If you’re in the market for a home equity loan, it’s wise to shop around. Not all home equity lenders offer customers the same terms or have the same policies. In today’s lending environment, finding a home equity loan is far more difficult than it was during the housing boom. If you are well qualified and have substantial equity in your home, however, lenders will be eager to do business with you, but make sure you choose one who is financially stable and reliable.

When comparing home equity offers between lenders, here are some questions you should have answered:

What is the interest rate?
The interest rate on the home equity loan is usually the most important factor. All other considerations being equal, go with the lender with the lowest interest rate. If you are getting a home equity line of credit or a variable-rate home equity loan, find out what the margin on the loan is. The initial “teaser” rate is not as important as the margin, which determines what you’ll pay in the future. The margin is the percentage you pay over the prime rate or index the loan is tied to. A normal range is 2% to 3%. You should also find out the rate cap, or the maximum interest rate you will pay.

What are the fees?
Fees tend to vary significantly between lenders. With home equity loans, you can expect many of the same closing fees that accompany a primary mortgage, but they should cost substantially less. With home equity lines of credit (HELOCs), you should not have to pay many fees at the closing. For HELOCs, the lender typically pays or waives most of the closing costs. You should, however, investigate what the lender charges for other fees including annual, cancellation and inactivity fees. These fees can add up over time and make a big difference in how much the loan costs you. Fees can be negotiated with the lender. If you don’t understand why you are charged a fee, ask for an explanation and a waiver if necessary.

Is there a prepayment penalty?
Some lenders will charge borrowers a prepayment penalty for up to 10% of the loan amount if the loan is paid off early. Completely an absurd charge, you should have it removed from any contract before you sign. You should not be penalized if you decide to payoff your debt ahead of time. If you sell your home or refinance, the prepayment penalty comes into play. A high prepayment penalty can cost you thousands. If your lender insists on this feature, you’d be wise to find a new lender. It’s not hard to find a lender that does not penalize for prepayment.

Shopping for a home equity loan or a home equity line of credit is made easy when you use the Search Tool at BankingMyWay.com. By inputting your ZIP code or your state, you can see offers and compare rates from banks and credit unions in your area.

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