Negotiation Tactics for a Home Equity Loan

Home equity loan negotiation tactics will affect both the size and expense of your new loan. The size of the loan depends mostly on the equity you place as collateral and your income. Your rates and terms will depend on your credit score. You can use these factors in order to negotiate the largest possible loan, at the smallest possible price to you.

Negotiating Limits

Home equity loans are given through a definitive "loan to value" ratio on your current equity. This means the limit will be directly set based on the portion of your home eligible to be placed as collateral. However, there a few things you can do to increase the loan to value ratio. 

  • Show additional assets you own. Your lender uses your assets to determine how likely they would be to recover funds if you declared bankruptcy. If you can show a large asset base outside the home itself, the lender will receive greater assurance against a loss.
  • Report a higher income. You cannot misreport your income, but you can use the combined income of yourself and your partner or spouse to gain a higher limit. Since the lender is actually most concerned with your debt to income ratio and not just your debt alone, reporting a higher income for a joint loan can increase the limits.
  • Pay down your debt so that your debt-to-income ratio is lowered. If you pay off your debt, you allow more room for other expenses and a higher loan limit.

Negotiating Expenses

The most important part of negotiation will take place with the terms of the loan. Reducing the cost of your loan is possible if you can provide a strong assurance to your lender you will not default.

  • Show additional owned assets. Just as this helps raise your limits, it can help decrease your credit score. Borrowers with a large asset base are less risky.
  • Accept higher monthly payments with a shorter loan term. For example, take on a 15 year loan, instead of a 30 year loan. If you can afford to pay a large amount each month on the loan, you will be doing two things: reducing the length of the loan and giving the lender confidence in you. Your interest rate will drop as a result because rates for 15 year loans are lower than rates for 30 year loans.
  • Improve your credit score before seeking the loan. A higher credit score will lead to a lower interest rate. If you can pay down debt, assure you make all payments and otherwise improve your credit leading up to the time you apply, you will get a better deal.
  • Work with a lender known to you. Your mortgage lender or bank may offer you the best loans if you have an established relationship. You can also ask them to waive your annual maintenance fees if you have an established relationship with them.