Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the borrower’s credit score, equity, and debt-to-income level.
• Comparing offers from multiple lenders is the smart way to find the best deal.
• Home equity loans’ fixed rates make for predictable payments, which is great for budgeting.
• Even a small rate difference can make a big difference in your overall interest costs.
• Keep your credit score at 700 or above and your DTI ratio under 36% to snag lower rates.
Interest rates are an important consideration when you are thinking about how to get equity out of your home in Colorado Springs, Colorado. This article will help you understand how interest rates work and how to best prepare for the process of obtaining a home equity loan. We’ll cover the factors that affect your rate and provide tips for how you can get the best deal. By the time you finish reading, you should have a better idea of how to find the best option for your financial needs.
A home equity loan allows you to borrow against the difference between your home’s value and what you owe on your mortgage — also known as your equity. Many lenders will let you borrow up to 85% of your equity. If you qualify, you’ll receive the loan as a lump sum and immediately begin to repay it, plus interest. These loans typically come with fixed interest rates, and because the loan is guaranteed by your home, the rates are often lower than they would be with an unsecured loan. Another important part of what a home equity loan is: It’s a second mortgage. And that means if you fail to repay the loan, you could lose your home to foreclosure.
To qualify for a home equity loan, you’ll need to show that you have at least 20% equity, good credit, and a reasonable debt-to-income (DTI) ratio. You can figure out how much you might be able to borrow by using a home equity loan calculator.
Recommended: What Is a Home Equity Line of Credit?
The interest rates on different types of home equity loans are a product of both the larger economic landscape and your personal financial picture. Lenders typically set their base interest rates by adding a margin to the prime rate, which is closely tied to actions of the Federal Reserve. But from there, they decide the rates they offer individual consumers based on the borrower’s credit score and DTI ratio, among other factors. In general, the higher your credit score and the lower your DTI number, the lower the interest rate you will be offered. Loan amount and loan term also affect the interest rate. Because lenders interpret these variables slightly differently, it’s important to get rate quotes from multiple lenders before making a decision about a loan.
Just as the interest rate on your original home loan was a big deal, so the rate you obtain for a home equity loan can have a significant effect on the cost of borrowing. Even the slightest variation in rates can lead to significant differences in the total interest you’ll pay. For instance, a $100,000 loan at 8.50% over 15 years would mean a monthly payment of $985 and total interest of $77,253. But nudge that rate to 9.50%, and suddenly your payment is $1,044, with the total interest ballooning to $87,961. That’s an extra $10,700 in interest over the loan’s life.
| 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 rise and fall of interest rates is no easy task, but if you’re in the market for a home equity loan, you can keep your eye on the prime rate to get a sense of where home equity loan rates may be going. Looking at the history of the prime rate can also help you understand whether current rates are high or low based on historical trends. Some homeowners in Colorado Springs may try to time their home equity loan application to a dip in rates, but it’s not always possible. Fortunately there are things you can do to help you get the best available rate, whenever you apply.
| 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 obtain the lowest available home equity loan rate from a lender, you’ll want to make sure your application is as strong as possible. Here are four things to do before you begin to apply.
To be eligible for a home equity loan, you’ll need to have at least 20% equity in your home. Give your equity a check: Subtract your mortgage balance from your home’s current value. Then divide the answer by the home value to arrive at a percentage of equity. If you’re near 20% but haven’t quite cleared the mark, consider making extra payments toward your mortgage principal or delaying your loan application until you have more equity under your belt.
Lenders usually look for a credit score of 680 or higher for home equity loans, with many favoring a score of 700 or above. A robust credit score is a testament to your financial prudence and can lead to more attractive home equity loan rates. To bolster your score, focus on making timely payments, maintaining low credit card balances, and steering clear of new debt. Regularly perusing your credit report and disputing any inaccuracies can also give your score a lift.
Your debt-to-income (DTI) ratio is a critical element in securing a home equity loan. This ratio, which compares your monthly debt commitments to your gross monthly earnings, is typically expected to be under 50%, with the sweet spot being below 36%. A lower DTI ratio shows your capacity to handle monthly payments and may lead to more favorable loan terms. To enhance your DTI, consider reducing your existing debts, boosting your income, or even better, both.
Property insurance is a must-have for home equity loans, especially in areas vulnerable to natural disasters. In Colorado Springs, where the wildfire risk is real, having the right coverage not only secures your loan but can also impact the rate you’re offered.
Online calculators can help you get a handle on the costs of a home equity loan. Here are three you will likely find yourself returning to again and again during the borrowing process.
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 fees include the cost of an appraisal, credit report, document preparation, origination, notary, title search, and title insurance. You’ll want to factor these costs into your decision when you’re comparing loan offers from different lenders. Some lenders offer “no closing cost” arrangements, but these loans may come with higher overall costs.
Here’s a nugget of financial wisdom: The interest on home equity loans can be tax-deductible if the funds are used to improve the home. 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 loans up to $375,000. To claim this deduction, you must itemize deductions on your tax return rather than taking the standard deduction. Consult a tax advisor to understand how this applies to your specific financial situation.
Home equity loans are popular in Colorado Springs, but there are other options to consider if you’re interested in taking advantage of the equity you’ve built up in your home. Here’s a closer look:
A HELOC functions much like a credit card but is backed by your home equity — and your equity also determines the credit limit you’ll be offered. During the HELOC’s “draw” period, you can borrow money as you need it, up to your limit, and you’ll only have to pay interest on the amount that you borrow. (A HELOC interest-only calculator can help you figure out what your monthly payments would be.)
After the draw period comes the repayment period, when you’ll repay what you have borrowed, with interest. A HELOC repayment calculator is useful then. The big difference between a HELOC repayment calculator is that HELOCs usually have variable interest rates, which means your costs could go up or down over time. To qualify, you’ll generally need a credit score of 680 or higher (though 700 is preferred) and a debt-to-income ratio below 50% (though ideally, you want to be below 36%). HELOCs are useful when you aren’t sure exactly how much you will need to borrow, or when your costs will be spread out over time.
A cash-out refinance is a type of mortgage refinance that lets you replace your existing mortgage with a new, larger one and pocket the difference to use as you wish. The amount you can cash out is determined by your home equity, with most lenders allowing you to borrow up to 80%. Typically, you’ll need a credit score of 620 or higher and a debt-to-income ratio under 43% to qualify. The beauty of a cash-out refi is that you can choose between fixed or variable rates.
As you’re considering a cash-out refinance vs. a home equity line of credit or a home equity loan, examine your current mortgage rate. If you already have a low rate, you might find it’s better not to refinance.
When you’re ready to consider a home equity loan in Colorado Springs, remember that a strong credit score, a low DTI ratio, and good property insurance coverage can help you secure the best rates. Use online calculators to estimate costs and payments. And, of course, explore alternatives like HELOCs and cash-out refinances to see what best fits your financial needs. Taking these steps and getting rates from multiple lenders can help you potentially save on interest charges.
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 a large purchase, fund a home improvement project, or cover a debt consolidation. The flexibility of these loans makes them a popular choice for homeowners. However, it’s important to use the funds responsibly and ensure the loan aligns with your long-term financial goals. Before applying, consider how the loan will impact your monthly budget and overall financial health.
The monthly payment for a $50,000 home equity loan changes with the interest rate and the term of the loan. At an 8.00% interest rate, for instance, a 10-year loan would have a $607 monthly payment. Choose a 20-year term, and that monthly amount drops to about $418. Consider your budget and goals to pick the term that suits you best. A home equity loan calculator can help you estimate these payments and plan your budget accordingly.
The payment on a $25,000 home equity loan depends on the interest rate and the loan term. For example, at an 8.00% interest rate over a 20-year term, the monthly payment would be $209. This fixed-rate loan means your monthly payment won’t change, which can be helpful for budgeting.
There are several factors that can disqualify you from getting a home equity loan. Lenders typically want to see that you have at least 20% equity in your home, a strong credit history, and a low debt-to-income ratio. A credit score below 620 or a DTI ratio above 50% might make it difficult to qualify.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
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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.
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.
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