Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in Kansas City are influenced by the prime rate.
• To get the best rates, aim for a credit score of 680 or higher and a debt-to-income ratio below 50%.
• Fixed rates offer the stability of knowing your monthly payments won’t fluctuate.
• Even a small difference in rates can mean big changes in costs.
• Property insurance is often a must-have, especially in disaster-prone areas.
Welcome to our guide on home equity loan rates in Kansas City, MO. In this article, we will explore how to get equity out of your home, including the current lending rates, the factors that influence them, and how to qualify for the best terms. Home equity loans are a valuable financial tool for homeowners, allowing you to borrow against the equity in your home for various purposes, such as renovations, education, and debt consolidation. We’ll break down the process, from understanding the interest rates to comparing offers from different lenders, to help you make informed decisions about your financial future.
Before you apply, it’s important to understand what a home equity loan is, exactly. A home equity loan is a second mortgage that uses your home as collateral and provides a lump sum of money you can use for any purpose. You’ll repay it in equal monthly installments over a fixed term, typically five to 30 years. Because the loan is secured by your home, you’ll generally get a lower interest rate than you would with an unsecured personal loan. Most home equity loans have a fixed interest rate, so your payments will be predictable. To qualify for a home equity loan, you’ll need to have at least 20% equity in your home. Some lenders may allow you to borrow up to 85% of your equity.
A home equity loan calculator can help you determine your home equity and how much you might borrow against it.
Like the rate on your original home loan, home equity loan rates are determined by a few different factors. The Federal Reserve’s policies can affect lending rates. Lenders set home equity loan rates based on the prime rate, which in turn is driven largely by the Fed. Lenders also adjust their rate offer up or down for each borrower based on the credit score, debt-to-income (DTI) ratio, income, and amount of equity that each individual has in their home.
The amount of your loan and the repayment term can also affect your rate. Generally, larger loans and longer terms will have higher rates. Lender competition can also impact rates.
The interest rate on your home equity loan is one of the most important factors in determining its affordability. Even a small difference in the interest rate can have a big impact on the cost of the loan. For example, over 15 years, a $100,000 loan with an interest rate of 8.50% would have a monthly payment of $984 and total interest costs of $77,253. If the interest rate increased to 9.50%, the monthly payment would increase to $1,044 and the total interest costs would increase to $87,960.
Recommended: What Is a Home Equity Line of Credit?
Predicting interest rate movements is a bit like forecasting the weather — there are many variables at play. But looking at recent trends can provide some insight into whether the rates you’re seeing in the marketplace are high or low. The prime rate, which is a big influencer on home equity loan rates, has been quite the rollercoaster in the past few years. It hit a low of 3.25% in 2020 and then soared to 8.50% by 2023, as shown below. These fluctuations can make a real difference in the rates you’re offered.
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 land the most favorable home equity loan rates, you’ll want to present a robust financial profile. Take these steps before you file your application.
As we’ve seen, you’ll need at least 20% to qualify for a home equity loan. To calculate your equity, simply subtract your outstanding mortgage balance from your home’s current value (find that number on an online real-estate site). For example, if your home is worth $550,000 and you have a remaining mortgage of $400,000, you’ve got $150,000 in equity. To determine the percentage of equity, divide your equity amount by your home’s value. (So in this case, you would have 27% equity.)
To snag the most favorable home equity loan rates, a robust credit score is your ticket. Lenders often set the bar at 680, but rates get even better at 700 and above. A higher score tells a story of financial prudence and can open doors to more attractive loan terms. If you’re in the habit of paying on time and keeping those credit card balances low, you’re already on the right path. Do a quick review of your credit report to spot any errors that, once corrected, could give your score a boost.
Your DTI ratio is a big deal when it comes to securing a home equity loan. Lenders typically look for a ratio that’s under 50%, with 36% or less being the sweet spot. This ratio is a comparison of your monthly income to your monthly debt commitments. (To compute your DTI, add up all your monthly debt payments and divide by your gross monthly income.) A lower DTI is a sign that you’re in a good place to manage monthly loan payments. If your ratio is around 50%, consider paying down your existing debts or finding ways to increase your income before you apply.
Property insurance is a standard requirement for home loans, so if you haven’t updated yours in a while, give it a look to make sure you are fully protected. Having the right insurance coverage not only safeguards you from extra expenses but also streamlines the loan application process. If you happen to reside in a high-risk area, it’s wise to explore insurance policies that align with your potential lender’s requirements.
Online tools and calculators can allow you to play around with different numbers and see how they might affect the affordability of your loan and your monthly payment amount, among other things. Here are three you’ll find especially helpful:
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.
The typical closing costs for home equity loans usually fall between 2% to 5% of the loan amount. These fees cover a range of expenses, from appraisals to title search and more. While no-closing-cost home equity loans are an option, 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 little-known fact: The interest on home equity loans can be tax-deductible if you use the funds to buy, build, or significantly improve your home. This tax benefit is currently set to last through 2025, and there’s a chance it could be extended. If you file 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 this deduction, you’ll need to itemize your deductions on your tax return, so work with a tax advisor for guidance.
There are different types of home equity loans and if you’re considering a home equity loan, you might also want to explore a home equity line of credit (HELOC) or a cash-out refinance, which is technically a mortgage refinance. Here’s how they compare:
A HELOC is similar to a credit card in that you have a certain limit you can borrow up to. You only pay interest during the draw period (a HELOC interest-only calculator can be helpful at this time). Then after some time, typically 10 years, you’ll pay back the principal and interest (this is when a HELOC monthly payment calculator is handy).
To qualify, you’ll generally need a credit score of 680 or higher (700 is preferred) and a debt-to-income ratio of less than 50% (36% is the ideal). When you consider a HELOC vs. a home equity loan, HELOCs tend to be best for people who aren’t sure exactly how much they will need to borrow or for expenses that will be incurred over time.
A cash-out refinance replaces your existing mortgage with a larger one, providing you with a lump sum based on your home equity. As you consider a cash-out refinance vs. a home equity line of credit, these are some difference: Qualifying for a cash-out refinance is often more accessible than for home equity loans or HELOCs, typically requiring a credit score of 620 or higher and a debt-to-income ratio under 43%. Rates can be fixed or variable, and unlike with a home equity loan or HELOC, you’ll have just one payment to manage.
Here’s a look at how the three options stack up:
| 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 HELOC 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) |
If you’re considering a home equity loan in Kansas City, start by checking your credit score and calculating your DTI ratio. You’ll also want to make sure you have enough insurance on your property, as this can affect your loan rate. Consider whether a home equity loan, a HELOC, or a cash-out refinance would best suit your needs. Use online tools to estimate your payments and interest. As you consider loan offers, don’t forget to factor in closing costs.
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Home equity loans are a versatile financial tool. The money you borrow with a home equity loan can be used for home improvements, educational expenses, medical bills, or debt consolidation. These loans provide a lump sum of money with fixed-rate interest, which can make budgeting for repayment easier. In some cases, the interest on a home equity loan may be tax deductible if the funds are used for home improvements.
The monthly payment for a $50,000 home equity loan varies based on the loan term and interest rate. For instance, a 15-year fixed-rate loan at 7.50% would mean a monthly payment of approximately $464. Opting for a 30-year term at the same rate would lower the monthly payment to around $350. It’s important to note that the total interest paid over the life of the loan is usually higher with a longer term.
The monthly payment on a $30,000 home equity loan is affected by the home equity loan rates and the loan term. For a 15-year fixed-rate loan at 7.50%, 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. These payments include both 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 could keep you from securing a home equity loan. Lenders generally look for a minimum credit score of 680 and a debt-to-income (DTI) ratio under 50%. Falling short on either of these could mean you don’t qualify for the most competitive home equity loan rates, or don’t qualify at all. You’ll also need to have at least 20% equity in your home. And if you live in an area that’s prone to natural disasters, having insufficient property insurance could be a dealbreaker.
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