Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in Des Moines are influenced by economic conditions and borrower profile.
• The prime rate serves as a benchmark for determining home equity loan rates.
• Comparing offers from multiple lenders can help you secure the best available rate.
• Online calculators can help you estimate monthly payments and total interest costs.
• Good property insurance is a must and protects you and the lender.
A home equity loan is a powerful financial resource for homeowners who want to tap into the value of their property without selling it. In this guide, we’ll explore the current home equity loan rates in Des Moines, Iowa, and help you understand the factors that influence the rate you might be offered. We’ll explain what a home equity loan is and the potential advantages and drawbacks of this type of loan, as well as alternative financing solutions. With this information in hand, you’ll be better prepared to decide if a home equity loan is the right way to get equity out of your home.
A home equity loan, which is a second mortgage, provides a one-time lump sum that you can use for a variety of expenses. Because the loan is secured by your home, the interest rate you can expect is lower than what you would be offered for a personal loan. Rates are also typically fixed, which make your monthly payments predictable. Most lenders require that you have at least 20% equity in your home to qualify. A home equity loan calculator can help you determine how much you might be able to borrow.
Recommended: What Is a Home Equity Line of Credit?
Interest rates for differen types of home equity loans are influenced by a variety of factors, including the economic climate and your personal financial situation. The Federal Reserve’s policies and the prime rate help lenders determine, broadly, the rates they will offer. But lenders also consider each borrower’s credit score and debt-to-income (DTI) ratio, with higher scores and lower ratios typically leading to more favorable rates. The amount you’re borrowing and the length of your repayment term can also impact the interest rate.
Your interest rate is an important factor when it comes to the affordability of a home equity loan. Even a small change in percentage can add up to significant savings or costs over time. For instance, a $100,000 loan at 8.50% interest would set you back about $985 a month, with a total interest of $77,253 over 15 years. But increase the rate to 9.50%, and you’re looking at a monthly payment of $1,044 and total interest of $87,960. That’s a more than $10,000 difference in interest alone. So it’s smart to seek out the best possible interest rate and think about how payments fit into your monthly budget and long-term financial goals.
The landscape of home equity loan rates is constantly changing, influenced in part by the prime rate. As you can see here, the prime rate dropped to 3.25% in 2020, only to rise to 8.50% by 2023. These shifts have a ripple effect on home equity loan rates. So it’s wise to keep an eye on economic conditions as you prepare to file a loan application.
| 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 most favorable home equity loan rates, you need to focus on several key areas: your level of home equity, your credit score, your DTI ratio, and property insurance. The process of applying for a home equity loan is similar to getting a home loan. Let’s take these important qualifying factors one by one:
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 result 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.
A credit score of 680 is often the starting point when lenders are considering home equity loan applicants, but the higher, the better. A robust credit score is a sign of financial prudence and can translate to more attractive loan rates. Those with a history of timely payments, low credit balances, and a diverse credit portfolio are more likely to secure favorable terms. Focusing on your credit score before you apply for a home equity loan is a smart move that can lead to long-term savings on interest.
Your DTI ratio will be carefully considered by a potential lender. They generally accept a DTI under 50%, but a ratio below 36% is preferred. You can determine your DTI by totaling your monthly debts and dividing by your gross monthly income. To manage your DTI, consider chipping away at your current debt, boosting your income, or both. A lower DTI not only increases your likelihood of approval but also sets the stage for more favorable loan terms.
It’s a good idea to give your property insurance a checkup before you apply for a home equity loan. This is especially important if you live in an area that’s prone to natural disasters, like tornados or severe winter storms. Having solid coverage not only protects your investment but also gives your lender peace of mind. Check that your policy is up to date and meets your lender’s requirements, which may include flood insurance, depending on your location.
Running the numbers on a home equity loan can help you get a feel for how borrowing might affect your financial situation. Fortunately, online tools can do the math for you. Here are a few of our favorite calculators.
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 usually fall between 2% and 5% of the loan amount. These fees cover a long list of expenses, from an appraisal to the title search and more. While no-closing-cost home equity loans are out there, they often come with higher interest rates. It’s crucial to include a comparison of closing costs when you are looking at offers from multiple lenders to find the best deal.
Here’s a potential tax break: The interest on your home equity loan might be tax-deductible if you use the money to make significant home improvements, or to buy or build a home. Married couples filing jointly can deduct the interest on up to $750,000 of qualified home equity loans, while single filers can deduct the interest on loans up to $375,000. To claim this deduction, you’ll need to itemize your deductions on your tax return, so you may want to consult a tax advisor to get advice tailored to your financial situation.
A home equity lines of credit (HELOC) and a cash-out refinance are two popular alternatives to home equity loans. Each of these options has its own unique features and eligibility requirements — and both use your home as collateral.
A HELOC is like a credit card in the sense that it allows you to borrow up to a certain limit, and for the 10-year “draw” period, you only have to pay interest on the amount you’ve drawn. (You can use a HELOC interest-only calculator to see what those payments might look like.) After the draw period you’ll enter a repayment period when you pay back what you have borrowed, plus interest. A HELOC repayment calculator will be useful then.
Interest rates for HELOCs are usually variable, meaning your costs may increase or decrease with market forces. To qualify for a HELOC, you’ll typically need a credit score of 680 (700 is preferred) and a debt-to-income ratio of less than 50% (ideally 36% or lower). HELOCs are a great option if you’re not sure how much you need to borrow.
A cash-out refinance is like hitting the reset button on your mortgage and getting a lump-sum loan at the same time. You can borrow up to 80% of your home’s equity in cash. To qualify, a credit score of 620 or more and a DTI ratio under 43% are generally the benchmarks. Because this is a mortgage refinance, you get to choose between fixed or variable interest rates.
Here’s one thing to consider with a cash-out refinance vs. a home equity line of credit: With a cash-out refi, you’ll only have one monthly payment, making life—and your finances—a tad simpler.
Take a quick look at a HELOC vs. a home equity loan and a cash-out refi:
| 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, followed by 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) |
Home equity loans can help you capitalize on your home’s equity to get cash you can use to pay for home improvements or debt consolidation. But they also come with risks. If you miss payments, you could experience foreclosure. To get the best home equity loan rate, focus on building a strong credit score, managing your DTI ratio, and making sure you have enough property insurance. Shop around and check rates at multiple lenders to find a loan that aligns with your long-term financial goals.
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 versatile and can be used for all sorts of needs, such as large purchases, home renovations, and debt consolidation. The funds are typically distributed as a lump sum, which can be beneficial if you know how much money you will need and when you will need it. If you aren’t sure, a home equity line of credit might be a better fit.
The payment on a $25,000 home equity loan is calculated using the loan’s interest rate and term. For example, at a 7.00% interest rate over 15 years, the monthly payment would be approximately $225. This fixed-rate payment includes both principal and interest, making it easier to budget.
The payment on a $30,000 home equity loan is based on the interest rate and loan term. For a 15-year fixed-rate loan at 7.50%, the monthly payment would be $278. If you choose a 30-year term at the same rate, the monthly payment would be about $210. This fixed-rate payment would cover both the principal and interest. Longer terms offer lower monthly payments but increase the total interest paid over the life of the loan.
There are a few things that might stop you from securing a home equity loan. Most lenders look for a credit score of at least 680. Your debt-to-income (DTI) ratio should not exceed 50% (and ideally be closer to 36%) to ensure you can comfortably handle the additional financial responsibility. And you’ll need to have at least 20% equity in your home.
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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