Methodology: Our System for Ranking the Best Home Equity Loans
Getting a loan is a big financial decision, especially when your home is the collateral. To help you make the best choices possible, we at the MarketWatch Guides team are dedicated to providing you with a comprehensive view of the best home equity loan companies in the U.S.
Our team researched more than a dozen of the most popular home equity lenders in the U.S., including companies like U.S. Bank, Rocket Mortgage and Third Federal. We regularly collect data on each company’s home equity products and terms, and we use this information to score each provider based on key metrics that matter most to you, the consumer.
Our Rating System for Home Equity Loans
In creating our rating system, we analyzed each home equity loan company’s disclosures, licensing, marketing, sample loan agreements and websites to understand their offerings and terms.
We then examined each company’s public profile with the Better Business Bureau (BBB) to gauge its standing in the industry. We also reviewed any available legal documents detailing settlements or agreements with federal and state regulators.
We focus on four key categories to create these ratings:
- Affordability
- Loan features
- Customer experience
- Company reputation
Our team continuously monitors personal loan data to ensure rankings and provider information are up to date.
Factors We Use To Score Home Equity Loan Companies
Our scores are based on a 100-point rating system that is then converted into a five-star scale. More important factors — such as a loan’s affordability and terms — are weighted more heavily. Below are more details on the data points and measures that go into each rating category.
Affordability (35%)
A key factor in whether a personal loan is a good deal or not is how easy it is to pay back. Our affordability category looks at two major factors to weigh affordability:
- Interest rates: Our ratings take into account the lowest annual percentage rate (APR) each company offers. However, we understand that not all people will qualify for a company’s lowest rates — so we also examine the maximum APR the company offers, as well. The best companies will offer the lowest minimum rates and maximum rates.
Note that the interest rate you personally will qualify for will depend on factors like your credit score, the length of your loan and the amount you borrow; the higher the interest rate, the higher your monthly payment will be — and the more money you’ll pay over the lifetime of your loan.
- Origination fees/closing costs: We also review the origination fees or closing costs each lender charges for processing the loan. Origination fees are typically deducted from the loan amount you receive. The home equity loans do not charge origination fees at all. However, companies that have relatively small minimum and maximum origination fees can still score points in this category.
Note that there are other fees that can add to the cost of your loan. Because origination fees are often the most significant fees you pay on a personal loan, we include them in the affordability category. Other fees, such as late fees and prepayment penalties, are often avoidable, so they are included in loan features.
Loan Features (35%)
Equally important for most home equity loan borrowers are the terms and conditions each lender offers. We look at a wide range of data points in this category. These include:
- Loan amounts: Home equity loan companies are rated based on their minimum and maximum loan amounts. Companies with the widest ranges earn the highest scores here. Maximum points go to companies that allow you to borrow $20,000 or less and $250,000 or more.
- Maximum loan-to-value (LTV) ratio: Each lender has its own requirements for how much of your LTV you can borrow. Lenders with the highest score allow borrowers to take out 81% or more.
- Closing time: We also award points based on how fast a home equity loan company can close a loan once a potential borrower is approved. Companies that close in less than two weeks scored the highest on our scale.
Companies also score points for not charging prepayment penalties as well as offering discounts. We also keep an eye on any less-common fees, like annual fees.
Customer Experience (20%)
How easy a company is to work with is also a key consideration for home equity loan borrowers. We look at a wide range of data points in this category. These include:
- Online application: The highest-rated companies have simple applications you can fill out completely online. Some lenders require you to call a customer service representative, which will lose them points.
- Prequalification process: The highest scores go to those loan companies that give you the ability to prequalify and get personalized loan offers using a soft credit check. This allows you to more easily compare offers between lenders without damaging your credit score.
- Availability: Higher marks go to companies that are more widely available across the country. Companies that make loans in all 50 states score the most points.
- Support: The highest scores go to those loan companies that offer multiple avenues of customer support, including chat, email and phone.
Other factors in this category include having clearly outlined rates and terms on the company website and offering customers the option to e-close their loans.
Company Reputation (10%)
A lender’s reputation is another key factor for personal loan borrowers. We review two major factors to determine company reputation:
- Better Business Bureau profile: We review each company’s public profile with the Better Business Bureau (BBB) to understand how seriously the lender addresses complaints. Companies with higher BBB scores will earn more points.
- Regulatory actions and investigations: We also review regulatory actions and investigations involving each company. Lenders that do not have active investigations or consent orders from federal or state regulators will earn the highest score.
How To Choose the Right Home Equity Loan
Our rating system and company reviews are intended to help you make the best decision possible when shopping for a home equity loan. We collect data on each company’s affordability, loan features, customer experience and company reputation to give you a comprehensive look at the provider and help you weigh whether it is the right fit for your needs.
However, the highest-rated lenders on our list may not always make the most sense for you. Every person’s financial situation is different, and borrowers may not qualify for every loan option. Before signing a loan agreement, make sure you thoroughly review and understand the terms of the loan and your expected monthly payment. You may also consider speaking with an approved credit counseling provider to help you review your options.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
