Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Knoxville home equity loan rates are influenced by both economic conditions and individual borrower qualifications.
• If you’re a homeowner, you may be able to borrow up to 85% of your home equity.
• Be prepared for closing costs and fees, which can range from 2% to 5% of your loan amount.
• The interest on home equity loans may be tax-deductible if used for home improvements.
• There are also other options for drawing on your home equity, like home equity lines of credit (HELOCs) and cash-out refinances.
Welcome to our comprehensive guide to home equity loan rates in Knoxville, Tennessee. What is a home equity loan? First and foremost, it’s a great way for many homeowners to access the value that they’ve built in their homes when they need cash. And getting a good interest rate on your loan is crucial. We’ll walk you through the factors that influence home equity loan rates, from the Federal Reserve’s policies to your personal financial qualifications. We’ll also delve into the differences between fixed and adjustable rates, the importance of maintaining a healthy level of home equity, and the online tools and calculators available to help you make the most informed decisions. By the time you’ve finished reading, you’ll be equipped with the knowledge to secure the best available rates and terms for your home equity loan.
A home equity loan is a second mortgage. It allows you to tap your home’s equity to access a cash sum, which you usually repay in fixed monthly installments over a term of five to 30 years. Your home secures the loan, which can mean lower interest rates than you might get with an unsecured personal loan.
One important caveat: Typically, lenders want you to have a minimum of 20% equity in your home to qualify. You can still be paying off your mortgage, but the amount you owe should not be more than the house is worth. If you’ve been paying your mortgage diligently and you’re wondering how to get equity of your home, a home equity loan may be a great option.
Knoxville home equity loan rates are influenced by a variety of factors, including broad economic changes and the borrower’s personal financial details. The Federal Reserve’s monetary policy has a direct impact on lending, as lenders use the prime rate as a benchmark for their home equity interest rates, and the prime rate is closely tied to the Fed’s policies.
Other important influences on the rate you’re offered are your own credit score and debt-to-income (DTI) ratio. The better they are, the better the rates you can access. The loan amount and term also play a part; larger loans and longer terms typically mean higher rates due to the increased risk for the lender. Understanding these factors empowers you to make informed and strategic borrowing decisions.
Your home equity loan interest rate has a powerful effect on how affordable the loan will be for you over the long term. Even a difference in interest rates that looks small can lead to a significant savings or added cost.
Consider a $100,000 home equity loan that has a 15-year term. With an 8.50% interest rate, your monthly payment is $986 and your interest over the life of the loan totals $77,253. But let’s say your interest rate is just one percentage point higher, at 9.50%. Then your monthly payment becomes $1,044, and the total interest jumps to $87,960. That’s just one percentage point – and it creates a difference of more than $10,700 in interest.
The chart below demonstrates how other changes in your loan amount, interest rate, and term can result in different monthly payments.
| 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 |
Most home equity loans come with fixed rates, but some lenders make them available with adjustable rates, so it’s useful to look at the differences. Fixed rates on home equity loans stay the same throughout the duration of the loan. You know exactly what your payment will be every month because it’s always the same. This provides stability and may be a help as you budget.
Other kinds of financing, including HELOCs, typically have adjustable rates, which start out with a lower rate for a defined period, and then adjust with the market. Since they tend to start out a bit lower than fixed rates, they can be more budget-friendly at the beginning. Just remember, since the rates do adjust, they can potentially lead to higher payments down the road.
Predicting the ebb and flow of interest rates is no easy feat, given the multitude of factors at play. The prime rate, a pivotal marker for home equity loan rates in Knoxville, has seen many ups and downs. In the past few years, it’s been all over the place, dropping to 3.25% in 2020 and then soaring to 8.50% by 2023.
| 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% |
These shifts have a direct impact on the rates you’ll encounter as you search for a home equity loan. The key is to stay in the know about economic trends and, as much as you can, time your application to coincide with favorable conditions.
To score the most favorable Knoxville home equity loan rates, you’ll need to meet the requirements lenders set, like a solid credit score and debt-to-income (DTI) ratio. Even if you haven’t decided yet on a HELOC vs. a home equity loan or even a cash-out refinance, the tactics below can help you secure the most favorable interest rates and loan terms.
To qualify for a home equity loan, you’ll need to maintain a minimum of 20% equity in your home. Calculating how much equity you have in your home is easy: Simply subtract your current mortgage balance from your home’s market value. If your mortgage balance is $400,000 and your house is valued at $550,000, your equity would be $150,000.
Typically, lenders will loan you up to 85% of your available equity, meaning that in this example, you could potentially get a loan for as much as $127,500. A home equity loan calculator can show you how large a loan you may be able to access. Making your mortgage payments on time and investing in home improvements are good ways to build equity so you can meet this requirement.
Lenders typically favor a credit score of 680 or above for home equity loans, with many leaning toward 700 or more. A robust credit score is a testament to your financial prudence and can significantly influence the rates you’re eligible for. To bolster your credit standing, focus on punctual payments, maintaining low balances on your credit cards, and avoiding new debt. Regularly reviewing your credit report for inaccuracies and getting them corrected, if necessary, can also be a good idea.
By maintaining a strong credit score, you’re enhancing your prospects of securing a lower interest rate, potentially saving you a substantial sum over the loan’s lifetime.
Your debt-to-income (DTI) ratio, which compares your monthly debt obligations to your monthly income, is also a critical factor in determining loan eligibility and rates. The DTI requirement for a home equity loan is typically below 50%, and ideally below 36%.
Why? A lower DTI ratio indicates that you’ll be able to manage the monthly payments, which can lead to lenders offering you more favorable home equity loan rates. To improve your DTI ratio, consider paying down your existing debts, increasing your income, or doing both, if you can.
Property insurance is a necessity if you want a home equity loan, particularly in flood-prone areas. This insurance is a safety net for both you and your lender, ensuring that their investment and your home are protected in case of any disasters. Having the right coverage can also work in your favor by leading to better loan rates, since lenders see well-insured properties as less risky. Make sure your insurance covers not just the structure you live in, but also your personal belongings. Consulting with an insurance agent may help you find the coverage you need, too.
Utilizing specialized online calculators can give you all kinds of information to help you find the right loan. They can help you figure out how well different loans might work with your budget and make it easier to compare the offers you get from various lenders. These tools are typically available without charge, so feel free to explore.
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.
When it comes to closing costs for home equity loans, you can typically expect to pay between 2% and 5% of the loan amount. That includes fees for appraisals, credit reports, and the loan origination process, among others. Here’s a rundown of the most common.
| Service | Typical Fees |
|---|---|
| Appraisal | $300-$500 |
| Credit report | $30-$50 or more |
| Document preparation | $100-$500 (may be billed on an hourly basis if attorney involvement is required, or built into the loan origination fee) |
| Loan origination | 0.5%-1.0% of the loan amount |
| Notary | $20-$100 |
| Title insurance | 0.5%-1.0% of the loan amount |
| Title search | $75-$250 or more |
Some lenders offer no-closing-cost loans, but these frequently carry higher interest rates. Be sure to calculate what you’ll pay over the life of the loan before you apply.
Here’s a tip: The interest on your home equity loan might be tax-deductible if you use the loan to improve your home. 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. But bear in mind that you will have to itemize if you want to claim this deduction. Check with a qualified tax advisor to get personalized advice.
If you’re not sure a standard home equity loan is right for you, there are different types of home equity loans available. A home equity line of credit (HELOC) is a revolving line of credit that you can draw from as needed, and a cash-out refinance is a kind of mortgage refinance that replaces your current mortgage and provides you with a lump sum of cash.
What is a home equity line of credit? A HELOC is a bit like having a credit card – but with the bonus of lower interest rates. That’s because your home acts as collateral to secure the loan. A HELOC allows you to borrow up to a certain limit and pay interest only on what you use. The period during which you can take out funds as you need is often called the “draw” period, and it’s followed by a repayment period, when you make payments on the principal and interest.
The rates on a HELOC are variable, so they can go up or down, which means you need to be prepared for potential changes in your costs. If you’re interested in applying for a HELOC, generally you’ll need a credit score of 680 (though 700 is preferred) and a debt-to-income ratio of no more than 50% (ideally, under 36%).
You can find out how much the monthly payments for a HELOC would cost by using a HELOC monthly payment calculator. To calculate how much interest you’d have to pay during the “draw” period of a HELOC, try a HELOC interest-only calculator.
A cash-out refinance lets you replace your existing mortgage with a new home loan that’s larger than what you owe and take the difference as a lump sum. You pay back the new mortgage and the lump sum in a single monthly payment.
If you’re looking at the benefits of a cash-out refinance vs. a home equity line of credit, it’s important to realize that the requirements for borrowing tend to be different. It’s usually easier to qualify for a cash-out refi than for a home equity loan or a HELOC. For a cash-out refinance, lenders typically want to see a minimum credit score of 620 and a DTI ratio of 43% or less. Cash-out refinances can have either fixed or variable interest rates.
When you’re getting ready to explore home equity loans in Knoxville, remember to keep your credit score in good shape, your debt-to-income ratio in check, and your property insurance up to date. These are the keys that can unlock the best home equity loan rates for you. Don’t forget to use the tools and calculators available to get a clear picture of what your payments and costs might look like. And be sure to compare offers from multiple lenders and weigh the pros and cons before you decide.
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 fund a big purchase, like a home renovation or college tuition, or to pay off high-interest debt. Because the loan is secured by your home, you can get a lower interest rate than you would on an unsecured loan, like a personal loan. But remember, if you don’t make your payments, the lender may be able to foreclose on your home.
The amount you pay monthly for a $50,000 home equity loan varies depending on the loan’s interest rate and the term. If you got your loan at a 7.00% interest rate over 15 years, your monthly payment would be about $449. At a 9.00% interest over 15 years, the payment would be around $507. To figure out what your payment would be with different variables, try an online loan payment calculator.
There are several factors that could potentially prevent you from securing a home equity loan. Not having at least 20% equity in your home or having a credit score of less than 680 could make you ineligible. A debt-to-income ratio above 50% could also disqualify you. Additionally, a history of late payments or defaults could be problematic. It’s a good idea to assess these factors and take steps to enhance your financial profile before applying.
A home equity loan offers a homeowner the opportunity to use their equity in their home as collateral for a loan, meaning that they typically get lower interest rates than they would for an unsecured personal loan, for instance. Home equity loans most often come with fixed rates, so they have predictable payments, which can make budgeting simpler. These loans can be a cost-effective option for major expenses like home improvements, medical bills, a college education, or debt consolidation.
SoFi Mortgages
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.
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.
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