Where to Get a Home Equity Loan

Home equity loans are available in more places than you might think. This article explains where to find home equity loans, how they work, and how to make sure you're getting a good one. 

How Home Equity Loans Work

A home equity loan allows you to borrow against the equity you have accumulated in your home. You receive a single lump-sum payment that you then pay back over time in equal monthly installments, typically at a fixed interest rate.

Where You Can Get a Home Equity Loan

Home equity loans are available from many of the same lenders that issue regular mortgages. If you belong to a credit union, it will most likely offer a home equity loan option with highly competitive rates and fees. In addition to credit unions, many banks offer low- or no-fee home equity loans. There are also lenders that specialize in home equity loans.  

When you have a few candidates in mind, be sure to get estimates from each lender so you can do some comparison shopping. That includes the loans' fees, terms, and annual percentage rates (APRs). You should use the APR when comparing costs to get the most accurate comparison. 

What to Look for in a Home Equity Loan

First, make sure that any lender you are considering is legitimate. The lender should be able to provide you with its Nationwide Multistate Licensing System​​ (NMLS) number. You can use the number to look it up on the NMLS Consumer Access webpage to verify that it is properly registered to do business in your state and see if any complaints have been filed against it.

Once you've determined that you're dealing with legitimate lenders, here are the most important features to look for in their home equity loans. 

• No prepayment penalty: Especially with higher interest rates, you'll want the option to pay off your home equity loan ahead of schedule without any fees or penalties for doing so. Paying off your home equity loan faster than simply making the minimum payment can save you thousands of dollars in interest. It will also free up your equity, making you less likely to become underwater if your home's value declines. 
• Low or no fees: There are many home equity loan options with zero fees or extremely low ones. This can save you a large amount of money upfront when you take out the loan—or save you interest over the life of the loan if you roll the fees into the loan. 
• A low interest rate: A lower interest rate will save you a significant amount of money over the life of the loan. As mentioned above, the rate you want to focus on is the APR, which takes into account both the basic interest rate and additional fees, giving you the best picture of what the loan will actually cost you.
• A fixed interest rate: While most home equity loans have a fixed interest rate, not all of them do. Make sure you're signing up for one with a fixed rate so you aren't surprised by an increased payment amount down the road. 
• Transparency: All home equity loans should provide clear information before and at loan signing including the loan amount, APR, interest rate, fees, any prepayment penalties, and the loan term (length). All home equity loans must provide clear information under the TRID (TILA-RESPA Integrated Disclosures) rule.

The Bottom Line

A home equity loan can be an easy way to borrow money at a relatively low interest rate, but in the process, you are risking your home. When searching for a home equity loan, look for an option that will save you the most money and also give you the flexibility to pay off your loan early if you're able to.