Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans allow homeowners to borrow against the equity in their homes for large expenses like home renovations, education, or debt consolidation.
• Home equity loan interest rates are influenced by various factors, including the prime rate and current market conditions.
• To qualify for the lowest rates, it’s important to build a strong credit score, manage debt-to-income ratio, obtain adequate property insurance, and maintain sufficient home equity.
• Home equity loans come with fixed interest rates, providing stability and predictability in monthly payments.
• Alternatives to home equity loans include a home equity line of credit, HECM, and a cash-out refinance, each with distinct features and eligibility criteria.
If you’ve been diligently paying off your home loan and have built up some equity in your house, maybe you’ve started to think about how to make use of that equity. You’re probably pondering what is a home equity loan, and how do I go about getting one? We’ll cover everything you need to know about home equity loan rates in Louisiana, what factors can impact the rate you’re offered, and how you can improve your chances of securing a great rate.
And if you’re wondering what is a home equity line of credit, and how it is different from a home equity loan, never fear — we’ll get to that, too.
A home equity loan is a type of second mortgage that uses your home as collateral. The loan is issued in a lump sum and repaid in equal monthly installments over a period of five to 30 years. It’s a relatively easy way to get equity out of your home, assuming you can handle the extra monthly payment you’ll make to repay the loan.
These loans typically have lower interest rates than unsecured personal loans, and fixed rates. To qualify, homeowners should have at least 20% equity in their primary residence. If you’re looking for the best home equity loans in Louisiana, it’s important to compare rates and terms from different lenders to find the option that suits your needs.
Home equity loan interest rates are a product of many economic factors, but the most important is the prime rate, which is the interest rate that banks charge their most creditworthy customers. These rates are, in turn, influenced by the Federal Reserve’s policy decisions.
The interest rate you obtain on a home equity loan is very important, as it largely determines the cost of your loan. The table below shows how the interest rate for a $50,000 home equity loan affects the monthly payment and total interest paid over a 10-year term:
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.50% | $620 | $24,391 |
| 8.00% | $607 | $22,797 |
| 7.50% | $594 | $21,221 |
By keeping an eye on the prime rate, you can get a feel for the general direction of home equity loan rates. Since 2018, the prime rate has seen its fair share of ups and downs, hitting a low of 3.25% in 2020 and a high of 8.50% in 2023, as you’ll see in the chart below.
| 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% |
Lenders start with the prime rate, but exactly what rate each borrower is offered is influenced by a number of other factors, such as a loan applicant’s credit score and the appraised value of the home. Home equity rates in Louisiana can vary based on the following factors.
If you have a strong credit score, you may be able to qualify for a lower interest rate on a home equity loan. Lenders generally look for a credit score of at least 680 to approve a home equity loan application. However, many lenders prefer a credit score of 700 or higher.
Lenders will request a professional appraisal to figure out how much your home is worth, which in turn will determine the maximum loan amount you can snag. An appraiser may come to your home, or the bank may use an automated valuation model, which takes into consideration lots of data about your home and the local market.
Once you know your home’s value, you can determine your loan-to-value (LTV) ratio. Most home equity loan lenders require your combined loan-to-value ratio (CLTV) to be 85% — that’s your first mortgage balance plus the amount you want to borrow, divided by your home’s appraised value. Let’s say you currently owe $600,000 on your mortgage and you want to borrow $60,000 for a renovation project. Your home is appraised at $800,000:
$600,000 + $60,000 = $660,000
$660,000 / $800,000 = .825
.825 x 100 = 82.5% CLTV
At 82.5% CLTV, there is a good chance a lender will approve a home equity loan but it will be dependent on the lender’s policies, and your other financial metrics will need to be favorable. The LTV ratio also matters if you decide to borrow money with a home equity line of credit (HELOC).
The ebb and flow of home values directly affects how much equity you can leverage. When values are on the upswing, you may be able to access more significant loan amounts. On the flip side, a dip in home values raises the stakes for lenders.
If you live in a high-risk area, such as a region prone to severe weather, you may face higher interest rates. This is because lenders perceive these areas as more likely to experience property damage and financial loss, which could lead to loan default.
Lender policies play a big role in the interest rates offered on Louisiana home equity loans. Shopping around with multiple lenders is the best way to make sure you’re getting the best deal. You can compare interest rates, fees, and closing costs to make sure you’re getting the best loan for your financial goals.
To get the best Louisiana home equity loan rates, you’ll need a strong credit score, of course, but there are a few other factors you’ll want to work on as well. Here’s your to-do list:
Pay your bills like clockwork, and keep your credit utilization in check. Stick to these habits, and you’re on your way to boosting your creditworthiness and, in turn, opening the door to more favorable loan terms.
When mulling over a Louisiana home equity loan, it’s crucial to grasp the debt-to-income (DTI) ratio, which is the total of your monthly debt commitments divided by your gross monthly income. Generally, lenders look for a DTI ratio ranging from 36% to 50% for Louisiana home equity loans. Should your monthly debt payments surpass 50% of your monthly income, you might encounter challenges in securing a Louisiana home equity loan.
It’s a standard requirement for financial institutions to ask for proof of property insurance when you’re applying for a home equity loan, and you should have it anyway for your own benefit.
In Louisiana, if you’re considering a home equity loan, you’ll need to have at least 20% equity in your primary residence to qualify. To make sure you’re in a good position, it’s a good idea to keep an eye on your home’s value (the appraisal will help).
Home equity loans typically come with a fixed interest rate, which means you’ll have the same predictable monthly payment over the life of the loan. While fixed rates offer stability, they can also start out higher than variable rates, which typically start out lower but can increase over time.
Leverage the calculators below to assess your eligibility for a home equity loan and learn what your monthly payments might be.
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 home equity loans typically fall between 2% and 5% of the loan amount. These may include charges for services such as appraisal, credit report, document preparation, and title insurance. Some lenders offer no-closing-cost loans, but these often come with higher interest rates. It’s wise to compare offers from different lenders to find the best fit for you.
The interest on your home equity loan can be tax-deductible if you’re using it to make substantial improvements in the property. Couples filing itemized joint tax returns can deduct interest paid on up to $750,000 of the loan, while single filers are permitted to deduct interest paid on loans of up to $375,000. A tax advisor can help you make sure you’re following the rules.
In Louisiana, different types of home equity loans give you options when borrowing. It’s worth exploring these alternatives to a standard home equity loan to find the best solution for your financial situation.
A Home Equity Line of Credit (HELOC) is like a credit card, but the collateral is your home. It allows you to borrow up to a certain limit and only pay interest on the amount of the credit line that you actually use. The interest rates on HELOCs are variable, which means they can go up or down with the market. If interest rates rise, your payments could increase, which is something to consider when making the HELOC vs. home equity loan decision. Here’s a quick summary of the differences between the two:
| 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; 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. |
An HECM is a government-insured reverse mortgage designed for homeowners aged 62 and older, enabling them to receive payments from the lender based on their home’s value. You have the flexibility to choose how you receive these funds: as a lump sum, regular payments, or a line of credit. The beauty of an HECM is that you are not required to make payments until you leave the home, unlike home equity loans and HELOCs. Keep in mind that HECMs generally have higher closing costs and longer processing times compared to home equity loans and HELOCs. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is similar to a mortgage refinance, but in this case when you take out a new mortgage to pay off your existing one you also borrow more — and receive the funds in a lump sum that you can use for whatever purpose you deem appropriate. Most lenders will let you borrow up to 85% of your home’s value.
As you’re comparing a cash-out refinance vs. a home equity line of credit one important thing to remember is that with a cash-out refinance, you end up with one monthly payment instead of two. With a HELOC, however, you borrow only what you need at any given time, vs. taking a lump sum payment.
Understanding home equity loan rates in Louisiana and how lenders make decisions about what rate to offer is key to making a smart financial decision. By comparing rates, considering the factors that affect them, and using an online calculator to crunch the numbers, you can get a home equity loan that meets your needs and helps you reach your financial goals.
Unlock your home’s value with a home equity loan from SoFi.
The interest rate and loan term will help determine what the monthly payment is on a $50,000 home equity loan. An 8.00% interest rate and a 10-year term would mean a monthly payment of $607. If the interest rate was 7.00%, the monthly payment would change to $581.
If you borrowed $100,000 with a home equity line of credit, the monthly payment would vary according to the interest rate and loan term. Using a HELOC monthly payment calculator will give you the most precise estimate of what your payments would be.
The monthly payment for a $25,000 home equity loan is determined by your interest rate and loan term. If you paid back the loan over a decade, at an interest rate of 6.5%, you would pay $284 per month.
When you’re thinking about a $30,000 home equity loan, it’s important to understand how the interest rate and loan term will affect your monthly financial obligation. Use a trusted home equity loan calculator to get a clear picture of what your monthly payments could look like.
A less-than-stellar credit history, not enough equity in your home, a high debt-to-income ratio, and inadequate insurance coverage for your property are all factors that can throw a wrench in your home equity loan plans. It’s important to understand how these factors can impact your application and to address them before you apply.
HELOCs offer interest rates that are usually lower than those of credit cards. With a HELOC, you can access funds as you need them and only pay interest on the amount of the credit line that you use. And if you use the HELOC to pay for significant home improvements, the interest you pay may be tax deductible.
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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.
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