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, Federal Reserve policies, and borrower qualifications.
• It’s smart to compare offers from different lenders to find the best terms.
• Small differences in rates can lead to significant savings over the loan term.
• To obtain the best rates, it helps to have a credit score of 700 or above and a debt-to-income ratio under 36%.
• The interest on home equity loans can be tax-deductible in some circumstances.
Home equity loan rates are a crucial part of the decision-making process when you’re considering tapping into your home’s equity. In this article, we’ll walk you through what a home equity loan is and how lenders determine rates. Whether you’re planning to use the funds for a home improvement project, to consolidate debt, or to cover a large expense, understanding home equity loan rates can help you make a more informed decision.
A home equity loan is a second mortgage that uses your home as collateral. To qualify, most borrowers will need 20% equity in their home. The loan is disbursed in a lump sum and typically repaid in equal monthly installments over five to 30 years. Using home equity to secure the loan typically results in a lower interest rate than borrowers would get with an unsecured loan. (It also means that borrowers who can’t make payments risk foreclosure.) Interest rates on home equity loans are typically fixed, which is why the monthly payments are predictable. A home equity loan calculator can help borrowers determine what they might be able to borrow.
Recommended: Different Types of Home Equity Loans
Home equity loan interest rates change constantly and are influenced by a variety of factors, including the economic climate. Federal Reserve policy has a significant impact on lending markets, as lenders often base their rates on the prime rate, which reflects the Fed’s actions. Your credit score and debt-to-income (DTI) ratio also play a role in the rate you’re offered (more on that below). Competition among lenders can sometimes work in your favor, leading to lower rates. Understanding these factors can help you make more informed decisions.
As with your original home loan, your interest rate is a key player in how affordable your home equity loan will be. Even a tiny percentage point difference up or down can cost or save you a significant sum over the years. For instance, on a $100,000 home equity loan with a 15-year payback, at 8.50% interest, you’re looking at $77,253 in total interest. Bump that up to 9.50%, and suddenly you’re paying $87,961. That’s why it’s crucial to research the best rates before you sign on for a loan.
Take a look at how term and rate affect monthly payments for a number of different loan amounts.
| Loan Amount | Loan Term | Interest Rate | Monthly Payment |
|---|---|---|---|
| $100,000 | 20 years | 8.00% | $836 |
| 7.00% | $775 | ||
| 10 years | 8.00% | $1,213 | |
| 7.00% | $1,161 | ||
| $50,000 | 20 years | 8.00% | $418 |
| 7.00% | $388 | ||
| 10 years | 8.00% | $607 | |
| 7.00% | $581 | ||
| $25,000 | 20 years | 8.00% | $209 |
| 7.00% | $194 | ||
| 10 years | 8.00% | $303 | |
| 7.00% | $290 |
Predicting the exact movements of interest rates is like trying to forecast the weather. As you can see, the prime rate has fluctuated quite a bit in recent years. It was as low as 3.25% in 2020 and as high as 8.50% in 2023. These variations have a direct impact on home equity loan rates. It’s a good idea to keep an eye on economic trends. While you might consider timing your application to coincide with favorable conditions, it’s not always possible to do so.
| 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% |
You can’t control the prime rate, but fortunately there are a few things you can do before you apply for a home equity loan that will help you get a low available rate. Put these on your to-do list:
You need to keep at least 20% equity in your home to qualify for a home equity loan. To determine your equity percentage, subtract your mortgage balance from your estimated home value (find the latter on a real estate site). Then divide the sum by your estimated home value to arrive at a percentage. The more equity you have, the better your chances of scoring a loan with favorable terms, and the easier it is to handle your financial commitments.
Lenders typically favor a credit score of 680 or above for home equity loans, with many leaning toward 700 or higher. A robust credit score is a testament to your financial acumen and can translate to more favorable home equity loan terms. To take good care of your credit score, concentrate on being punctual with payments, maintaining low credit card balances, and steering clear of new debt. It’s also wise to review your credit report for any inaccuracies and challenge them if necessary. A higher credit score can make it simpler to secure the capital you need for significant purchases, home improvements, or consolidating debt.
Your DTI ratio is a key number that lenders look at when you apply for a home equity loan. It’s simply your total monthly debt obligations divided by your gross monthly income. Most lenders prefer a DTI below 50%, but the lower the better. A lower DTI ratio shows that you have a better handle on your monthly payments, which can lead to more favorable rates. To improve your DTI, consider paying down your existing debts, increasing your income, or both. This can make you a more attractive borrower and could potentially lower your interest rate.
Property insurance is usually a must-have if you want to qualify for a home equity loan. This insurance safeguards the lender’s investment but also covers your home in the event of damage. Having the right coverage can also sway the terms of your loan, including the rates you’re eligible for. If you’re in a high-risk area, mull over extra coverage to meet lender demands and to keep your investment safe.
Recommended: What Is a Home Equity Line of Credit?
Utilizing online calculators can help you assess whether you’re on track to meet a lender’s criteria and clarify the financial costs. Check out these simple tools:
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.
When it comes to closing costs for home equity loans, you’re typically looking at 2% to 5% of the loan amount. These costs cover a range of services, from the appraisal to the loan origination fee to title insurance. While no-closing-cost loans are an option, they usually come with higher rates. It’s always a good idea to compare costs from different lenders to find the best fit for you.
The interest on home equity loans can be deducted from your federal taxes, provided the funds are used for a home purchase or significant renovations. As of 2025, married couples filing jointly can deduct interest on up to $750,000 of qualified home equity loans, while single filers can deduct interest on a loan of up to $375,000. To claim this deduction, you must itemize your deductions on your tax return, rather than taking the standard deduction. This tax benefit is good through 2025 but tax policies change periodically, so consult a tax advisor about your specific financial situation.
While home equity loans are a popular choice, there are other ways to get equity out of your home. Let’s explore the alternatives:
A HELOC is somewhat like a credit card for homeowners. If approved, you’ll be given a credit limit. You can borrow what you need when you need it. During the “draw” period of the HELOC, usually 10 years, you only pay interest on the portion of the credit line that you use. A HELOC interest-only calculator can help you estimate payments. After the draw period comes the repayment period when you’ll repay the entire amount with interest. (You might find a HELOC repayment calculator helpful at this time.) HELOC interest rates are typically variable, influenced by the market.
To qualify, a 680 credit score is often the starting point, but a higher score, say 700, is more favorable. Lenders also look for a DTI below 50%, with 36% or lower being the ideal. HELOCs are a great choice for those who need flexible access to funds, such as for home improvements or education expenses.
Here’s a quick look at a HELOC vs. a home equity loan:
| HELOC | Home Equity Loan | |
|---|---|---|
| Type | Revolving line of credit | Installment loan |
| Interest Rate | Usually variable-rate | Usually fixed-rate |
| Repayment | Repay only what you borrow plus interest; you may have the option to make interest-only payments during the draw period. | Starts immediately at a set monthly payment |
| Disbursement | Charge only the amount you need | Lump sum |
A cash-out refinance is one type of mortgage refinance. It’s a bit like hitting the reset button on your mortgage, but with a bonus: You get a new, larger mortgage, and a lump sum of cash to use as you wish. The amount you can borrow depends on your home equity, with most lenders capping it at 80% of your home’s value. Generally, you’ll need a credit score of at least 620 and a debt-to-income ratio of around 43%. Interest rates can be fixed or variable, with variable rates potentially offering more equity access. As you compare a cash-out refinance vs home equity line credit, remember that a refinance will leave you with just one monthly payment, which can simplify your finances.
When you’re pondering a home equity loan in Charleston, it’s a smart move to shore up your credit score, keep your DTI ratio in check, and make sure your property insurance is up to snuff. These are the building blocks that can sway the home equity loan rates that you’re quoted. Online calculators can help you wrap your head around the financial nitty-gritty as you obtain quotes from different lenders to see who offers 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.
A home equity loan can be a smart way to borrow for big home renovation projects. It can also be used for other large expenses, such as medical bills or college tuition. There are no restrictions on how you use the funds. However, in 2025, how you use the money will affect whether the interest you pay on the loan is tax-deductible. (Consult a tax advisor.)
The monthly payment on a $100,000 HELOC can fluctuate, influenced by how much of the credit line you have used and whether you are in the draw or repayment period. If you use the entire $100,000 and are in a 20-year repayment period, here is the monthly payment amount at different interest rates: A rate of 7.00% would be $775. At 8.00% you are looking at a payment of $836. And at 9.00%, you can expect to pay $900. Remember, though, that HELOCs have variable interest rates so your exact number may differ.
The payment on a $25,000 home equity loan is determined by the home equity loan rate and loan term. For instance, at an 8.00% interest rate over a 15-year term, the monthly payment would be approximately $239. Extending the term to 20 years would lower the payment to about $209. This makes it more affordable, but it would also increase the total interest you pay over the life of the loan.
Home equity loans have a fixed interest rate and monthly payments you can count on. They’re ideally suited for big-ticket items such as home improvements, debt consolidation, or a major purchase. With your home as collateral, you’ll often get a lower interest rate than you would with an unsecured loan. Plus, if you’re using the loan for qualifying home improvements, you might be able to deduct the interest on your taxes.
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*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.
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