Ways to Lower Your Home Equity Interest Rate
Your home equity loan interest rate will be based on your financial standing. This is measured by your credit score, the total debt you have, the total assets you have and your income. If you want to lower your rate, you can improve your financial standing by applying a focused approach to bettering these various statistics. With the right steps, you can lower your home equity interest rate within a year.
Improve your Credit Score
Your credit score is a cumulative summary of your performance on debt, so it takes awhile to build good credit. In just one year, however, you can actively work to improve your score through simple steps. The most important thing to do is pay your debts on time, including your credit card debts, utility bills, medical bills and even parking tickets. Making all payments for a year can boost your score 30 points or more. If you only have two loans, your mortgage and your home equity loan, consider taking a third source of debt such as a credit card. This will diversify your debt more and allow you to make more payments to increase your credit score each month.
Pay Down Debt
Your total debt affects two parts of your financial report. First, if you are using too much of your available credit, your credit score will drop. Try paying down your debts to less than 10 percent of your available credit. This means, if you have a credit line of $3,000, reduce your debt to $300 or less. The second way this helps your finances is by creating a more favorable comparison of debts to assets and debts to income. The lower your debt compared to these other figures, the more cash you will have to spend, and the better your rates will be on loans as a result.
Whenever you pay down debts, you are also increasing equity by paying off loans. For example, when you pay down a portion of your auto debt, you own more of the car than you did previously. This has a two-fold affect on your debt to asset ratio. You will owe less and own more, which is a favorable reflection on your financial security. More secure borrowers get better loan rates because they are at a lower risk of default. The more assets you own, the more resources you have to help avoid bankruptcy or protect yourself if your income drops.
You may not be able to automatically increase your income. Taking a part-time job works for some people, but not everyone has that option. There are some things you can try, though, to appear more financially stable in terms of income. First, consider whether your home equity loan should be single or joint. If you are married, then a joint loan makes sense. This allows you to list two incomes instead of one on the loan. If you are a single-payer on the loan, increase your income by listing earnings from your savings accounts and investments instead of just your primary salary.