If two lenders quote you a home equity loan, which numbers show which one costs less?

Summary

Compare Loan Estimates for the same amount and term, not advertised rates. A home equity loan is closed-end credit secured by real estate, so the lender must send a Loan Estimate within three business days of your application and can't charge anything but a credit report fee before you have it and say you want to go ahead. APR helps, but on a loan secured by real property it leaves out title, appraisal, document preparation, notary and credit report fees, so two quotes with the same APR can still ask for different amounts of cash at closing.

What the Loan Estimate rule gives you

Under 12 CFR 1026.19(e), the lender has to deliver or mail the Loan Estimate "not later than the third business day after the creditor receives the consumer's application." Until you've received it and told the lender you intend to proceed, the only fee it may charge is "a bona fide and reasonable fee for obtaining the consumer's credit report." A loan that isn't for a purchase, refinance or construction is labeled on the form as a "Home Equity Loan."

The CFPB's guide to the form says the way to judge an offer is to set it against Loan Estimates from other lenders, and it singles out origination charges: application, origination, underwriting, processing, verification and rate-lock fees. "It's the total that matters." The comparisons section also shows the Total Interest Percentage, which the CFPB says helps you see how much interest you will pay over the life of the loan. Put a 10-year quote next to a 15-year one and that figure mostly tells you about the term, not the lender.

What APR leaves out on a home loan

APR is the finance charge expressed as a yearly rate, and Regulation Z decides what goes into the finance charge. Points and loan fees go in. So do mortgage broker fees, even when the lender doesn't require you to use a broker. For "a transaction secured by real property," the following stay out as long as they are "bona fide and reasonable in amount":

An application fee charged to every applicant is excluded too. So a lender with a pricey appraisal and title package can show the same APR as one that charges far less for those items. Only the fee lines on the Loan Estimate will show the gap.

Three lenders, three ways of saying "low cost"

Regions Bank says "Bank pays all closing costs," and its sample payment of $574.12 on $50,000 over 10 years at 6.75% APR is exactly what a 6.75% interest rate produces. That fits a loan with no fees in the finance charge. Its APR runs from 6.75% to 13.75% depending on occupancy, lien position, credit, loan-to-value and term.

Rocket Mortgage advertises "no origination fee" and says nothing on the page about other closing costs. Spring EQ says, "There is a lender fee but no annual fee," without giving the amount. Of the three, only Regions gives you numbers you can compare before a Loan Estimate arrives.

Sources

Written by Kaz (pen name). Figures are copied from providers' published pages on the dates shown. We have not used these products. Corrections: contact form.