Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the prime rate and the borrower’s financial circumstances.
• If you have a strong credit score and a low debt-to-income ratio, you’re likely to get a lower interest rate.
• Remember, even a small difference in interest rates can mean substantial extra interest payments (or savings) over the loan term.
• Home equity loans usually come with fixed interest rates, which can offer stability and predictability in your monthly payments.
• Property insurance is a must, especially if you’re in a high-risk area.
• The interest on home equity loans could be tax deductible if you’re using it for home improvements.
When you’re researching how to get equity out of your home, interest rates are a major factor in the decision-making process. This guide will give you an overview of home equity loan rates in Anaheim, California, and what influences them on a personal and economic level. We’ll also cover the application process, the risks and benefits of home equity loans, and tips on how to get the best available rates.
Whether you’re planning a home renovation or looking to consolidate debt, understanding home equity loan rates can help you make the best financial decision for your situation.
First up on the agenda: What is a home equity loan?
A home equity loan is a second mortgage (assuming you’re still paying off your original home loan) that leverages your home as collateral for a lump sum of money. Repayment is then made in fixed monthly installments over a period of five to 30 years. The appeal of these loans lies in their lower interest rates compared to unsecured personal loans, and the predictability of fixed interest rates.
Typically, lenders require you to have at least 20% equity in your home to qualify. Calculating equity is straightforward: It’s the current market value of your home minus the outstanding mortgage balance. For example, if your home is valued at $900,000 and you still owe $700,000, your equity is $200,000. To get a sense of how much you might be able to borrow, use a home equity loan calculator.
Recommended: HELOC vs. Home Equity Loan
Home equity loan interest rates are influenced by a variety of factors, including the economy, Federal Reserve decisions, and your personal financial situation. Home equity loan rates often follow the prime rate, the interest rate that banks charge their best customers. Additionally, your credit score and debt-to-income ratio can affect the rate you’re offered. Loan amounts and repayment terms can also influence your rate. Typically, larger loan amounts and longer repayment terms will have higher rates due to increased risk for the lender.
Interest rates go a long way to determining how manageable your home equity loan will be. Even a small percentage change can add up to quite a bit over the life of the loan. For instance, a $100,000 home equity loan with a 15-year term at 8.50% would mean a monthly payment of $985 and total interest of $77,253. But bump up the rate to 9.50%, and the monthly payment increases to $1,044 with total interest of $87,960. Getting that lower rate would save you $10,700 in the long run.
Anticipating interest rate shifts is no easy feat, given the multitude of factors at play. However, a glance at recent prime rate history can be illuminating. In 2020, the prime rate hit a low of 3.25%, but by 2023, it had soared to 8.50%. These fluctuations underscore the significance of timing your application to coincide with a favorable economic climate, when that’s possible. By keeping an eye on market movements and your own financial standing, you can better your chances of securing a competitive home equity loan rate.
| Date | Prime 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 | 5.50% |
| 9/27/2018 | 5.25% |
Fluctuations like these strongly impact Anaheim’s home equity loan rates, so it’s a good idea to stay on top of economic trends. Even if you can’t predict the future perfectly, you may be able to time your loan strategically if you have a sense of the market.
To secure the most competitive rates, focus on boosting your credit score and managing your debt-to-income ratio. By paying attention to these key metrics, you’ll be in a strong position to make your case to lenders and potentially save on your borrowing costs.
You need to have at least 20% equity in your home to be eligible for a home equity loan. To work out your equity, subtract your mortgage balance from your home’s current value. For instance, if you owe $600,000 on your mortgage but your home is valued at $800,000, your equity is $200,000, or 25%.
Lenders typically allow you to borrow up to 85% of your home’s equity, which in this case could mean a potential loan of $170,000. Keeping a healthy amount of equity in your home is a smart way of creating a financial safety net. And it can lead to better interest rates on a home equity loan.
When you’re shopping for a loan, a robust credit score is your best friend. Lenders are often looking for scores of 680 or higher, with many borrowers aiming for 700 or beyond. A higher credit score is a clear sign of financial responsibility, and it reduces risk in the eyes of the lender. This can translate to a more attractive loan package, with lower rates and higher borrowing limits.
To boost your credit score, focus on timely payments, maintaining low credit card balances, and steering clear of new debt. Regularly reviewing your credit report for inaccuracies and disputing any errors is also wise.
Your debt-to-income (DTI) ratio is a major player in the home equity loan game. To impress lenders, aim for a DTI below 36% (though some lenders will accept up to 50%). Calculate this ratio by dividing your total monthly debt payments — student loans, auto loan, personal loan, and mortgage — by your gross monthly income. The lower your DTI, the better your chances of being offered a competitive loan rate.
To improve your DTI, try chipping away at your debts, finding ways to increase your income, or better yet, both. Mastering your DTI could be the key to unlocking a home equity loan with an interest rate and terms that work for you.
Property insurance is a must for home equity loans, especially if you’re in an area prone to natural disasters. It’s a smart move that not only safeguards your lender’s investment but also ensures your home, the collateral, is well-protected. In some high-risk areas, additional coverage like flood or earthquake insurance might be needed. Failing to meet insurance requirements could lead to disqualification.
Online tools can be really helpful when you’re estimating payments and comparing home equity loan and HELOC offers. It could mean the difference between getting a loan and getting the right loan for you.
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.
Closing costs for home equity loans usually fall into the range of 2% to 5% of the loan amount. Fees include the appraisal, credit report, document preparation, origination, notary, title search, and title insurance. While no-closing-cost loans are an option, they often come with higher rates.
Here’s a tip that might brighten your day: The interest you pay on different types of home equity loans and lines of credit could be tax deductible if you use the funds to buy, build, or significantly improve your home. The current guidelines, which are in place through 2025, allow married couples filing jointly to deduct interest on home loans up to $750,000, and single filers can deduct interest on loans up to $375,000. To claim this perk, you’ll need to itemize your deductions on your tax return. These tax benefits could make a home equity loan even more appealing, and they might just help offset some of the costs.
Now, let’s talk about the alternatives to home equity loans. You’ve got HELOCs, which are like a pot of money you can dip into as needed, with variable rates that can be quite appealing. Then there’s cash-out refinancing, which is a kind of mortgage refinance that swaps out your current home loan for a bigger one, giving you access to the difference in cash.
Even if you’re set on a home equity loan, it’s a good idea to understand what is a home equity line of credit. A HELOC is like having a credit card with a limit that’s based on your home’s equity. It’s a flexible way to borrow because you only pay interest on the amount you actually use. The interest rate is often variable, so it fluctuates with the market.
There are two phases to a HELOC: the draw period and the repayment period. During the draw period, which is typically 10 years, you usually can make interest-only payments on the amount you’re using. (A HELOC interest-only calculator can be a useful tool to estimate bills.) Then in the repayment period, borrowing ends and you repay the full amount with interest over 10 or 20 years. (There’s a HELOC repayment calculator for that).
HELOCs are great if you’re not sure of the total amount you need or if your expenses will be ongoing. You can often borrow up to 90% of your home’s equity, which is a real plus.
A cash-out refinance is a strategic move, replacing your existing mortgage with a new one that gives you a lump sum based on your home equity. Most lenders will let you borrow up to 80% of your home equity. You’ll need a credit score of 620 or more and a debt-to-income ratio of 43% or less.
The beauty of a cash-out refinance is that you can choose between a fixed or variable rate, with variable rates sometimes allowing access to even more equity. Unlike home equity loans, cash-out refinances simplify your finances with just one monthly payment and may offer better rates and improved debt management.
Recommended: Cash-Out vs. Home Equity Line of Credit
When you’re considering a home equity loan, remember to keep your credit score in good shape, manage your debt-to-income ratio, and ensure you have the right property insurance. These factors will play a big role in the interest rates you’re offered. Using online tools and calculators can help you get a sense of what your monthly payments and overall costs might look like. There are other options, too, like HELOCs and cash-out refis, each with their own benefits and requirements. By being informed and prepared, you can make the most of your home equity and potentially get the best rates and terms.
SoFi now offers home equity loans. Access up to 85%, or $350,000, of your home’s equity. Enjoy lower interest rates than most other types of loans. Cover big purchases, fund home renovations, or consolidate high-interest debt. You can complete an application in minutes.
Unlock your home’s value with a home equity loan from SoFi.
The monthly payment on a $50,000 home equity loan varies depending on the interest rate and the loan term. For example, at 8.00% over 10 years, you would pay approximately $607 a month (principal and interest). If you chose a 20-year term, your payment would be about $418 a month, but you would pay more in total interest. A shorter term means higher payments but less total interest. A longer term means lower payments but more total interest.
A $100,000 home equity line of credit has a variable interest rate, so the payments can fluctuate with market conditions as well as how much of the credit line you’ve used. For instance, borrowing the full amount at an 8.50% interest rate will mean an interest-only payment of approximately $708 per month during the draw period. Once the draw period ends (usually after 10 years), you’ll enter the repayment phase, which includes both principal and interest. At that point, your monthly payment rises to roughly $868, assuming a 20-year repayment. Be sure to consider how potential payment changes will fit into your budget.
The monthly payment for a $25,000 home equity loan is determined by the loan term and the current home equity loan rates. For instance, with a 10-year term and 8.00% interest, you’d be looking at approximately $303 per month. If you extend the term to 20 years, the monthly payment would be around $209. While a longer term might seem attractive for the lower monthly payment, it means you’ll pay more in interest over the life of the loan. It’s all about finding the right balance for your financial goals.
There are several factors that can disqualify you from obtaining a home equity loan. Lenders typically require at least 20% equity in your home. A low credit score, generally below 620, can also disqualify you, as it indicates higher risk to the lender. Additionally, a high debt-to-income (DTI) ratio, typically above 50%, can make it difficult to qualify. Lenders also consider the property’s insurance coverage, especially in high-risk areas. If you lack adequate insurance, you may be disqualified. It’s important to review these criteria and understand how they affect your eligibility before applying.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOHL-Q225-318
