Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the prime rate, economic conditions, and a borrower’s personal qualifications.
• Home equity loans have fixed rates, which offer the stability of consistent monthly payments.
• Comparing multiple lenders can lead to significant savings.
• The interest on a home equity loan could be tax-deductible if funds are used for home improvements.
• A home equity line of credit and a cash-out refinance are other ways to borrow based on home equity.
Home equity loans are a popular borrowing option for homeowners looking to get equity out of their home. These loans often offer more favorable interest rates than unsecured loans. This guide provides a comprehensive look at home equity loan rates in Indianapolis. You’ll gain insight into how these rates are determined and what factors affect the rate you may be offered. We’ll also explore the application process and tools you can use to estimate costs. Ultimately, you’ll be equipped to secure the best home equity loan rates and leverage them to your benefit.
A home equity loan is a lump-sum loan that is secured by the equity in your home. It’s important as you are learning what a home equity loan is to understand that this loan is technically a second mortgage (assuming you’re still paying off your initial home loan) and that if you can’t make payments, you risk foreclosure.
The amount you can borrow is based on your equity, which is the difference between the market value of your home and the amount you owe on your mortgage. Lenders will typically let you borrow up to 85% of your equity. A home equity loan calculator can help you see how much you might be able to borrow. Home equity loans typically have a fixed interest rate, which means you’ll have the same monthly payment for the life of the loan.
Recommended: What Is a Home Equity Line of Credit?
The interest rates on different types of home equity loana are influenced by both economic and personal factors. Decisions by the Federal Reserve can impact the prime rate, which lenders use to set interest rates on home equity loans. Each lender adds a margin to the prime rate to determine the interest rate they will charge, and adjusts the rate up or down based on borrower factors such as your credit score and debt-to-income (DTI) ratio.
Your interest rate is a big deal when it comes to a home equity loan. Even a small difference in rates can mean significant savings or added costs over the life of the loan. A $100,000 home equity loan with a 15-year repayment term at 8.50% interest would have a monthly payment of $985, and a total interest payment of $77,253. But at 9.50%, the monthly payment jumps to $1,044, and the total interest paid increases to $87,960. That’s a $10,700 difference in interest over the life of the loan.
Since interest rates for home equity loans tend to follow the prime rate, it can help to have a sense of the rate’s ups and downs over time. The prime rate dropped as low as 3.25% in 2020 and then hit 8.50% in 2023. Some borrowers try to time their home equity loan application to lower rates, but it’s not always possible. What you can do: Compare offers from different lenders to find the lowest available rate and best terms at whatever time you do apply.
| 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 get the most competitive home equity loan rate, you need to show that you’re a good risk for a lender. Lenders will be looking at your credit score, DTI ratio, and your level of equity in your home. Take these steps before you apply.
To be eligible for a home equity loan, you need to have at least 20% equity in your home. Calculating your equity is straightforward: Simply subtract your mortgage balance from your home’s current estimated value, then divide the result by the home value to arrive at a percentage. For instance, if your mortgage balance is $400,000 and your home is valued at $550,000, your equity is $150,000, or 27%. If you don’t have 20% equity, you can make more mortgage payments or make improvements in your home to increase its value.
A robust credit score will help you land the most competitive home equity loan rates in Indianapolis. Lenders often look for a minimum of 680 or 700, but the higher, the better. A high score shows lenders you’re a safe bet and could lead to friendlier terms and lower interest rates. To get there, make all your payments on time, don’t max out your existing credit lines, and periodically review your credit report for any errors and straighten out any you find before you apply for a home equity loan.
Your debt-to-income (DTI) ratio is another vital figure in the world of home equity loans. Lenders often seek a DTI ratio below 50%, but the golden number is 36% or less. To find your DTI ratio, add up all your monthly debt payments and divide by your gross monthly income. To bolster your DTI, consider chipping away at existing debts or exploring opportunities to boost your income. By doing so, you’re not only enhancing your financial profile but also improving your chances of securing a loan with favorable terms.
Property insurance is a must-have, especially if you’re in an area that’s no stranger to natural disasters, such as flooding. Lenders will want to be sure that your property, which is the collateral for the loan, is insured in the event of damage. Before you apply, it’s a good idea to touch base with your insurance provider to make sure your coverage is up to snuff and meets your lender’s requirements.
When you’re considering a home equity loan or home equity line of credit (HELOC) in Indianapolis, an online calculator can be a big help. These are a few of our favorites:
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.
Closing costs for Indianapolis home equity loans range from 2% to 5% of the loan amount. These costs cover a variety of things, including the appraisal, credit report, document preparation, origination, notary, title search, and title insurance. While no-closing-cost loans are an option, they often come with higher interest rates.
Here’s a tip: The interest on home equity loans could be tax-deductible if you’re using the funds to buy, build, or significantly improve your home. If you’re married and filing jointly, you can deduct interest on home equity loans up to $750,000; for single filers, it’s up to $375,000. Remember, to claim this deduction, you’ll need to itemize your tax return. If you’re not sure if or how this applies to you, a quick chat with a tax advisor can help you understand the benefits you might be missing.
While home equity loans are a popular choice, there are other options to consider, such as a home equity line of credit (HELOC) and a cash-out refinance. Both of these options allow you to tap into your home equity, but they have different features and requirements.
A HELOC is a bit like having a credit card with your home equity determining the spending limit. The credit line is there for you to tap into as needed, and you pay interest only on what you actually use. In fact, during the initial draw period of the HELOC (often 10 years) you can make interest-only payments. You might find a HELOC interest-only calculator helpful during this time.
You’ll only have to repay the principal plus interest after the draw period ends and you enter the repayment period. This is when you might use a HELOC monthly payment calculator. Keep in mind that HELOCs typically come with variable interest rates, so costs may change over time. To qualify, most lenders will want you to have a credit score of 680 (700 is even better) and a debt-to-income ratio below 50% (aim for below 36% if you can).
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 |
A cash-out refinance is when you replace your mortgage with a new, larger loan and take the difference in cash. The amount you can borrow depends on your home equity; most lenders let you borrow up to 80%. You’ll need a minimum 620 credit score and a DTI ratio under 43%. Because it’s a complete mortgage refinance, you can choose from fixed or variable rates with a cash-out refi. Qualifying is often easier than with home equity loans or HELOCs. Be sure to compare rates to find the best option for you.
One other thing to consider as you think about a cash-oiut refinance vs. a home equity line of credit: A refi will leave you with one monthly payment instead of two.
When it comes to scoring the best home equity loan rates in Indianapolis, there are a few key factors to keep in mind. Good credit, a low DTI ratio, and good property insurance coverage will help you obtain the lowest available rate. Home equity loans are perfect for those big, one-time expenses, with a lump sum and fixed payments. But don’t forget about the alternatives, like HELOCs and cash-out refinances. Whatever type of loan you choose, be sure to shop around and compare lenders to find the best deal.
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 a smart way to finance big expenses, whether you’re looking to make home renovations, consolidate high-interest debt, or cover other large purchases. The flexibility of these loans makes them a popular choice for homeowners. But it’s important to use the funds wisely and consider the long-term financial impact.
The monthly payment for a $50,000 home equity loan varies with the interest rate and the term of the loan. At an 8.00% interest rate, for instance, a 20-year loan would have you paying $418 a month. Choose a 10-year term, and that monthly commitment rises to approximately $607. Let your budget and goals guide you to the term that suits you best.
A HELOC, or home equity line of credit, is a revolving line of credit, so your monthly payment will depend on how much of the credit line you’ve used. During the draw period, which is typically the first 10 years, you’ll only be on the hook for the interest. For example, with a 6.00% interest rate, if you’ve drawn $50,000, you’d be looking at an interest-only payment of about $250 per month.
There are a few things that could prevent you from securing a home equity loan. Lenders typically require a minimum credit score of 680, a debt-to-income (DTI) ratio of 50% or less, and at least 20% equity in your primary residence. If you don’t meet lenders’ minimum qualifications, you might be denied. Inadequate property insurance can also be a barrier.
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.
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.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-Q225-349
