TENNESSEE HELOC RATES TODAY
Current HELOC rates in
Tennessee.
Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Current HELOC rates in
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Compare HELOC rates in Tennessee.
Key Points
• Comparing rates from various lenders is essential to secure the best home equity line of credit (HELOC) rates in Tennessee.
• HELOCs offer flexibility in borrowing and are used to pay for home improvements, debt consolidation, and other expenses.
• HELOC rates in Tennessee are influenced by the prime rate and economic factors, making it crucial to stay informed about current trends.
• Building up substantial home equity and maintaining a strong credit score can lead to more favorable Tennessee HELOC rates.
• Understanding the application process and preparing thoroughly before applying can help homeowners secure the best HELOC rates in Tennessee.
Introduction to HELOC Rates
If you’re thinking about how to get equity out of your home in Tennessee, a home equity line of credit (HELOC) is probably at the top of your list of options. This flexible form of financing uses your home as collateral. But HELOC rates and terms in Tennessee can vary significantly, so it pays to educate yourself before you wade into the market.
This guide to HELOCs will help you understand the factors that influence what rate you might be offered, and guide you as you get your financial life in order prior to the application process. You’ll emerge equipped to make a well-informed decision about how to use your home equity to meet diverse financial requirements. Let’s start at the beginning, with what is a home equity line of credit.
What Is a HELOC?
A HELOC is like a credit card based on your home’s value minus whatever you still owe on your home loan. You can borrow up to 90% of your home’s value. Because a HELOC is secured by your home, its interest rate will be lower than the rate you would get with a personal loan or credit card. HELOCs have variable rates, however, so the rate can adjust up (or down) over time.
A HELOC has two phases, draw and repayment, and it’s important to understand how they differ.
The Draw Period
During the draw period of a home equity line of credit, which typically spans a decade, you are granted access to funds up to the limit of your credit line. You’ll probably have to make interest payments, but you likely won’t have to pay down the principal (although if you do, then you can borrow again up to the credit line). This flexibility is helpful if, say, you need to borrow money for a renovation but you don’t need it all at once, or perhaps you don’t know exactly how much you need.
The Repayment Period
The HELOC repayment period, usually 10 to 20 years, involves paying back the principal plus interest. A HELOC repayment calculator can help you estimate your payments as the variable interest rate changes.
Where Do HELOC Interest Rates Come From?
HELOC interest rates are tied to the prime rate, which in turn is tied to the Federal Reserve’s rate decisions. Lenders use their prime rate for their most creditworthy customers. But the prime rate isn’t for everyone, and lenders adjust the rate they offer each individual customer based on the applicant’s personal financial metrics (more on that below).
How Interest Rates Impact HELOC Affordability
It’s worth spending time to understand interest rates and to seek out a good starting rate on your HELOC because the rate has a significant impact on overall affordability. Let’s say you have a $50,000 HELOC, and you enter the repayment period owing the entire amount. The table below shows how the interest rate for a $50,000 HELOC affects the monthly payment and total interest paid over a 20-year term. Of course the HELOC’s variable rate means your exact number may differ, but this should give you an idea of the impact interest rates can have:
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.50% | $434 | $54,139 |
| 8.00% | $418 | $50,373 |
| 7.50% | $403 | $46,671 |
HELOC Interest Rate Trends
HELOC rates in Tennessee tend to follow fluctuations in the average prime rate, so having a sense of the history of the average prime rate, both in recent years and in a long span of time, is helpful to would-be borrowers. In the last few years, the rate has ranged from a low of 3.25% in 2020 to a high of 8.50% in 2023. You can see in the graphic below that rates as low as 3.25% don’t come around very often.
Historical Prime Interest Rate
| 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% |
Source: U.S. Federal Reserve
Historical U.S. Prime Rates
Factors Influencing HELOC Rates
As noted above, the prime rate isn’t the only factor that will influence what a lender will offer you. Several other key factors come into play, and unlike the prime rate, these are things you have some control over.
Home Equity
Typically, homeowners need at least 15% to 20% equity for a HELOC. But having a more substantial home equity position can make you appear less risky to lenders, potentially leading to more favorable interest rates.
Credit Score
A credit score of 680 is the entry point for a HELOC, but again, higher is better and some lenders insist on a score of 700 or better. A higher credit score signals financial responsibility to lenders, potentially unlocking more advantageous terms for you.
Stable Income
Lenders like to see a stable income from HELOC applicants, which is a strong indicator of a lower risk of default.
Loan-to-Value Ratio
Lenders often require a combined loan-to-value ratio of 90% or less. If your home value is $500,000, your mortgage is $300,000, and you want a HELOC of $100,000, your LTV ratio is 80%. (Add your mortgage and your desired HELOC, then divide by your estimated home value to compute your combined LTV ratio.)
Variable vs Fixed Interest Rates
As we’ve seen, HELOCs are characterized by variable interest rates that are subject to fluctuations throughout the loan’s duration. Initially, a HELOC’s rate will likely be set lower than, say, the rate on a home equity loan or a personal loan. But after a fixed period, the HELOC’s variable rate will adjust in accordance with prevailing market conditions. It’s important to grasp this when considering a home equity line of credit.
Tools & Calculators
An online calculator can be especially useful if you’re thinking about borrowing money with a variable interest rate, because you can plug in different rates to get a sense of what monthly payments might be if your rate adjusts up or down. Here are three useful calculators that can help you comprehend the financial repercussions of a HELOC or home equity loan.
Run the numbers on your HELOC.
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Home Equity Loan Calculator
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
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HELOC Payment Calculator
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
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HELOC Interest Only Calculator
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.
How to Qualify for a Competitive HELOC Rate
Now that you understand what goes into the HELOC rate you may be offered in Tennessee, let’s get into the tactics you can use to obtain the most favorable rate possible. This is your to-do list:
Strengthen to Your Credit Score
Making regular, on-time payments and chipping away at any credit card balances can help you cultivate the kind of credit score lenders like. Also take the time to check your credit report, and request a correction should you find any inaccuracies.
Assess Your Home Equity
Increased home equity can lead to better terms and higher amounts when applying for a HELOC. Make sure you have at least 20% equity in your home, and the more the better, before you file an application. Your equity is the value of your home minus whatever you still owe on your mortgage. Divide that result by your home’s value to get a percentage of equity. (You can check a real estate web site for a rough idea of your home’s value.)
Calculate Your Debt-to-Income Ratio (DTI)
Your DTI ratio is how much you spend to cover monthly debt payments divided by your gross monthly income. Home equity lenders generally look for a DTI ratio that’s under 50%, though many prefer a ratio below 36%. This is one case where a lower number is better.
Application Process for a HELOC in Tennessee
The application process for a HELOC in Tennessee involves reviewing your financial health, comparing rates, preparing documentation, submitting an application, undergoing a home appraisal, and waiting for approval and closing. Each step is important so we’ll look at these one by one.
Step 1. Run the Numbers
Before applying for a home equity line of credit, it’s essential to understand your financial standing. Make sure your credit score, DTI ratio, and home equity level meet the minimum numbers. As a reminder, that’s 680, a DTI of 50% at most, and at least 15% home equity.
Step 2. Compare Lenders
Look at published offers from multiple lenders. Consider interest rates, but also qualification requirements, loan limits, fees, and the length of draw and repayment periods.
Step 3: Gather Your Documents
To expedite the process of your home equity line of credit application, have the necessary documents at hand. Gather your most recent pay stubs, your employment history (a resume is handy), your last W-2 and tax return, and your home insurance documents. Being organized and having these ready can expedite the application process.
Step 4: Submit Your Application
Double-check everything for accuracy and don’t leave any questions unanswered. This will help ensure a smooth path through the lender’s evaluation process.
Step 5: Get an Appraisal
A home appraisal will determine an accurate valuation of your property. If the lender requests an in-person appraisal, schedule it promptly.
Step 6: Prepare for Closing
Before you can access your HELOC funds, it is imperative that you sign an agreement and remit any fees that may be required. Some lenders make funds available within three days of the signing of your paperwork.
Tax Benefits and Considerations
Homeowners can deduct the interest paid on a HELOC if the funds are used for buying, building, or significantly improving their primary residence (so keep your receipts). Interest deductions are limited to the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). It’s a good idea to consult a tax advisor to confirm eligibility for deductions related to a HELOC.
Closing Costs and Fees
HELOC closing costs are typically lower than home-buying or refinancing costs. The appraisal fee, ranging from $300 to over $600, is usually the highest expense. Other fees may include application, loan origination, and administrative fees. Some lenders charge annual maintenance, transaction, inactivity, or early termination fees. Many lenders offer to reduce or waive closing costs but may charge a higher interest rate.
Alternatives to HELOCs
There are different types of home equity loans — or, more broadly, ways to borrow the money you might borrow with a HELOC. Each has its pros and cons, so consider these before you sign on with any lender.
Home Equity Loan
Unlike HELOCs with their variable rates, home equity loans provide a lump sum amount and are paid back at a fixed interest rate. More on what is a home equity loan: Like a HELOC, a home equity loan uses your home as collateral. But with a home equity loan, borrowers can usually access up to 85% of their home value. Home equity loans are repaid over a term that can range from 5 to 30 years. Understanding HELOC vs. home equity loan differences can help you choose the right option for your needs.
Cash-Out Refinance
A special type of mortgage refinance, a cash-out refinance lets homeowners tap into home equity by refinancing for more than they owe on their mortgage. They then take the difference as cash which can be used for any purpose. A cash-out refi is useful for those needing a large lump sum, but if your current mortgage has a very favorable rate, you’ll want to carefully compute the added costs a new interest rate might bring.
If you’re thinking about a cash-out refinance vs. a home equity line of credit, another important difference is that a refi will leave you with one monthly payment, while a HELOC would leave you with two (assuming you’re still paying off your home loan).
Personal Loan
A personal loan is a flexible, typically unsecured loan that you pay back in regular, fixed payments over a set term of 2 to 7 years. Personal loans can be used for any purpose and do not require collateral, unlike HELOCs and home equity loans. Although their interest rates are usually higher than the rate for a secured loan, they may be an appealing alternative for those who prefer not to put their home on the line.
Credit Cards
Credit cards typically come with higher interest rates than HELOCs, which can make them much more expensive if you carry a large balance from month to month. While credit cards offer flexibility for smaller purchases, HELOCs and home equity loans are better suited to larger expenses such as home renovations. Because money can be withdrawn from a HELOC in increments, it’s a good middle point between a home equity loan and a credit card.
The Takeaway
HELOCs offer a flexible way to access your home’s equity for many purposes. By understanding the application process and comparing offers from different lenders, you can secure a competitive home equity line of credit rate and terms that meet your financial needs. Improving your credit score and assessing your home equity are key steps to qualifying for the best rates.
SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.
FAQ
What is the monthly payment on a $50,000 HELOC?
A HELOC repayment calculator can be a useful tool for determining the monthly payment on a $50,000 HELOC. But as an example, if you owe the full $50,000 on your HELOC and you have an interest rate of 8.00% and a 20-year term, your monthly payment will be $418.
Is a HELOC a good idea right now?
Whether a HELOC is a good idea right now depends on your financial situation and goals. HELOCs can be useful for funding home renovations and other large expenses. However, it’s important to consider the current interest rates and your ability to repay the loan.
What is the monthly payment on a $100,000 HELOC?
The monthly payment on $100,000 HELOC will depend on your answers to these questions: How much of the credit line have you used? What’s your current interest rate? And are you in the HELOC’s “draw” or “repayment” period? In the draw period the payment may be interest-only. In the repayment period, you’ll pay interest plus principal. Once you have these answers, use a HELOC repayment calculator to determine your number.
What are the benefits of a HELOC?
Many borrowers consider a HELOC’s greatest benefit to be its flexibility. If you have a $50,000 credit line but you need only $10,000 at the moment, you can pull $10,000 and pay interest only on that amount, versus taking a lump sum as you would with a home equity loan. Managed responsibly, a HELOC can have a positive impact on your credit score. And HELOCs often have lower interest rates than either credit cards or personal loans.
Do you need an appraisal for a HELOC?
Yes, you typically need an appraisal for a HELOC. Your lender will tell you when and if an in-person appraisal is required. Some lenders use software to provide an estimate of a home’s value. The cost of an in-person appraisal will be $300 to $600 and you’ll likely be expected to pay it. The appraisal helps determine the current value of your home, which is crucial for calculating your home equity.
What disqualifies you from getting a home equity loan?
Several factors can disqualify you from getting a home equity loan. These include a low credit score, high debt-to-income ratio, insufficient home equity, and a history of late payments.
How difficult is it to get a HELOC?
The difficulty of getting a HELOC depends on your financial situation. Lenders consider factors such as your credit score, debt-to-income ratio, and home equity level. Improving these aspects can increase your chances of qualifying for a HELOC.
Does HELOC affect credit score?
Yes, a HELOC can affect your credit score in a few ways. Applying for a HELOC may result in a hard inquiry on your credit report, which can lower your score, but this effect is temporary. And how you manage your home equity line of credit can impact your credit score, either positively or negatively.
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More HELOC resources.
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What is a Home Equity Line of Credit
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Different Types of Home Equity Loans
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HELOC vs Home Equity Loan: How They Compare