Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Kentucky home equity loan rates generally follow national trends and are influenced by the prime rate.
• Other factors influencing home equity loan rates include credit score, loan-to-value ratio, home value stability, lender policies, property location, and debt-to-income ratio.
• To qualify for the lowest rates, maintain a strong credit score, manage debt-to-income ratio, have sufficient property insurance, and maintain sufficient home equity.
• Alternatives to home equity loans include HELOCs, HECMs, and cash-out refinances, each with unique features and eligibility requirements.
• Online calculators can help borrowers determine their borrowing power and monthly payments.
If you’ve made your home loan payments consistently, you’ve probably chipped away at the principal you owe and built up valuable equity. Now it’s time to learn how to get equity out of your home with a home equity loan — and that means understanding home equity loan rates in Kentucky. In this guide, we’ll explain what goes into these rates and how you can find the most favorable rate for you. By the time you’re done reading, you’ll have a better understanding of different types of home equity loans and how to use them to finance home renovations, consolidate debt, or pay for other big expenses.
First step: get a handle on what is a home equity loan.
A home equity loan is a loan that uses your home as collateral, which typically means a lower interest rate than a personal loan. (It also means getting a second mortgage, assuming you are still paying off your first mortgage.) The interest rate is usually fixed, which can make monthly payments predictable.
To qualify for a home equity loan, you’ll typically need to have at least 20% equity in your primary residence. Home equity loans can be used for a variety of expenses, such as home improvements, education, medical bills, or debt consolidation. If you’re looking for the best home equity loans in Kentucky, it’s important to compare offers from different lenders to find the best loan for your needs, and a big part of that comparison is comparing interest rates.
Home equity loan interest rates are not arbitrary numbers; they are influenced by larger economic factors, including the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers. Federal Reserve policy decisions regarding interest rates can also influence home equity loan rates. But once a lender sets its prime rate, exact interest rates are adjusted based on individual borrower characteristics (we’ll get into that later). Understanding the factors that influence home equity rates can enable borrowers to anticipate rate fluctuations and make informed decisions about home equity loans.
It’s important to think about how interest rates will affect your ability to afford your loan over time. Unlike a home equity line of credit (HELOC), which functions as a revolving credit account, a home equity loan provides the borrower with a lump sum of cash up front. Repayment of the principal balance and interest begins immediately, typically with a fixed interest rate.
| 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 |
What’s even more striking is the change in the total interest you’ll pay over the life of the loan. For example, a 1% difference in interest rate on a $100,000 home equity loan repaid over 20 years comes to more than $14,000 in interest!
As noted above, the prime rate can be a key factor in home equity rates in Kentucky. By keeping an eye on the prime rate, you may be able to get a sense of where the lending market is headed and use that information to make smart borrowing decisions.
As the chart below shows, the prime rate has seen its share of ups and downs, with a low of 3.25% in 2020 and a high of 8.50% in 2023. The graphic below shows the rate over a much longer time period: 50-plus years.
| 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% |
Now let’s take a closer look at the factors beyond the prime rate that influence exactly what rate you may be offered. Banks and other lenders use these details to determine your creditworthiness and assess how risky it might be to make you a loan.
If you’ve got a clean record of making payments on time, you’re in a sweet position. Lenders are more likely to offer you a lower interest rate if you’ve shown that you’re a responsible borrower. Kentucky lenders will likely want to see a credit score of at least 680 for a home equity loan, but the higher your score, the better your chances of obtaining a good rate.
Lenders typically determine the value of your property by ordering an independent appraisal. This process helps ensure that you have adequate equity in your home to qualify for the loan you want, and that the loan amount you request is below the appraised value of the home.
Once you and a lender know your home’s appraised value, the loan-to-value (LTV) ratio can be determined. Your combined LTV ratio is calculated by dividing the loan amount you’re seeking plus any remaining balance on your first mortgage by the appraised value of the home. The maximum combined LTV lenders typically allow for home equity loans is around 85%. You can calculate your combined loan-to-value ratio (CLTV) this way:
Home values have a direct impact on the equity you can tap into. When the market is hot and prices are rising, lenders are more open to green-lighting heftier loans, as increased property values act as a safety net. But when the market slips, lenders might set more stringent requirements and offer smaller loan amounts.
Living in areas that have a history of damage from tornados, flooding, or other climate extremes can sometimes mean higher interest rates because lenders are leery of these risks. If you live in an area like this, you might have to meet additional requirements to get a home equity loan in Kentucky, and you could have a higher interest rate.
Each lender has its own policies, and these can have an impact on the interest rate you’re offered or the fees you’ll pay. To make sure you’re getting the best deal, it’s a good idea to shop around and compare interest rates and fees from several lenders.
To get the best Kentucky home equity loan rate, you need a good credit score, a low debt-to-income ratio, and enough property insurance. You also need to have adequate home equity. Follow the tips below and you will have a better chance of getting an attractive rate.
Taking good care of your credit score can unlock the door to more attractive interest rates. This means checking your credit report for errors — and if you find any, request a correction. Try not to max out all your lines of credit. And keep on top of your bills.
Your debt-to-income (DTI) ratio, which compares your monthly income to your monthly debt obligations, is a key factor in determining your loan eligibility. Lenders typically want to see a DTI ratio under 36% for a home equity loan, though some lenders will accept up to 50%. To determine your number, add up your monthly debts, such as a car payment or student loan payment, and divide by your gross monthly income.
Hopefully you are already well insured — after all, getting coverage is an important part of home ownership. But when it comes to home equity loans, having enough property insurance is a must.
Lenders want to see you have a minimum of 20% equity in your primary residence. These regulations are in place to protect you and your investment, ensuring that you have a significant financial stake in your property, which ultimately lowers the risk of default for both you and the lender.
Home equity loan interest rates are usually fixed. That means the rate you start with is the rate you’ll pay throughout the loan, which makes it easier to plan your monthly budget. It’s worth noting that these fixed rates might be a bit higher than the variable rates you would see if you sign up for a home equity line of credit (HELOC). But variable rates can change over time, so it’s worth considering that risk if you find yourself weighing a HELOC vs. a home equity loan.
If you’re considering a home equity loan or HELOC, using tools and calculators can help you get a better idea of what you might be able to borrow. They can also help you see how different loan terms could impact your monthly payment. Here are three calculators you will find useful:
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 a home equity loan can range from 2% to 5% of the loan amount. Common fees include an application fee, an origination fee, an appraisal fee, and a title search fee. Each lender has its own fee schedule, so be sure to compare both interest rates and fees.
The interest on a home equity loan is tax-deductible if the loan is used to buy, build, or substantially improve the home. Married couples filing jointly can deduct the interest on up to $750,000 in loans, while single filers can deduct the interest on up to $375,000. You must itemize your deductions to claim the deduction, so you may want to speak with a tax preparer for advice.
A home equity loan isn’t the only way to tap your home’s equity. We’ve mentioned a home equity line of credit (HELOC), but there are other options, too. Here’s the rundown:
Ready fpr the full explanation of what is a home equity line of credit?A HELOC is like having a credit card, but its spending limit is tied to the equity in your home. You only pay interest on the portion of the credit line that you use. During the HELOC’s “draw” period, you may make interest-only payments. When the draw period is over (typically after 10 years), you’ll have another 10 to 20 years to repay whatever you borrowed, with interest. HELOC interest rates are usually variable, as noted above, meaning they can go up or down with the market. This flexibility can be a plus, but it also means your payments could change, especially if the economy takes a turn.
A HECM is a government-insured reverse mortgage. It’s only an option for those 62 and older. If you qualify, you can opt for a lump sum, regular payments, or a line of credit. The beauty of an HECM is that you don’t need to make payments until you leave your home, unlike traditional home equity loans or HELOCs. While the closing costs and processing times may be a bit longer, the benefits are well worth it. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is a special type of mortgage refinance. You’ll take out a new, larger mortgage to replace your existing one and pocket the difference to use as you wish. If you are weighing a cash-out refinance vs a home equity line of credit or HELOC, it’s important to consider that getting a new mortgage means getting a new interest rate. If you have a great rate on your current mortgage, you’ll want to carefully consider the added costs of a refi.
Understanding Kentucky home equity loan rates and the factors that influence them is important for Kentucky homeowners who want to take advantage of their home equity. By shopping around, tending carefully to your credit score, and managing your debt-to-income ratio, you can find the best rates and terms for your needs.
Unlock your home’s value with a home equity loan from SoFi.
The monthly payment on a $50,000 home equity loan will depend on your interest rate and term. The longer the term, the lower the monthly payment will typically be — but the more interest you will pay overall. A lower interest rate, of course, means lower payments and interest. You can play with different rates in a home equity loan calculator to get a feel for how rates and terms impact the numbers.
Your monthly payment amount will depend on your term and interest rate. For example, a $100,000 home equity loan with a 6.00% interest rate and a 10-year term will mean a monthly payment of $1,110.
Borrow $25,000 with an interest rate of 8.00% and a term of 5 years and you’re looking at a monthly payment of $507. If you repay the loan over 10 years at a rate of 8.00%, your monthly payment would be $303. As you can see, if you change either the interest rate or the term (or both), your payment amounts will shift.
A rate of 7.50% and a 20-year term would mean the monthly payment on a $30,000 home equity loan is $242. To get an accurate idea of what your monthly payments could be, use a home equity loan calculator that allows you to type in rates and terms.
Factors that can disqualify you from getting a home equity loan include having a credit score below 680 and having a lot of debt payments to make each month relative to your income. Of course, not having much home equity or lacking adequate insurance coverage on your home could be problematic, too.
A home equity line of credit (HELOC) gives you a line of credit that you can use as needed. Some borrowers prefer this over taking out a lump-sum loan — it’s helpful if you aren’t sure exactly how much money you need, such as when you’re doing a renovation. With lower interest rates than most credit cards and the ability to only pay interest on the amount of credit you use, a HELOC can provide financial flexibility.
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