Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in Chicago are influenced by Federal Reserve policy and the borrower’s credit score and debt-to-income ratio.
• Fixed interest rates offer the comfort of predictable monthly payments, while adjustable rates can be initially lower.
• You need at least 20% equity in your home to be eligible for a home equity loan.
• The interest on a home equity loan could be tax-deductible if used for home improvements.
• Other options are a home equity line of credit and cash-out refinance, each with their own unique benefits.
For homeowners, a home equity loan is a fantastic way to access cash by leveraging the equity in your property. In this guide, we’ll take a deep dive into home equity loan interest rates in Chicago, Illinois, to help you understand how these rates are determined and what you can do to secure the best terms. Whether you’re dreaming of a major home makeover, aiming to consolidate high-interest debt, or planning a significant purchase, being in the know about current interest rates and how to snag the most favorable terms can make all the difference in maximizing your home’s equity while keeping costs in check.
To begin, what is a home equity loan, anyway?
A home equity loan is a second mortgage that allows you to borrow a lump sum of cash based on your home’s equity. Your equity is the difference between what your home is worth on the market and the balance of your mortgage. According to Zillow, the average home value in Chicago is $315,000. If your home is appraised at $300,000 and you still owe $200,000 on your mortgage, you’ve got $100,000 in equity, or 33%.
Many lenders will let you borrow up to 85% of your home’s equity, which in this case could mean a loan of up to $85,000. A home equity loan calculator can help you calculate your equity and how big a loan you might qualify for.
Home equity loan rates are a product of larger economic forces and your personal financial metrics. Lenders often peg their base interest rates to the prime rate. Banks then add what’s called a “margin” to the prime rate — anywhere from -1% to 5% — that’s based on your credit score and debt-to-income (DTI) ratio. Generally, the higher your credit score and the lower your DTI ratio, the better the rate you can secure. The loan amount and repayment term also come into play, with longer terms and larger loans often carrying higher interest rates due to the increased risk for the lender.
Your interest rate plays a big role in how much you’ll shell out for your home equity loan. Even a fraction of a percentage point can add up to a substantial amount in savings or extra interest over the loan’s lifespan. For instance, with a $100,000 loan and a 15-year repayment plan, at 8.50% interest, you’d be looking at a monthly payment of $985 and a total interest of $77,253. Bump that interest rate by one point to 9.50%, and suddenly your monthly payment is $1,044, with total interest of $87,960. That’s $10,700 more over the loan’s life.
Below you can see how even smaller changes in interest rate can add up a lot over the course of a 15-year loan.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 9.0% | $1,014 | $82,568 |
| 8.875% | $1,007 | $81,262 |
| 8.75% | $999 | $79,901 |
| 8.625% | $992 | $78,574 |
| 8.50% | $985 | $77,253 |
| 8.375% | $977 | $75,937 |
| 8.25% | $970 | $74,625 |
| 8.125% | $963 | $73,319 |
| 8.00% | $953 | $72,017 |
Predicting the future of interest rates is no easy feat, but looking at the past can help you see what might be in store. The prime rate, which is the basis for home equity loan rates, has been on a rollercoaster in recent years. It hit a low of 3.25% in 2020 and a high of 8.50% in 2023. These fluctuations have a big impact on the rates you’re offered, so it’s a good idea to keep an eye on the economy and, whenever possible, apply for a home equity loan when rates are more favorable.
| 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% |
To qualify for the lowest available home equity loan rates, you’ll first want to spend time getting your financial life in order:
To be eligible for a home equity loan, you need to have at least 20% equity in your home. This is calculated by subtracting your mortgage balance from your home’s current value. For example, if your mortgage balance is $400,000 and your home is worth $550,000, you have $150,000 in home equity. Lenders use this equity to determine the maximum loan amount, typically allowing you to borrow up to 85% of your home’s equity. Ensuring you have enough home equity is key to qualifying for different types of home equity loans, including HELOCs.
Set your sights on a credit score of 680 or higher, although many lenders are partial to 700 and above. Consistently paying your bills on time, keeping credit card balances in check, and maintaining a diverse credit portfolio can all contribute to a higher score. If a home equity loan is in your future, start shoring up your credit score now to ensure you’re in the best possible position.
Your debt-to-income (DTI) ratio is another factor in securing any kind of home loan and scoring the best rates. Most lenders are looking for a DTI below 50%, but the sweet spot is actually 36% or lower. To calculate this, you divide your total monthly debt payments (student loans, mortgage, personal loans, credit card debt) by your gross monthly income. If you’re looking to improve your DTI, think about paying off some of those lingering debts or boosting your income (if that’s an option). A lower DTI not only increases your chances of loan approval, but it also sets you up for more favorable interest rates and loan terms.
Property insurance is a requisite for home equity loans, especially in areas prone to natural disasters. Lenders seek the assurance that the property securing the loan is safeguarded against potential damage. Having the right insurance in place can save you from additional costs and complications if the unexpected occurs. When you apply for a home equity loan, be sure to check with your lender to understand the specific insurance requirements, which may include homeowner’s insurance, flood insurance, and other types of coverage.
Our tools and calculators come in handy when you’re trying to decide how to get equity out of your home. Let’s say you’re considering a $75,000 loan at an 8.00% interest rate over 20 years. With just a few clicks, you can see an estimate of your monthly payment (around $627) and the total interest cost (approximately $75,559). You can even compare different rates and term lengths to ensure you’re getting the best deal for your financial situation.
Here’s a tip: Even if you’re set on a home equity loan, you might play around with a HELOC interest-only calculator and a HELOC repayment calculator to compare your monthly payments and the total interest you’d pay.
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.
For home equity loans, closing costs typically range from 2% to 5% of the loan amount. You’re looking at fees for 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.
You’ll be glad to know that the interest on a home equity loan or HELOC may be tax-deductible if the funds are used to purchase, build, or improve your home. Current tax laws, which are in play through 2025, allow joint filers to deduct interest on home equity loans up to $750,000, while single filers can claim deductions on loans up to $375,000. To take advantage of this benefit, you’ll need to itemize your deductions on your tax return. As always, it’s wise to chat with a tax advisor to see how this applies to your unique financial situation.
If you’re considering a home equity loan, you might also want to look into other options, such as a home equity line of credit (HELOC) or cash-out refinance.
Imagine having a credit card that’s backed by your home. A HELOC is just that — a flexible line of credit with a variable interest rate that allows you to borrow up to a certain limit. You pay interest only on the amount you use. Typically, lenders look for a credit score of 680 or higher (700 is even better) and a debt-to-income ratio of 50% or less (36% is the sweet spot). HELOCs are great for those who need to borrow varying amounts over time and can be a smart alternative to home equity loans. If you’re waffling between a HELOC vs. a home equity loan, the chart below may be helpful.
| 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 |
Recommended: What Is a Home Equity Line of Credit?
A kind of mortgage refinance, a cash-out refinance is a strategic move that could replace your current mortgage with a larger one, giving you a lump sum of cash based on your home’s equity. Most lenders will let you borrow up to 80% of your home’s value. With a credit score of 620 or higher and a debt-to-income ratio of 43% or less, you could qualify for this option, which offers both fixed and variable rates. Variable rates might even open the door to cashing out more equity.
Recommended: Cash-Out Refinance vs Home Equity Line of Credit
When you’re ready to consider a home equity loan, remember that a strong credit score, a modest debt-to-income ratio, and adequate property insurance are your allies in securing the most favorable rates. Make use of tools and calculators to estimate payments and costs, and don’t forget to explore the potential tax benefits. Keep in mind that there are alternatives like HELOCs and cash-out refinances, each with its own set of advantages. Before you take the plunge, compare offers from multiple lenders and weigh the terms against your financial goals. And as always, a financial advisor can be your best guide to ensure you’re making the most informed decision.
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 finance large purchases or home renovations, or to consolidate high-interest debt. You’ll receive the funds in one lump sum with a fixed interest rate. Using the loan to improve your home could increase its value and potentially provide a tax deduction for the interest paid.
The monthly payment on a $50,000 home equity loan can fluctuate based on the interest rate and loan term you select. For instance, at a 6.00% interest rate over a 10-year term, your monthly payment would be approximately $555. If the interest rate is 8.00%, you’re looking at a monthly payment of $607.
A $100,000 HELOC generally carries a variable interest rate, which can impact your monthly payments. During the draw period (usually 10 years), you might only pay interest, which at a 9.00% rate could be $750. Once the draw period concludes, you’ll begin paying both principal and interest, which could raise your monthly payment.
The monthly payment on a $25,000 home equity loan can fluctuate based on the interest rate and loan term. Let’s say you’re looking at a 6.00% interest rate over a 10-year term, your monthly payment would be approximately $278. If the interest rate is 8.00%, that would nudge the payment to $303.
The monthly payment on a $30,000 home equity loan varies with the interest rate and loan term. At 8.00% over 10 years, the payment could be around $364 each month. If the rate is 9.00%, that would nudge up the payment to $380.
There are a few things that might stand in your way. Lenders generally look for at least 20% equity in your home, a credit history that’s in good shape, and a debt-to-income ratio of 43% or less. If your credit score is on the lower side, say below 620, that could make things tricky, as could a higher debt-to-income ratio. And if you don’t have enough equity in your home, that could also be a roadblock.
Home equity loans are a great choice for those who prefer the stability of fixed interest rates and predictable monthly payments. They often come with lower rates than unsecured loans, because your home is used as collateral. Plus, if you use the loan for home improvements, the interest you pay might be tax-deductible.
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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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