When you should get a home equity loan from a different lender
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Home equity borrowing has emerged as a popular topic in the homeownership world over the past few years, and for good reason. The average amount of home equity (the difference between what your home is worth and your mortgage balance) is sitting at a robust $313,000, according to a recent report.
To tap that home equity, homeowners have to turn to banks, credit unions and other lenders for tools such as home equity loans, home equity lines of credit (HELOCs) and cash-out refinancing. Each option has its own benefits and advantages and suits some homeowners better than others.Ā
Home equity loans are arguably the easiest home equity product to understand. Their interest rates are fixed and your monthly payment is the same from month to month, making simplicity a big benefit. Additionally, home equity loan rates are relatively low right now. If those or other factors have you considering a home equity loan, you may be wondering if you should get your loan from a lender other than your mortgage lender. That’s what we’ll discuss below.
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When you should get a home equity loan from a different lender
No rule requires you to use your mortgage lender for a home equity loan, says David Wickert, president of Accunet Mortgage.
“Getting a home equity loan is like shopping for airline tickets,” Wickert says. “Just because your current lender flew you home the first time does not mean you’re stuck flying with them ā¦ forever.”
If you find yourself in any of the following scenarios, choosing a different lender is likely the right move:
Other lenders have better loan terms
Generally speaking, your interest rate, loan amount and repayment term are key factors in shopping for a home equity loan because they impact your monthly payment amount. If other lenders offer you a better combination of loan rates and terms, it makes sense to use a different company.Ā
You want better customer service
How your lender treats you is an important part of being a borrower. If you have questions about your loan or need clarification on a fee, lenders should answer your questions clearly, quickly and respectfully. If you’ve found that your current mortgage lender has poor service or friends or colleagues rave about another lender’s customer service, switching lenders is likely a good choice if you can get agreeable loan terms.Ā
Your mortgage lender won’t offer you a loan based on your credit
If your credit score has dropped since you took out your mortgage, it may be more difficult to get approved for a home equity loan. If your mortgage lender won’t give you the loan because of your credit score, switch to a lender that works with borrowers with lower credit scores.Ā
Closing costs are cheaper elsewhere
A home equity loan comes with closing costs the same way a mortgage loan does. Some lenders will require that to be paid upfront, while others may roll it into your total loan amount. Either way, it will be an additional cost that you’ll want to keep low. So it’s worth asking your current mortgage lender what their closing costs are and compare those to what competitors are offering. If the former is significantly higher, it may make sense to pursue a home equity loan with a different lender.
Shop for home equity loans online today.Ā
When you shouldn’t get a home equity loan from a different lender
There are several scenarios where it makes sense to use your mortgage lender for your home equity loan:Ā
- It has better terms: If your mortgage lender offers you rates that are as good or better than its competitors, it makes sense to avoid a change.Ā
- Other lenders won’t offer you a home equity loan: If other lenders won’t offer you a home equity loan because of their loan requirements or credit score limits but your mortgage lender does, staying with your current lender makes sense.Ā
- You’ve had a good experience with your mortgage lender: If your interactions with your mortgage lender have been easy and helpful and are a key reason you like your lender, switching to a different lender with similar loan terms may not be worth it if you value customer service.
The bottom line
No rule requires you to use your mortgage lender for your home equity loan. If it makes sense for you to use another lender, take a moment to think about what you’re looking for. Interest rates are a key factor, as they vary from lender to lender and will dictate, in part, how much your monthly payment will be. Also, look at the term (loan length) a lender offers; longer terms mean lower monthly payments and vice versa. Finally, consider how much you want to borrow, as lenders may prequalify you for multiple home equity loan amounts.Ā
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