Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the Federal Reserve’s policies and the borrower’s credit score and debt-to-income ratio.
• Elevating your credit score to 680 or above and keeping your DTI ratio under 36% can land you lower rates.
• Fixed rates offer the peace of mind of consistent and predictable monthly payments.
• Property insurance is a must-have for most home equity loans.
• The interest on your home equity loan may be tax-deductible if used for home improvements.
Home equity loan interest rates are a key consideration when you’re thinking about how to get equity out of your home in Columbia, South Carolina. We’ll help you understand what they are, how they can affect your finances, and what you can do to get the best rate and find the right type of home equity loan for your personal situation.
First step? Make sure you understand what a home equity loan is and how it differs from other ways of borrowing against your home’s equity.
A home equity loan is technically a second mortgage that uses your home as collateral. The loan is disbursed in one lump sum, and you immediately begin repaying it in monthly installments over the loan term, typically five to 30 years. Because the loan is secured by your home’s equity, these loans usually offer lower interest rates than unsecured personal loans. The interest rate tends to be fixed, which can make it easier to budget for monthly payments. To qualify for a home equity loan, you’ll need at least 20% equity in your home.
To get a sense of how much you might be able to borrow, use a home equity loan calculator.
Home equity loan interest rates are the result of a variety of economic and personal factors. The policies of the Federal Reserve have a significant impact on the cost of borrowing. Lenders adjust their rates based on the prime rate, which is influenced by the Federal Reserve’s decisions. Your credit score and debt-to-income (DTI) ratio are also important; generally, the better your credit score, the lower the interest rate you’ll receive. Loan amount and the repayment term you choose also play a role.
The interest rate you lock in can make a world of difference in how manageable a home equity loan is over time. Even the slightest change in rates can add up to significant extra interest. Consider a $100,000 home equity loan with a 15-year repayment period. At an 8.50% rate, your monthly payment would be $984, and the total interest paid would amount to $77,253. But, at 9.50%, that monthly payment jumps to $1,044, and the total interest paid skyrockets to $87,961. That’s an extra $10,700 in interest alone over the life of the loan. Both the interest rate and the loan term are important factors. Take a look at the chart below, which shows you how different loan terms and rates affect monthly payments for varying 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 |
The trends in home equity loan rates can be a bit like the weather — blowing hot and cold. The prime rate, a key benchmark for home equity loan rates, has seen some significant ups and downs. For example, it was as low as 3.25% in 2020 and as high as 8.50% in 2023. These changes have a direct impact on the rate you qualify for. Just like when you obtained your original home loan, if you have the flexibility to wait for a lower rate, keeping an eye on economic conditions and the prime rate can help you time your application to the moment that feels right for you.
| 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 snag the lowest possible home equity loan rate, you need to be proactive. Take these steps before applying for a home equity loan.
To be eligible for a home equity loan, it’s important to have at least 20% equity in your home. Calculating your equity is simple: Subtract your outstanding mortgage balance from your home’s estimated value, then divide the result by your home value to arrive at a percentage of equity. For instance, if your mortgage balance is $400,000 and your home is valued at $550,000, your equity totals $150,000. Divide that by $550,000, and you have an equity level of 27%.
Most lenders permit borrowing up to 85% of your equity, which in this case could mean a potential loan of $127,500. It’s a smart move to ensure you have ample equity not only for favorable loan rates but also to steer clear of foreclosure risks. If you’re close to 20% equity but not quite there, making extra payments toward your loan principal can help you hit the mark faster.
To snag enviable home equity loan rates, set your sights on a credit score of 680 or higher. Many lenders even look for 700 and above. A track record of timely payments shows lenders you’re the responsible sort they love to work with. If your score isn’t quite stellar, chip away at your debts, challenge any credit report errors, and keep your credit card balances in check.
Your DTI ratio is a significant piece of the puzzle when it comes to qualifying for a home equity loan. Lenders generally look for a DTI ratio under 50%, with an even better chance of approval if it’s 36% or lower. You can calculate this ratio by dividing your total monthly debt payments by your gross monthly income. To improve your DTI, consider strategies like paying off high-interest debts, boosting your income, or a combination of both. Not only will this make you a more appealing borrower, but it could also lead to a lower interest rate.
Property insurance is a must-have for most home equity loans, as it is for most mortgages. It’s a safety net for you and your lender in case of damage. Lenders often ask for proof of insurance before giving the green light on your loan, and it’s crucial to keep that coverage throughout the loan term. In Columbia, having the right insurance can not only help you meet lender requirements but may also help you snag the best home equity loan rate.
Online calculators can help you estimate your monthly payments and total interest costs, making a comparison of different home equity loan offers a breeze. Try a home equity loan calculator or, if you’re exploring a home equity line of credit, a HELOC calculator.
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 typically range from 2% to 5% of the loan amount. The itemized tab tends to include the usual suspects: appraisal, credit report, document preparation, origination, notary, title search, and title insurance.
Recommended: HELOC vs. Home Equity Loan
The interest you pay on a home equity loan may be tax deductible if the proceeds are used to buy, build, or substantially improve the home. If you’re married and filing jointly, you can deduct interest on up to $750,000 of qualified home equity loans. For single filers, the loan limit is $375,000. To claim the deduction, you must itemize your deductions on your tax return. This tax benefit is currently set to expire after 2025, but it could be extended. Consult a tax advisor to see how this deduction may apply to your specific financial situation.
There are other ways to tap into your home’s equity, so it’s worth considering these if you’re thinking about a home equity loan. A home equity line of credit (HELOC) or a cash-out refinance could be a good fit.
A HELOC is a bit like having a credit card with a spending limit that’s secured by your home. You only pay interest on the amount of the credit line that you actually use, and during the “draw” period of the HELOC, you only pay interest — no principal. This is when a HELOC interest-only calcuclator comes in handy.
Once the draw period ends, you’ll start paying back both the principal and interest, which likely means higher monthly payments. The interest rate on a HELOC is usually variable, meaning it can fluctuate with the market. (A HELOC repayment calculator can help you figure out how much you might owe at different rates.) HELOCs are especially useful for borrowers who aren’t sure exactly how much they might need to borrow, or who need to borrow in increments versus all at one time.
A cash-out refinance is a type of mortgage refinance that lets borrowers replace their current mortgage with a larger one and pocket the difference between the two in cash. The amount you can access is tied to your home equity, with most lenders capping it at 80% of your home’s value. You’re looking at a minimum 620 credit score and a DTI ratio under 43% to qualify. These refinances come with the choice of fixed or variable rates, and variable rates might just open the door to more equity. Unlike a home equity loan, a refi leaves you with one monthly payment to manage instead of two.
Here’s a quick look at a cash-out refinance vs. a home equity line of credit and a home equity loan:
| Home Equity Loan | HELOC | Cash-Out Refinance | |
|---|---|---|---|
| Borrowing Limit | Up to 85% of borrower’s equity | Up to 90% of borrower’s equity | 80% of borrower’s equity for most loans |
| Interest Rate | Fixed | Generally variable | May be fixed or variable |
| Type of Credit | Installment loan: Borrowers get a specific amount of money all at once that they then immediately begin repaying, with interest, in regular installments. | Revolving credit: Borrowers receive a line of credit. They have a draw period (5-10 years) during which they borrow and can only pay interest (a HELOC interest-only calculator is useful then). Then there is a repayment period (10-20 years) to repay the principal plus interest. | Installment loan: Borrowers receive a lump sum payment from the excess funds of their new mortgage, which has a new rate and repayment terms. |
| Repayment Term | Generally 5-30 years | A draw period of 5-10 years, followed by a repayment period of 10-20 years | Generally 15-30 years |
| Fees | Closing costs (typically 2-5% of the loan amount) | Closing costs (typically 2%-5% of the loan amount), plus other possible costs, depending on the lender (annual fees, transaction fees, inactivity fees, early termination fees) | Closing costs (typically 2-5% of the loan amount) |
If you’re thinking about a home equity loan, start by getting your financial house in order. That means building a strong credit score and managing your debt-to-income ratio. You’ll also need to make sure you have adequate property insurance, as that can affect the rates you’re offered. Use online tools to estimate costs, and consider alternatives like a HELOC or a cash-out refinance before you commit. With a little research and good credit habits, you should be well positioned to obtain a loan that’s friendly to your finances.
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 used for large purchases, home renovations, and consolidating higher-interest debt. The flexibility of these loans makes them a popular choice for homeowners. However, it’s important to use the funds responsibly and consider the long-term financial effects. Compare home equity loan rates and terms from several lenders to ensure you’re getting the best deal for your needs.
The monthly payment for a $50,000 home equity loan will depend on 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.
For a 15-year fixed-rate loan at 7.50%, the monthly payment would be about $278. If you choose a 30-year term at the same rate, the monthly payment would be roughly $210. The monthly payment on a $30,000 home equity loan is affected by the home equity loan rates and the loan term. These payments include both principal and interest. Longer terms offer lower monthly payments but increase the amount of interest paid over the life of the loan.
Home equity loans have a few advantages, like a fixed interest rate and monthly payments you can count on. They’re perfect for big-ticket items such as home improvements, debt consolidation, or a major purchase. With your home as collateral, you’ll often obtain a lower interest rate than you would with an unsecured loan, and this can translate to significant savings over time. 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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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 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.
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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