Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• The rates for home equity loans in Louisville are affected by a few key factors, such as the prime rate, your credit score, and your debt levels.
• Even a small change in rates can make a big difference in your bottom line.
• To land the most favorable rates, target a credit score of 680 or above, a debt-to-income ratio under 36%, and a home equity stake of at least 20%.
• Property insurance is often required and can impact loan rates.
• Interest on home equity loans may be tax-deductible if you’re using the funds to enhance your home.
Home equity loans are a powerful financial resource for homeowners who wish to leverage the equity they’ve built in their properties. In this article, we’ll dig into the current home equity loan rates in Louisville and explain how they are determined and what factors can affect them. You’ll receive practical guidance on how to secure the most favorable rates and make well-informed decisions about how to get equity out of your home.
Before you apply, it’s important to comprehend 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 begin repaying it immediately in equal monthly installments over a fixed term, typically five to 30 years. Because your home is the collateral for the loan, 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, 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.
Home equity loan rates are determined by a variety of economic and personal factors. The Federal Reserve’s policy on the federal funds rate plays a significant role. Lenders typically peg their rates to the prime rate. But from there, they also adjust the rate they offer individual borrowers based on the person’s credit score and debt-to-income (DTI) ratio. Generally, higher credit scores and lower DTIs lead to more favorable rates.
Your interest rate helps determine how much you’ll be paying back over the life of different types of home equity loans. Even a slight variation in rates can lead to significant differences in the total interest you pay. Take a look at how different interest rates would affect the cost of a $75,000 loan over 20 years, below.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
The landscape of home equity loan rates is ever-changing, influenced in part by the prime rate. As you can see from the chart below, the prime rate dropped to 3.25% in 2020, only to rise to 8.50% by 2023. These shifts have a ripple effect on home equity loan rates. So it’s wise to keep an eye on economic conditions as you prepare to file your loan application.
| 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 when you bought your home and obtained your original home loan, a robust financial standing is your ticket to great rates. Here are some things you can do before you apply to put your best foot forward:
To be eligible for a home equity loan, homeowners must have at least 20% equity in their property. You can calculate your equity by subtracting your mortgage balance from your home’s estimated value (find the latter on a real estate site). Divide the answer by the home’s estimated value to arrive at a percentage. For example, if your home is worth $550,000 and you owe $400,000 on your mortgage, you have $150,000 in equity. Divide that by $550,000 and you get 27%. You can build and maintain equity by paying down your mortgage, making home improvements, and staying in your home for the long term.
Lenders typically look for a credit score of 680 or higher when evaluating applications for home equity loans, and many prefer a score of 700 or above. A strong credit score demonstrates financial responsibility and can lead to more favorable home equity loan rates. To improve your credit score, focus on making timely payments, reducing credit card balances, and avoiding new debt. Regularly checking your credit report for errors and disputing any inaccuracies can also help boost your score.
Your debt-to-income (DTI) ratio is a key figure in the home equity loan game. Lenders usually look for a DTI ratio of less than 50%, and ideally, less than 36%, to make sure you can handle the extra financial load. To figure out your DTI, add up all your monthly debt payments and divide that number by your gross monthly income. The lower your DTI, the better your chances of getting the loan you want at a rate you’ll love.
Property insurance is a must-have if you want a home equity loan, especially if you’re in an area prone to flooding or other natural disasters. This insurance is a safety net for both you and the lender, should anything happen to your property. Having the right coverage can also impact the terms of your loan, including the rates you’re offered. Make sure your insurance policy meets your lender’s standards.
Online calculators can help you figure out how much you can borrow, what your monthly payments might look like, and how different factors—like your credit score, debt-to-income ratio, and loan amount—can impact your home equity loan rates. Here are three you’ll want to use throughout your life as a homeowner.
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.
The closing costs for home equity loans are generally between 2% and 5% of the loan amount. These fees include the appraisal, credit report, document preparation, origination, notary, title search, and title insurance, among other charges. While no-closing-cost loans are an option, they often come with higher interest rates. It’s a good idea to compare fees and terms from different lenders to find the most cost-effective choice for you.
Here’s a tip that could save you some money: The interest on home equity loans may be tax-deductible if the funds are used to buy, build, or significantly improve your home. If you’re married and filing jointly, you can deduct interest on up to $750,000 of qualified home equity loans. For single filers, the limit is $375,000. To claim the deduction, you’ll need to itemize your deductions on your tax return. Consult a tax advisor to understand how this may apply to your financial situation.
In addition to home equity loans, you might look into a home equity line of credit (HELOC) or a cash-out refinance. Here’s the lowdown on these options:
A HELOC is like 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 entirely sure how much they will need to borrow or when they will need the cash.
A cash-out refinance swaps your current mortgage for a larger one, handing you a hefty lump sum to use for any purpose. You can typically borrow up to 80% of your home’s value. A solid 620 credit score and a debt-to-income ratio under 43% are usually what you need. Interest rates can be fixed or variable. Unlike home equity loans, you’ll only have one monthly payment to keep track of. As with any mortgage refinance, you’ll want to examine the rates available from multiple lenders to make sure you get the most competitive offer.
Below, a quick guide comparing a cash-out refinance cs. a home equity line of credit and a home equity loan.
| 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 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) |
When you’re thinking about a home equity loan, a solid credit score, a tight grip on your DTI ratio, and good property insurance are your best friends. They’ll help you snag the best rates and keep your financial house in order. Use online tools to estimate how much you can borrow and what your monthly payments might look like. Then weigh offers from lenders to make a smart choice that fits 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 versatile, serving as a funding source for major expenses, home improvements, or the consolidation of high-interest debt. The adaptability of these loans makes them a valuable financial resource for homeowners who are in need of a substantial sum but who don’t want to part with their property. When contemplating a home equity loan, it’s crucial to employ the funds judiciously and in a manner that supports your financial goals.
The monthly payment for a $50,000 home equity loan in Louisville depends on the loan term and interest rate. For instance, a 15-year fixed-rate loan at 7.50% would mean a monthly payment of about $464. Opting for a 30-year term at the same rate would lower the monthly payment to roughly $350. The total interest paid over the life of the loan is usually higher with a longer term.
A $100,000 home equity line of credit (HELOC) typically has a draw period where only interest payments are required, followed by a repayment period. During the draw period, you might only need to pay interest on the funds you use. Once the draw period concludes, you’ll pay both the principal and interest. If you were repaying the full $100,000 over a period of 20 years and the interest rate held steady at 8.00%, your monthly payment would be $836. Remember, though, that a HELOC often comes with a variable interest rate, so exact payment amounts are difficult to predict.
There are a few things that might stand in your way of being approved for a home equity loan, such as not having at least 20% equity in your home, or having a credit score that’s less than stellar (below 680). If your DTI ratio is under 36% that could also be a dealbreaker. Understanding these requirements can help you put your best foot forward.
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.
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