Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• The home equity loan rates in Denver are influenced by Federal Reserve monetary policy, your creditworthiness, and your property insurance coverage, among other factors.
• Even a fraction of a percentage point change in interest rate can make a big difference in the total amount of interest you’ll pay over the life of the loan.
• Home equity loans typically come with fixed interest rates, which means your monthly payments always stay the same.
• Closing costs usually range from 2% to 5% of the loan amount.
• Online calculators and tools can help you quickly and easily explore the ramifications of different loans and how they might affect your budget.
Home equity loans can be a smart financial move for homeowners who want to tap into their property’s value.
This guide will take you through the current home equity loan rates in Denver, Colorado, and shed light on how these rates are set. We’ll explore the big influencers, from Federal Reserve monetary policy to your own creditworthiness. You’ll also discover the best ways to compare rates from various lenders and the steps you can take to secure the most favorable terms for different types of home equity loans. And we’ll show you exactly why your rate should be a primary concern as you plan your financial future.
What is a home equity loan? Let’s break it down. A home equity loan is a second mortgage: It lets you use your home as collateral to secure a lump sum of money that you can use for a variety of purposes. The funds are typically issued all at once, and you repay the money in equal monthly installments over a period of five to 30 years. Because these loans are secured by your home, the interest rates are often more favorable than those on unsecured personal loans.
To qualify for a home equity loan, you generally need to have at least 20% equity in your property. If you’ve been paying your mortgage diligently and you’re wondering how to get equity out of your home, a home equity loan may be a great option for you.
Home equity loan interest rates are determined by a variety of factors, including the broader economy and your own financial profile. The Federal Reserve’s monetary policies can have a big impact on the lending market, especially the Fed’s decisions on the federal funds rate, which influences the prime rate. And when the prime rate goes up, home equity loan rates often follow.
Your credit score and debt-to-income (DTI) ratio also affect the interest rates lenders will offer you, with higher scores and lower DTI ratios typically leading to more favorable rates. The amount of your loan and the length of your repayment term can also have an impact on your rate since the larger the loan and the longer the term, the more risk there is for the lender.
Your interest rate plays a prominent role in making a home equity loan work for you financially. A difference of even a fraction of a percentage point can add up to significant savings or costs.
Let’s look at the chart below: It shows a $75,000 home equity loan with a 20-year repayment term. As you can see, at an 8.00% interest rate, your monthly payment is $627, and your total interest over the entire period of the loan is $75,559. But if your rate is one percentage point lower, at 7.00%, your monthly payment is $581 and your total interest drops to $64,554. That’s $11,005 in extra interest that the higher rate would cost you.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Fixed interest rates are a hallmark of home equity loans, but some lenders may offer adjustable interest rates on these loans, so it’s a good idea to consider which you’re more comfortable with before you commit. Fixed interest rates never change. Every month through the term of the loan, you’ll pay the same exact amount. This steady predictability can be great for planning your finances and may give you peace of mind as well.
HELOCs typically have adjustable rates. These start out with a certain rate for a set period and then adjust with the market. They can initially be more budget-friendly, since they tend to begin a bit lower than fixed rates. Just remember, because the rates adjust, you can potentially face uncertainty and higher payments down the road.
By considering what your tolerance is for uncertainty and how likely you are to have a flexible budget during the years you’re paying off your loan, you can make an informed choice that suits your unique financial landscape.
Predicting interest rate movements is a bit of a guessing game, given how many factors are involved. But by keeping an eye on recent moves, you may gain some valuable perspective.
Let’s look at the prime rate, which banks use to set home equity loan rates. It’s been all over the place in recent years. In 2020, curing the Covid-19 pandemic, it reached a low of 3.25%, but by July 2023 it had risen to 8.50%.
| 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% |
These fluctuations can translate to significant differences in the rates you’re quoted. Staying in the loop with economic shifts and lender policies can help you time your application just right, boosting your odds of snagging the most attractive rate out there.
If you’re aiming for the most competitive home equity loan rates, here’s a tip: Focus on boosting your credit score and keeping your debt-to-income (DTI) ratio in check. Even if you’re still considering a HELOC vs. a home equity loan or a cash-out refinance, the strategies below can help you secure the most favorable loan interest rates and terms.
To approve you for a home equity loan, a lender will want you to maintain a minimum of 20% equity in your home. If you’re not sure how much equity you have in your home, it’s easy to figure out: Simply subtract your current mortgage balance from your home’s market value. For instance, if your mortgage balance is $400,000 and your house is worth $550,000, your equity is $150,000.
Typically, lenders will loan you up to 85% of your available equity, meaning that in this example, you might be able to get a loan for as much as $127,500. (A home equity loan calculator can help you determine how large a loan you might be able to access for different circumstances.)
Making your mortgage payments on time and investing in home improvements are good ways to build more equity.
To be offered the most favorable home equity loan rates, you’ll want to be sure your credit score is robust. Lenders often look for scores of 680 and above, with the best rates typically reserved for those at 700 or higher.
A higher credit score is a testament to your financial prudence, which is why it’s so important to lenders. If you have a solid track record of managing credit and making payments on time, you’re in a great position to qualify for lower interest rates.
Your debt-to-income (DTI) ratio is a critical part of your financial profile as you apply for home equity loans. Lenders often look for a DTI ratio under 50%, but 36% or lower is preferred.
To calculate your DTI ratio, divide your total monthly debt payments by your gross monthly income. A lower DTI ratio suggests you’re better equipped to handle monthly payments, which is music to a lender’s ears. To boost your DTI ratio, do your best to chip away at existing debts or explore ways to increase your income before you start applying.
Property insurance is a must-have for most home equity loans, especially in areas prone to natural disasters like wildfires or flooding. It’s a safety net for both you and the lender should your home be damaged.
Before you apply for a home equity loan, make sure your property insurance is current and meets your lender’s standards. This may help you snag better rates, and it also is a good way to give yourself peace of mind about your home.
When it comes to understanding, evaluating, and comparing different home equity loan possibilities, online tools and calculators can be a big help.
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 you’re closing a home equity loan, you’ll probably have to pay closing costs, which typically range between 2% and 5% of the loan amount. This includes fees for appraisals, credit reports, and the loan origination process, among others. Here’s a rundown of the most common.
| Service | Typical Fees |
|---|---|
| Appraisal | $300-$500 |
| Credit report | $30-$50 or more |
| Document prep | $100-$500 |
| Loan origination | 0.5%-1.0% of the loan amount |
| Notary | $20-$100 |
| Title insurance | 0.5%-1.0% of the loan amount |
| Title search | $75-$250 or more |
Sometimes no-closing-cost home equity loans may be available, but they often come with higher interest rates.
The interest on your home equity loan may be tax-deductible if you use the loan to improve your home. For single filers, interest is deductible on the first $375,000 of loan debt. Spouses filing together can deduct the interest on up to $750,000 of debt. But bear in mind that you will have to itemize if you want to claim this deduction. It’s a good idea to check with a qualified tax advisor to get the latest information and advice.
If a home equity loan doesn’t seem quite right for you, there are other options to consider that also let you draw on your home equity. A HELOC gives you a revolving line of credit with variable interest rates, while a cash-out refinance is a kind of mortgage refinance that replaces your original mortgage with a new one for a larger amount than you owe and gives you the difference in a lump sum.
What is a home equity line of credit? A HELOC is akin to a credit card, but it’s backed by the equity you have in your home. It gives you a flexible way to borrow funds up to a preset limit, and interest payments are usually required only on the amount withdrawn. It generally starts off with a “draw” period, during which you can take out funds when you need them. Following that is a period of years during which you pay back the principal you’ve borrowed and interest. HELOCs usually have variable interest rates, which can result in unpredictable payment amounts.
For a HELOC, you’ll typically need a credit score of 680 or higher (700 is even better) and a DTI ratio below 50% (less than 36% is optimal). You can often borrow up to 90% of your home equity. If you’re comfortable with the potential fluctuations of variable rates, a HELOC may work for you. To find out how much monthly payments for a HELOC will be, try a HELOC monthly payment calculator. And to calculate how much interest you’ll pay during the “draw” period of a HELOC, consider using a HELOC interest-only calculator.
With a cash-out refinance, you replace your current mortgage with a new home loan that’s larger than what you owe and take the difference as a lump sum. You pay back the new mortgage and the lump sum in a combined payment every month.
If you’re looking at the benefits of a cash-out refinance vs. a home equity line of credit, it’s important to realize that the requirements for borrowing are often different. It’s usually easier to qualify for a cash-out refi than for a home equity loan or a HELOC. For a cash-out refinance, lenders typically want to see a minimum credit score of 620 and a DTI ratio of 43% or less. Cash-out refinances can have either fixed or variable interest rates.
If you’re interested in a home equity loan in Denver, it’s important to understand the factors that can influence the rates you’re offered. Building your credit, managing your debt-to-income ratio, and securing sufficient property insurance can all help you get better rates. You can use calculators to estimate your payments and understand the financial impact of taking out a home equity loan. And there are alternatives – like HELOCs and cash-out refinances – that also let you tap your home equity, if a home equity loan doesn’t seem like a good fit. Armed with the information and tools you now have, you’re equipped to find the best financial options for you.
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.
Home equity loans are typically used by homeowners to finance major expenses like home renovations, medical bills, or college tuition. Many also use it to pay off high-interest debt, since you can usually get a home equity loan at a lower interest rate than an unsecured personal loan.
Your monthly payment on a $50,000 home equity loan will be based not just on the loan amount, but also on the loan term and interest rate. A loan with a 7.00% interest rate over 15 years would mean a payment of $449.41. If you extended the term to 20 years, the monthly payment would be $387.65. Just remember that the longer your term is, the more money you’ll end up paying in interest, even if your monthly payment is smaller.
The monthly payment for a $25,000 home equity loan will vary depending on the interest rate and the loan term. For instance, at an 8.00% interest rate over a 10-year term, you’re looking at approximately $303 per month. Increase that interest rate to 9.00%, and the payment jumps to about $317. That’s why getting the best rate you can is important.
Several factors could potentially disqualify you from securing a home equity loan. These include having insufficient equity in your home, a credit score that’s too low, or a high debt-to-income ratio. Lenders want to see a candidate with at least 20% equity in their home and a credit score of 680 or above. A debt-to-income ratio above 50% may also be a red flag for some lenders. Additionally, a history of late payments or defaults could be a problem.
SoFi Mortgages
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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