Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in Los Angeles are influenced by the borrower’s credit score and debt-to-income ratio, as well as by larger economic factors.
• Interest rates can vary significantly from lender to lender, so it’s important to shop around and compare offers.
• The interest on a home equity loan might be tax-deductible if you use it for home improvements.
• Home equity loans typically come with fixed interest rates, making your monthly payment easier to budget for.
• Borrowers will need at least 20% equity in their home to qualify for a home equity loan.
• Property insurance is a must-have for most home equity loans, particularly in high-risk areas.
Home equity loans are a powerful financial resource for homeowners who want to get equity out of your home. This guide will provide an overview of home equity loan interest rates in Los Angeles, California, and explain how these rates are affected by economic and personal factors. We’ll also get into the mechanics of home equity loans, the risks and benefits, and offer practical advice on how to secure the best rates. Whether you’re planning a home renovation, consolidating debt, or funding a large purchase, understanding home equity loan rates can help you make the most of your home’s value.
To begin, let’s talk about what is a home equity loan.
A home equity loan is a second mortgage that uses your home as collateral. You’ll repay this loan in equal monthly installments over a period of five to 30 years. Because it’s backed by your home’s equity, these loans often come with lower interest rates than unsecured personal loans. And the interest rate is usually fixed, which means your payments are predictable.
Many people are passingly familiar with home equity loans and home equity lines of credit, but often confuse the two. This HELOC vs home equity loan chart can help you distinguish them.
| 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 |
The interest rates on different types of home equity loans are influenced by a variety of economic and personal factors. Changes in the federal funds rate (set by the Fed) and prime rate influence home loan rates. If one or both of those benchmark rates rise, home equity rates are likely to follow.
Another piece of the puzzle is the borrower’s financial profile. Your credit score and debt-to-income ratio play a significant role in the rates you are offered, with stronger numbers leading to lower interest rates. We’ll get into more detail about that below.
Your interest rate largely determines the affordability of your home equity loan. Even a fraction of a percentage point can lead to significant savings or added costs over time. For instance, a $100,000 home equity loan at 8.50% interest repaid over 15 years would mean a monthly payment of $985 and a total interest of $77,253. Bump that rate to 9.50%, and you’re paying $1,044 each month, with total interest of $87,960. That’s a $10,700 difference in interest over the loan’s lifetime.
Now you see why homeowners get so worked up about interest rates. Understanding interest rates empowers you to make savvier financial decisions.
Over the long term, the rise and fall of interest rates looks like a rollercoaster — albeit a slow-moving one. For example, in 2020, the prime rate hit a low of 3.25%, only to steadily climb back up to 8.50% by 2023. These incremental shifts mirror the broader economy and the Federal Reserve’s financial strategies.
While we can’t predict the future, being aware of these patterns can help you time your home equity loan application to coincide with more favorable economic conditions and potentially nab a better rate. That said, if you need the money now and can’t wait around for lower rates, that’s okay. There are other ways to ensure you get the best deal available.
| 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% |
As we noted above, you can’t always wait around for interest rates to drop. Fortunately, there are other strategies to minimize your cost. To qualify for the best available home equity loan rates, a solid financial profile is important. Lenders look at a variety of factors, including your credit score, debt-to-income ratio, and combined loan-to-value ratio. By improving these metrics, you can increase your chances of getting the best home equity loan rates.
To be eligible for a home equity loan, you must maintain at least 20% equity in your home. Calculating your equity is straightforward: Simply subtract your mortgage balance from your home’s current value. For instance, if your mortgage balance is $600,000 and your home is valued at $950,000, your equity would be $350,000, or 37%. Your equity helps determine the maximum loan amount you can secure. Most lenders will approve home equity loans up to 85% of your available equity. By ensuring you have ample equity, you position yourself to access the funds you need while maintaining good financial standing. To calculate your home equity stake, try our home equity loan calculator.
To get the best home equity loan rates, you’ll want to have a solid credit score. Lenders are often looking for 700+. A higher score is like a gold star on your financial report card. It shows you’re responsible with your money, and that can translate to more attractive loan terms. To boost your score, focus on making bill payments on time, keeping your credit card balances in check, and steering clear of new debt. And don’t forget to give your credit report a once-over for any errors; disputing them can give your score a nudge in the right direction.
Your debt-to-income (DTI) ratio is a critical number when it comes to qualifying for a home equity loan. This ratio measures your gross monthly income against your monthly debt payments. Most lenders want to see it below 50%, with 36% or less being ideal. The lower your DTI, the better your chances of securing a loan with favorable terms, such as a lower interest rate and a higher borrowing limit. To improve your DTI, focus on paying down your existing debts, increasing your income, or a combination of both.
Property insurance is a must-have for most home equity loans, especially if you’re in an area prone to certain natural disasters, like flooding. Insurance coverage protects both you and the lender by covering any potential damage to your home. Depending on where you are, your lender might ask for extra coverage, like flood or earthquake insurance. Making sure you have the right coverage can help you meet your lender’s needs and keep your investment safe.
When you’re pondering a home equity loan, our tools and calculators can help you sort out different offers. Here are three 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. Any payments shown depend on the accuracy of the information provided.
Just like when you took out your original mortgage, home equity loans have closing costs, which range from 2% to 5% of the loan amount. They cover a number of essential services, from appraisals to title searches and insurance.
Appraisals generally run between $300 and $500, and credit reports can cost $50 to $100. Origination fees, if applicable, are usually 0.5% to 1% of the loan amount or a flat fee. Title insurance typically falls in the range of 0.5% to 1% of the loan balance, with title searches costing around $100 to $250. Make sure to compare closing costs along with home equity loan interest rates, and budget for these upfront fees.
The interest on home equity loans may be tax-deductible if the funds are used to improve your home. If you’re married and filing jointly, you can deduct the interest on home equity loans up to $750,000. Single filers can deduct interest on loans up to $375,000. To claim this deduction, you’ll need to itemize your deductions when you file your tax return. It’s always a good idea to consult with a tax advisor to get the most accurate information based on your financial situation.
While home equity loans are a popular choice, there are other options to consider. A home equity line of credit (HELOC) and a cash-out refinance (a type of mortgage refinance) are two such alternatives. Both options have their merits and should be weighed against your financial aspirations and current situation.
A HELOC is a bit like a credit card secured by your home equity. This means you can borrow up to a certain limit and only pay interest on the amount you use. HELOCs often come with variable rates, so they can rise and fall with the market. To qualify, you’ll generally need a credit score of 680 or higher (700 is even better) and a debt-to-income ratio below 50% (aim for 36% or less).
There are two phases to a HELOC: the draw period and the repayment period. During the draw period, which is typically 10 years, you usually can make interest-only payments on the amount you’re using. (A HELOC interest-only calculator can be a useful tool to estimate bills.) Then in the repayment period, borrowing ends and you repay the full amount with interest over 10 or 20 years. (There’s a HELOC repayment calculator for that).
Recommended: What Is a Home Equity Line of Credit?
A cash-out refinance is another way to tap your home’s equity by replacing your current mortgage with a new one, this time for a larger amount, and receiving the difference in cash. You can typically borrow up to 80% of your home’s value, although some lenders go higher. In general, you’ll need a credit score of 620 or higher and a debt-to-income ratio of 43% or lower to qualify for a cash-out refi. You can choose between a fixed or variable interest rate, but a variable rate may allow you to access more equity.
Recommended: Cash-Out Refinance vs. Home Equity Line of Credit
If you’re considering a home equity loan in Los Angeles, it’s important to know what factors influence home equity loan rates. A strong credit score, a low debt-to-income ratio, and adequate property insurance are all important to securing favorable terms. The tax deductibility of home equity loan interest can provide additional savings, but be sure to consult a tax advisor for up-to-date advice. Exploring alternatives like HELOCs and cash-out refinances can offer more flexibility and potentially better terms, depending on your financial goals and situation.
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.
Home equity loans are a fantastic option for big-ticket items, home makeovers, or consolidating high-interest debt. Their adaptability and relatively low interest rates makes them a powerful financial resource. Just remember to handle the funds wisely and ensure the payments fit your budget.
The monthly payment for a $50,000 home equity loan varies with the interest rate and term. For instance, at a 7.50% interest rate over 15 years, you’re looking at around $464 a month. If the rate is 8.50%, the monthly payment rises to $492 monthly. You can lower your monthly payments by extending your repayment term — in this case, a 20-year term at 8.50% would give you a monthly bill of $434. But remember, you’ll end up paying more in interest over the life of the loan.
The initial monthly payment on a $100,000 HELOC varies based on the interest rate. During the draw period, typically 10 years, you pay only the interest on the amount borrowed. For instance, at a 9.00% interest rate, the interest-only payment would be about $750. Once the draw period ends, you enter the repayment period, usually 20 years, where you repay both principal and interest. At the same 9.00% rate, the monthly payment would increase to around $1,650. Just remember that HELOCs typically come with adjustable rates, so your monthly payment can rise and fall with benchmark rates.
There are a few key reasons why you might be turned down for a home equity loan. Lenders generally look for a credit score of at least 680. Your debt-to-income (DTI) ratio should be below 50%, and you’ll need to have a minimum of 20% equity in your home. Inadequate property insurance, particularly in high-risk areas, could also be a disqualifying factor.
Home equity loans offer the advantage of fixed interest rates and the potential to borrow larger sums. The stability of a fixed interest rate can simplify your financial planning, and the funds can be used for a variety of purposes, from home improvements to education or debt consolidation. Plus, the interest on these loans can be tax-deductible if used for home improvements. Understanding these perks can help you make the most of your home equity to reach your financial aspirations.
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*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.
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