity and improve your loan-to-value ratio. That, in turn, may lead to better loan terms.
Focus on high-impact, cost-effective upgrades such as minor kitchen or bathroom renovations, fresh paint or improved landscaping. Just be sure that any improvements are completed and can be factored into the appraisal before you apply for the home equity loan.
Negotiate fees and closing costs
Don’t assume that the fees and closing costs associated with a home equity loan are set in stone. Many lenders are willing to negotiate these expenses, especially in a competitive market. For example, you can ask about waiving or reducing application fees, appraisal costs or closing costs. Some lenders may be willing to make concessions to win your business, particularly if you have a strong credit profile or are borrowing a substantial amount.
The bottom line
Tapping into your home equity could be the best way to borrow money right now. While we’re still dealing with a high-rate environment overall, rates are low on this type of borrowing — especially compared to the other options. Most homeowners have a substantial amount of home equity right now, too, so if you need to borrow a large sum, your home’s equity could make that possible. Just be sure to implement these strategies during the borrowing process to secure the best possible deal on a home equity loan this fall.
