Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in Franklin are influenced by credit score, DTI ratio, and the prime rate, among other factors.
• Remember, even a slight variation in rates can translate to substantial savings or costs over the loan’s lifetime.
• Home equity loans’ fixed rates are great for those who like predictable monthly payments.
• The interest on home equity loans could be tax-deductible if the borrowed funds are used for significant home improvements.
• Closing costs usually hover between 2% to 5% of the loan amount.
Home equity loan interest rates are a key consideration when you’re thinking about how to get equity out of your home in Franklin, TN. We’ll help you understand what home equity loans 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 things first. Let’s make sure you understand exactly what a home equity loan is and how it differs from other ways of borrowing against your home’s equity.
A home equity loan, which is technically a second mortgage, can provide you with a lump sum of money for a variety of uses. You begin repaying the loan immediately after you receive it, in fixed monthly installments over a set term, just like you pay your original home loan. Because you’re using your home as collateral, home equity loans usually have lower interest rates than unsecured personal loans.
To qualify for a home equity loan, you typically need at least 20% equity in your home. To calculate your equity, subtract your mortgage balance from the estimated market value of your home. For example, if your home is worth $500,000 and you have a mortgage balance of $350,000, you have $150,000 in equity. Many lenders will let you borrow up to 85% of your equity. To understand how much you might be able to borrow, you can use a home equity loan calculator.
Recommended: What Is a Home Equity Line of Credit?
Home equity loan rates are influenced by a variety of economic and personal factors. Federal Reserve policy impacts lending markets, which in turn affects lender base rates. Most home equity loan lenders are watching the prime rate and setting their rates accordingly. But from there, your credit score and debt-to-income (DTI) ratio will play a significant part in the rate you’re offered.
Why make such a fuss over interest rates, when offers from lenders can sometimes vary by only a fraction of a percentage point? These rates can make a world of difference in the affordability of a home equity loan. For instance, a $100,000 home equity loan with a 15-year term at 8.50% interest would mean a monthly payment of $984 and a total interest of $77,253. But at 9.50% interest, the monthly payment jumps to $1,044 — which may not seem like such a big deal until you realize that the total interest paid balloons to $87,961. See more examples of how rate and term affect costs below. Note that in general, a longer term means more interest paid over the life of the loan.
| 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 |
Once you’re thinking about getting a home equity loan, you’ll probably start to pay more attention to the prime rate, as it guides lenders’ decisions. As you can see, it has fluctuated quite a bit in recent years. It was as low as 3.25% in 2020 and as high as 8.50% in 2023. These variations have a direct impact on home equity loan rates. It’s a good idea to keep an eye on economic trends. But while you may be tempted to try to time your application to coincide with favorable conditions, it’s not always possible to do so.
| 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% |
You can’t control the prime rate, but you can have an impact on a few factors that lenders will be looking at carefully when deciding on your loan application. By fine-tuning these, you’re setting the stage for the best possible terms and rate on your home equity loan.
To be eligible for a home equity loan, homeowners generally need to have at least 20% equity in their property. You can calculate your equity by subtracting your mortgage balance from your home’s estimated value, which you can find on a real estate site. For example, if your mortgage balance is $400,000 and your home is estimated to be worth $550,000, you have $150,000 in equity. Divide that equity number by the estimated value to arrive at a percentage of equity. If you aren’t quite hitting 20%, building equity through extra payments or longer-term ownership can improve your loan options.
To be in the running for the most attractive home equity loan rates, a robust credit score is your golden ticket. Lenders are often looking for scores of 680 or higher, with some holding out for 700 or more. A higher score is a nod to your financial prudence and can unlock more favorable loan terms. If you’re in the habit of paying on time and keeping credit card balances in check, you’re on the right track. Also review your credit report for any inaccuracies and iron them out before you fill out a home equity loan application.
Your DTI ratio is a critical piece of the puzzle when it comes to qualifying for a home equity loan and scoring the best rates. Lenders typically look for a DTI ratio under 50%, but the sweet spot is under 36%. You can calculate this ratio by dividing your total monthly debt payments by your gross monthly income. To improve your DTI ratio, think about chipping away at existing debts or finding ways to boost your income.
Property insurance is a must-have when it comes to home equity loans, particularly in areas that face an above-normal risk of natural disasters. Lenders need to be certain that the property used as collateral for the loan is covered in case of potential damage, loss, or liabilities. Having the right insurance not only helps you steer clear of higher loan rates but also ensures that your home remains a solid, protected asset.
Using online calculators can help you assess whether you’re on track to meet a lender’s criteria and clarify the financial costs. Check out these simple tools:
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.
With a home equity loan, you’re looking at closing costs that typically range from 2% to 5% of the loan amount. You’ll see all the standard fees on your tab, such as appraisal, credit report, document preparation, origination, notary, title search, and insurance. Some lenders will offer no-fee loans, but it’s wise to look carefully at the numbers to ensure those costs aren’t rolled into the loan amount or triggering higher rates.
Here’s a tip that could save you money: The interest on home equity loans may be tax-deductible if the funds are used to buy, build, or significantly improve the home. This tax benefit is currently set to last through 2025, and there’s a chance it could be extended. If you’re married and filing jointly, you can deduct interest on up to $750,000 of qualified home equity loans. Single filers can deduct interest on loans up to $375,000. To claim the deduction, you must itemize your deductions on your tax return, which means a chat with a tax advisor might be in order.
While home equity loans are a popular choice, there are other options you might want to consider. These are two other ways to capitalize on the equity you have built in your home over all those mortgage payments:
A home equity loan gives you a lump sum in one payment. A HELOC, on the other hand, is more like a credit card. You get a credit limit, and you can borrow as much as you need (up to that limit) when you need it — borrowing in increments if that works best for you. You’ll only pay interest on the amount you actually borrow, and during the loan’s initial draw period (often 10 years) you usually don’t have to repay the principal. (A HELOC interest-only calculator can help you see what you might owe depending on how much of the credit line you use.) After the draw period, a repayment period begins. You’ll repay what you owe plus interest. (This is when a HELOC repayment calculator is useful.)
HELOCs usually have variable interest rates. To qualify, you’ll typically need a credit score of 680 or higher (700 is better) and a DTI of 50% or less (36% is ideal). HELOCs are a good choice if you’re not sure how much you’ll need to borrow. Many lenders let you borrow up to 90% of your home equity.
Here’s a quick look at a HELOC vs. a home equity loan:
| HELOC | Home Equity Loan | |
|---|---|---|
| Type | Revolving line of credit | Installment loan |
| Interest Rate | Usually variable-rate | Usually fixed-rate |
| Repayment | Repay only what you borrow plus interest; you may have the option to make interest-only payments during the draw period. | Starts immediately at a set monthly payment |
| Disbursement | Charge only the amount you need | Lump sum |
Another option is a type of mortgage refinance called a cash-out refinance. In this case, you replace your existing mortgage with a larger one, unlocking cash based on your home equity (usually up to 80% of your home’s value). To qualify, a credit score of 620 or higher and a DTI ratio under 43% are often the benchmarks. Because it’s a new mortgage, you have the choice between fixed or variable rates.
When you compare a cash-out refinance vs. a home equity line of credit or home equity loan, it’s worth noting that a cash-out refinance streamlines your debts into a single payment. If your original mortgage is at a sweet rate, however, you’ll want to look closely at how getting a new loan impacts your costs. You might be better off with a home equity loan or HELOC if your current interest rate is low.
As you dive into the world of home equity loans in Franklin, TN, it’s important to grasp the elements that shape the interest rate you’ll be offered. A robust credit score, a balanced DTI ratio, and comprehensive property insurance are the cornerstones to securing the most favorable rates. A HELOC and a cash-out refinance are also worth considering. Remember to shop around and compare offers from various lenders before signing on the dotted line.
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.
The beauty of a home equity loan is that you can use the funds you borrow any way you want. You can cover a major purchase, fund home improvements, or consolidate high-interest debt. The lower interest rates compared to unsecured loans make them a cost-effective option. But, as with any loan, it’s crucial to handle the funds wisely and consider the long-term financial impact.
The beauty of a home equity line of credit is the flexibility it offers. But that also makes it hard to predict what your payments will be. Your payment amount can vary month to month depending on how much of the credit line you have utilized, whether you are in the HELOC’s draw period (paying interest only) or its repayment period (paying both interest and principal), and what your interest rate is. And HELOC interest rates are usually variable, making things more interesting. It’s best to put your principal balance and interest rate into an online calculator to compute what you owe.
Your payments will depend on your loan’s rate and terms. For a 15-year fixed-rate loan at 7.50%, for example, 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. Longer terms offer lower monthly payments but increase the amount of interest paid over the life of the loan.
There are a few factors that could potentially disqualify you from securing a home equity loan. Most lenders will look for a minimum credit score of at least 680. A high debt-to-income (DTI) ratio (above 50%) could also pose a challenge. If your home equity is below 20%, you might not make the cut. These considerations are in place to ensure that you can comfortably manage the loan payments.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
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.
SOHL-Q225-324
