Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Federal Reserve policies and your unique financial profile are the main factors in determining your home equity loan rate.
• Comparing rates from multiple lenders can lead to significant savings.
• A strong credit score and low debt-to-income ratio are crucial for qualifying for the best rates.
• Home equity loans are fixed-rate loans, so their monthly payment amount is stable.
• Good coverage with property insurance is a must before borrowing, particularly in flood-prone areas.
A home equity loan can be a powerful financial tool for homeowners. It allows you to borrow a lump sum of money at a lower interest rate than you would have with an unsecured loan. This article will explore the current home equity loan rates in Evansville, Indiana, and explain how these rates are determined. We’ll discuss the benefits and risks of home equity loans and the application process. If you decide to move forward and apply for a home equity loan, you’ll have a solid understanding of how to secure the best rates and use this financial product to your advantage.
A home equity loan is essentially a second mortgage that allows you to borrow a lump sum based on your home’s equity (which is the market value of your home minus the balance of any outstanding home loan). Many lenders will let you borrow up to 85% of your equity. These loans typically come with fixed interest rates and are repaid in monthly installments over a period of five to 30 years.
Recommended: Home Equity Loan Calculator
The interest rates for different types of home equity loans are influenced by economic factors but also by each borrower’s personal profile. The Federal Reserve’s monetary policies have a ripple effect on lending rates. Lenders often adjust their rates according to the prime rate, which is a reflection of the Fed’s stance. Your credit score, debt-to-income (DTI) ratio, and credit history play a significant role, with higher scores typically translating to lower rates. Additionally, larger loan amounts and longer repayment terms may lead to higher rates due to the increased risk for the lender.
Your interest rate is a key player in how affordable your home equity loan will be over time. Even a fraction of a percentage point can add up to significant savings. For instance, on a $100,000 loan with a 15-year repayment, the difference between an 8.50% and 9.50% interest rate is a monthly payment of $985 versus $1,044. Over the entire term, the lower interest rate would save you roughly $10,000. Understanding this can help motivate you to take the time to research offers from different lenders and find the best possible rate.
Anticipating the ebb and flow of interest rates is no easy feat, given the many factors at play. But examining recent patterns may offer some helpful insight. Take the prime rate, for example, a key influencer of many loan products. In 2020, it sat at a mere 3.25%, but by 2023, it had soared to 8.50%. These fluctuations have a direct impact on home equity loan rates. By keeping an eye on them, you can time your application to coincide with more favorable rates.
Since 2018, the prime rate has seen its share of ups and downs, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023. Take a look at the history of the prime rate to get a sense of how high or low it may go this year.
Source: TradingView.comSince 2018, the prime rate has seen its share of ups and downs, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023. Take a look at the history of the prime rate to get a sense of how high or low it may go this year.
| 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 most favorable home equity loan rates, you’ll want to present a robust financial profile. Take these steps before you apply:
To be eligible for a home equity loan, homeowners are advised to maintain a minimum of 20% equity in their home. Calculating your home equity is a simple matter of subtracting your current mortgage balance from the appraised value of your home (you can use an online estimate from a real estate web site for this purpose).
For instance, if your mortgage balance is $400,000 and your home is valued at $550,000, your home equity would be $150,000. Divide your equity by your home value to arrive at your percentage of equity (in this example, 27%). The more equity you have, the greater assurance to the lender of your financial stability — and the more favorable your loan terms will likely be.
When it comes to home equity loans, a credit score of 680 is often the starting point, 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 strategic move that can lead to long-term savings.
Your DTI ratio is a key number that lenders look at when you’re applying for a home equity loan. (To compute your DTI ratio, add up all your monthly debts — car payment, student loan, credit card payment, etc. — and divide by your gross monthly income.) The lower your DTI, the more likely it is that a lender will see you as a good candidate for a loan. Most lenders look for a DTI that’s below 50%, but the lower the better. A DTI below 36% is considered ideal. If your DTI is higher than you’d like, you may want to consider paying down some existing debt or finding ways to increase your income before applying for a home equity loan.
Property insurance is a must-have for home equity loans, particularly in flood-prone areas. This insurance safeguards both you and the lender in the event of property damage. Before the loan is disbursed, lenders may ask for proof of insurance, and should you fail to maintain coverage, the lender might impose their own policy, which could be pricier.
These online tools can help you assess your readiness for a home equity loan. Playing with different loan amounts and interest rates in the payment calculator can also help you understand the financial implications of taking out a home equity loan. You’ll find these useful during your home equity loan search.
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. Ain payments shown depend on the accuracy of the information provided.
As you’re exploring what is a home equity loan, don’t forget to factor in its costs. When it comes to closing costs for home equity loans, you’re typically looking at a range of 2% to 5% of the loan amount. Common fees include appraisal, credit report, document preparation, origination, notary, title search, and title insurance. No-closing-cost loans exist but they may have higher interest rates.
You’ll be pleased to know that the interest on your home equity loan may be tax deductible if you’ve used it to buy, build, or improve your home. The current guidelines are in place through 2025, with the potential for extension. A tax advisor can provide personalized advice, and you may need professional help anyway in order to claim this deduction, as you’ll have to itemize your deductions on your tax return. 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.
A home equity loan isn’t the only way to get equity out of your home. You might also consider a home equity line of credit (HELOC) or a cash-out refinance. Each has its own unique features and requirements. Here’s help weighing the pros and cons:
A HELOC is like a low-interest credit card for homeowners, offering a flexible borrowing limit and interest payments on what you use. Like a home equity loan, it is secured by your home. As you look at a HELOC vs. a home equity loan, note that the rates on a HELOC are usually variable, which means they can change, potentially impacting your costs.
A HELOC typically has two phases: a draw period and a repayment period. During the draw period, you can draw on the credit line and only pay interest on what you have borrowed. (A HELOC interest-only calculator is useful to understand what those payments might look like.) In the repayment period, you’ll repay all that you have borrowed, with interest. That’s when a HELOC repayment calculator will come in handy.
Lenders typically look for a credit score of 680 or higher (700 is even better) and a debt-to-income ratio below 50% (aim for 36% or less). HELOCs are great for those who have fluctuating borrowing needs and prefer to spread costs over time.
A cash-out refinance is a special kind of mortgage refinance. It replaces your existing mortgage with a larger one and puts some extra cash in your pocket. Most lenders allow you to borrow up to 80% of your home’s value. Typically, a credit score of 620 and a DTI of 43% or less are the benchmarks.
You can choose between fixed or variable rates, with the latter potentially granting access to more equity. If you’re considering a cash-out refinance vs. a home equity line of credit, remember that the former leaves you with one new mortgage while the latter means you’ll have a second payment to make each month. Whether or not a cash-out refi is right for you will depend largely on how competitive current interest rates are with the rate on your existing home loan.
Recommended: HELOC Monthly Payment Calculator
If you’re considering a home equity loan in Evansville, building a strong credit score, managing your debt-to-income ratio, and obtaining adequate property insurance can help you get the best terms. Before committing to a home equity loan, it’s smart to explore other financing options, like a HELOC or a cash-out refinance. Whatever home equity lending option feels right for you, it’s important to shop around and compare rates from multiple lenders.
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 is a versatile financial tool. You can use it to finance a large purchase, make home improvements, or consolidate high-interest debt. Many homeowners find these loans appealing because they allow you to tap into your home’s value without having to sell. Whether you’re dreaming of a new kitchen, aiming to clear up credit card debt, or have a significant expense on the horizon, a home equity loan can be the solution.
The beauty of a $100,000 HELOC is its flexibility, which also means the monthly payment can vary. During the draw period, which is often the first 10 years, you might only need to pay interest. At a 7.00% interest rate, that could be $583 per month. Once the draw period ends, the repayment period begins, and you’ll start paying both principal and interest. The exact amount will depend on the remaining balance and the interest rate at that time.
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 about $209. This fixed-rate loan means your monthly payment won’t change, which can be helpful for budgeting.
Home equity loans tend to offer lower interest rates than credit cards or personal loans because your home serves as collateral on the loan. They also allow borrowers to obtain substantial amounts of money for any purpose. The funds come in a lump sum, with predictable, fixed-rate payments that can be made over a long term.
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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.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.SOHL-Q225-204
