Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• HELOC rates are influenced by the prime rate and your creditworthiness.
• To qualify, you’ll typically need at least 15% equity in your home.
• HELOCs offer flexible borrowing versus a lump-sum loan.
• Variable interest rates can change with the market, so monthly payments aren’t always predictable.
• The interest paid on a HELOC may be tax-deductible if funds are used for home improvements.
• Comparing offers from multiple lenders helps borrowers find the best terms.
If you’ve been diligently paying off your home loan in St. Petersburg, Florida, you’ve probably built up some nice equity. And if a home equity line of credit (HELOC) is in your plan, we’re here to help you understand how HELOC interest rates are set and what might help you qualify for the lowest available rate. You’ll discover the advantages and potential pitfalls of this type of borrowing, and learn how to estimate the expenses involved. Whether you’re dreaming of a kitchen makeover or need funds for other reasons, such as debt consolidation, this guide will help you make an informed choice about getting equity out of your home.
Before you get serious about applying for a HELOC, make sure you understand what a home equity line of credit is in the first place. A HELOC is not a lump-sum loan like a home equity loan; rather, it is a revolving credit line that you can use when you need it. Your credit ceiling is based on the equity you have in your home (the difference between the home’s value and what you owe on the mortgage). Because your home serves as collateral on a HELOC, if you fail to repay your lender, you risk foreclosure.
Most lenders will require you to have at least 15% equity in your home. With a HELOC, you can borrow up to 90% of your equity. While online tools can give you a rough estimate of your home’s value, lenders may require a professional appraisal. HELOCs have two phases, one called the draw period and the other the repayment period:
During the HELOC’s initial draw period (usually 10 years) you can access funds in increments, as needed. During this time, you’ll have to pay interest on what you borrow, but most lenders won’t require you to pay down the principal — although you can do so if you wish to draw on the credit line again.
After the draw period ends, the repayment period of 10 to 20 years begins. Monthly payments will increase as you begin to repay the principal plus interest. HELOC interest rates are usually variable, which means the amount you pay each month may go up or down as rates change.
Play around with a HELOC monthly payment calculator, and you will soon see how important interest rates are to the cost of your HELOC. Lenders peg HELOC rates to the prime rate, a figure influenced by the policies of the Federal Reserve. Each lender then adds a margin to this prime rate, crafting the rates you see on the market. Your personal financial profile, including your credit score, debt-to-income (DTI) ratio, and the amount of equity in your home also help determine eligibility and rates. We’ll get into the details of that below.
Even a one-percentage-point difference in HELOC rates can have a noticeable impact on the cost of borrowing. For instance, on a $50,000 HELOC with a 20-year term, a one-percentage-point rate increase from 7.00% to 8.00% can bump your monthly payment up by $30 and increase the total interest paid over the life of the HELOC by almost $7,000. This chart shows other examples and also demonstrates how the term of the loan is another important factor. The longer the term, the lower the monthly payments but the more you’ll pay in interest over the long haul.
| Repayment Amount | Term | Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|---|---|
| $100,000 | 20 years | 8.00% | $836 | $100,746 |
| 7.00% | $775 | $86,072 | ||
| 10 years | 8.00% | $1,213 | $45,593 | |
| 7.00% | $1,161 | $39,330 | ||
| $50,000 | 20 years | 8.00% | $418 | $50,373 |
| 7.00% | $388 | $43,036 | ||
| 10 years | 8.00% | $607 | $22,797 | |
| 7.00% | $581 | $19,665 | ||
| $25,000 | 20 years | 8.00% | $209 | $25,186 |
| 7.00% | $194 | $21,518 | ||
| 10 years | 8.00% | $303 | $11,398 | |
| 7.00% | $290 | $9,833 |
While it’s not a crystal ball, watching the prime rate can give you a sense of where HELOC rates are headed. Since 2018, the prime rate has seen its share of movement, from a low of 3.25% in 2020 to a high of 8.50% in 2023, as the chart shows. Understanding this history can shed light on whether current rates are relatively high or low and also prepare you for potential market-driven changes in your HELOC rate once you have one.
| Date | U.S. Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.5% |
| 9/27/2018 | 5.25% |
Before you apply for a HELOC, get a sense of what payments on a HELOC might look like during the draw and repayment periods by using the HELOC calculators shown here. If you’re interested in a home equity loan, you can also find a calculator made with this loan type in mind.
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
To qualify for the most competitive HELOC rate available, you’ll want to do a couple things before filing an application: Cultivate a strong credit score, and make sure your DTI ratio is in good shape. Here’s your homework:
Keeping your credit score at 700 or above will help unlock the best HELOC rates in St. Petersburg. Make on-time payments and chip away at credit card balances to cultivate a good score. Also review your credit report and dispute any inaccuracies you find.
To determine your DTI ratio, divide your total monthly debt payments by your gross monthly income. When it comes to HELOCs, lenders typically require a DTI ratio under 50%, but to access the lowest interest rates, you want your DTI below 36%.
Some lenders offer the convenience of prequalifying for a HELOC online, which streamlines the overall application process. This initial step can help you understand the HELOC rate in St. Petersburg that you might actually qualify for beforehand. Here’s the full list of steps as you head toward a HELOC.
In addition to checking your credit score and DTI ratio, you’ll want to take a look at your home equity to make sure you have at least 15%. Look up your estimated home value on a real estate site. Subtract whatever you owe on your mortgage from the home value, then divide the result by your home value to arrive at a percentage of equity. If you haven’t hit 15% yet, maybe you can hold off to build up a little more equity before you apply for a HELOC.
Determine what offers you might qualify for when it comes to interest rates, but also compare lenders’ qualification requirements, loan minimums and maximums, fees, and the length of the draw and repayment periods they’re offering. Different lenders serving St. Petersburg have different HELOC rates and terms, so it’s important to compare them.
Gather recent pay stubs, W-2 forms, and tax returns before you start the application process. If you’re self-employed, a lender might ask for a profit-and-loss statement and a couple years’ worth of tax returns. Also have your homeowners insurance documents handy for your property. Doublecheck every blank you’ve filled in and then submit your application. You can apply online, over the phone, or in person, depending on the lender.
An appraisal will establish your home’s value. It typically costs between $300 and $610. A prospective lender will tell you what kind of appraisal is required, so wait for instruction after filing your application. If your appraisal comes in significantly higher than your mortgage balance, that’s a good sign.
Before you can access your HELOC funds, you’ll need to sign the loan documents and pay fees. Some lenders can make the funds available as soon as three days after the HELOC is closed. In the meantime, get ready for the closing by giving all the documents a thorough review and making sure you’re clear on the terms and conditions. Have the necessary funds ready to cover the closing costs.
Homeowners can deduct HELOC interest from their taxes as long as the borrowed funds are used for improving the home. Keep in touch with a tax advisor about changing policies. You’ll have to itemize your return to claim this benefit.
HELOC closing costs are generally more affordable than the loans associated with a home purchase or a cash-out refinance. The most substantial cost is often the appraisal fee, which can range from $300 to $610 or more. A title search, if required, may set you back $100 to $450. You might also encounter application, loan origination, and administrative fees, as well as an annual maintenance fee of up to $250.
There are other ways to tap into your home’s equity, so it’s worth exploring these options if you’re unfamiliar with them and contemplating a HELOC.
A home equity loan hands you a lump sum upfront and sets a fixed interest rate for the repayment term. With this option, you can usually tap into up to 85% of your home’s equity. Lenders often look for a credit score of 680 or higher, and some prefer to see 700 or more. As you think about a HELOC vs. a home equity loan, keep in mind that the money you borrow with a home equity loan comes all at once, and you begin repaying it immediately. With a HELOC, you borrow when you need the funds, only pay interest on what you have borrowed, and only repay the loan after the draw period. If you like the idea of a fixed repayment schedule and know exactly how much you need, a home equity loan could be a good fit.
A cash-out refinance is a mortgage refinance that lets you tap into your home’s equity by refinancing your mortgage for more than you currently owe and pocketing the difference. It’s a smart option if you need a substantial sum and if you find that current interest rates are preferable to the rate you have on your original home loan. To do a cash-out refi, you’ll need a credit score of 620 or more and a DTI ratio under 43%. One cash-out refinance vs. home equity line of credit point of differentiation: With a refi, you’re left with a single monthly payment instead of two.
A personal loan is a flexible, typically unsecured loan that you pay back in regular, fixed payments over a set term of two to seven years. The main advantage? Your home is not at risk if you face financial hardship and can’t make payments. Many lenders require a credit score of 670 or above for a personal loan. These loans can be secured quickly but often come with higher interest rates than HELOCs or home equity loans.
When considering a HELOC, it’s important to weigh the benefits and risks. HELOCs offer flexible access to funds and potentially lower initial interest rates, making them a cost-effective option for large expenses. However, the variable interest rates can lead to unpredictable monthly payments, and defaulting can result in foreclosure. Before applying, ensure you have a solid repayment plan. Then compare HELOC rates from multiple lenders to find the best rate and terms for your financial situation.
SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.
Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.
A HELOC is a versatile financial tool that can be used for a variety of expenses, from home improvements to debt consolidation. It provides a flexible line of credit, allowing you to withdraw funds as needed during the draw period, typically 10 years, and make interest-only payments. This makes it useful for managing ongoing expenses or large projects that have unpredictable costs.
Your monthly payment on a $50,000 HELOC will vary according to the rates and terms of your loan. During the draw period, you might only need to pay interest, which can be quite manageable. For instance, at a 7.00% interest rate, your monthly interest-only payment would be approximately $292. But keep in mind, once the repayment period kicks in, you’ll be paying both principal and interest, so your monthly expense will increase.
You typically need a home appraisal to secure a HELOC. The appraisal determines your home’s current market value, which is essential for calculating the amount of equity you can access. The appraisal fee is usually $300 to $610, and it’s a crucial step in the application process.
There are a few factors that could potentially disqualify you from securing a home equity loan. These include a low credit score, a high debt-to-income (DTI) ratio, and not enough equity in your home. Most lenders look for a credit score in the upper 600s, a DTI ratio of 50% or less, and a minimum of 20% equity in your home. If you don’t meet these criteria, you might need to work on improving your financial profile or explore other financing sources.
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