Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in Madison are determined by borrower creditworthiness, debt levels, and by market conditions.
• Comparing rates from multiple lenders can help you get the best deal.
• Home equity loans have fixed rates, which offer the peace of mind that comes with predictable monthly payments.
• The interest on home equity loans may be tax-deductible if used for home improvements.
• Borrowers with solid home equity might also want to consider a home equity line of credit (HELOC) or a cash-out refinance.
When it comes to borrowing against the value of your home, home equity loan rates are a critical factor to consider. This article will help you understand home equity loan rates in Madison, Wisconsin, and how they are influenced by broader economic conditions and your personal financial factors.
We’ll also cover the different types of home equity loans available, their benefits, as well as the potential risks involved. Whether you’re planning a major home renovation project or thinking about consolidating existing debt, if you’re looking to get equity out of your home to fund your dreams, this information will help you make informed decisions.
First off, make sure you know what a home equity loan is, exactly. A key fact is that a home equity loan is a second mortgage. You’ll use your home as collateral, and a lender will provide you with a lump sum of money that you will immediately begin to repay in fixed monthly installments over a period of five to 30 years. Because these loans are secured by your home’s equity, they typically come with lower interest rates than unsecured personal loans. The flip side? This means that if you don’t make payments, you risk losing your home to foreclosure.
The interest rate on home equity loans is usually fixed, which can be a plus for those who like to plan ahead. To qualify, you’ll generally need to have at least 20% equity in your home. Equity is the difference between the current value of your home and the amount you still owe on your mortgage. Many lenders will let you borrow up to 85% of your home’s equity. A home equity loan calculator can help you quickly figure out how much you might be able to borrow.
Home equity loan rates are influenced by a variety of economic and personal financial factors. The Federal Reserve’s policies have a direct impact on the lending market, with the prime rate (which is linked to the Fed’s policy) serving as a foundational benchmark for lenders. But your credit score, debt-to-income (DTI) ratio, the amount you’re borrowing, and the term over which you’ll repay the loan can all influence the rate you’re offered. Each lender interprets this data slightly differently so it’s important to shop around and compare rates and terms from multiple lenders during your application process.
Your interest rate plays a significant role in the total cost of your loan. What might seem like a small interest rate variance — even a fraction of a percentage point — can result in a noticeably greater interest payment over time. Take a look at the chart below, which shows you how different loan terms and rates affect monthly payments for a $75,000 loan that is repaid over 20 years.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Home equity loan interest rates are ever-changing, influenced in part by the prime rate. As you can see from the chart, the prime rate dropped to 3.25% in 2020, only to rise to 8.50% by 2023. The prime rate can serve as a barometer for different types of home equity loans in Madison. So it’s wise to keep an eye on economic conditions as you prepare to file your loan application. Some buyers try to time their application to a dip in the rate, but it’s not always possible. What can you do? Maximize your credit score and other personal metrics to present the best possible profile on your 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% |
To qualify for the most competitive home equity loan rates, you’ll need to put your best financial foot forward. By paying attention to the factors below before you file your home equity loan application, you can boost your chances of getting the best home equity loan rates in Madison.
You need to keep at least 20% equity in your home to be eligible for a home equity loan. To figure out your home equity, simply subtract your mortgage balance from your home’s current value. For instance, if your mortgage balance is $400,000 and your home is valued at $550,000, your equity is $150,000. Then divide this equity number by your home value to arrive at a percentage. If it’s 20% or above, you’re ready. If it isn’t quite there, you can boost your equity by making extra payments toward your loan principal.
To secure the most attractive home equity loan rate, a robust credit score is your best ally. Lenders typically favor those with a score of 680 or above, but for some the gold standard is 700 or higher. A higher credit score showcases your money-management skills and potentially unlocks more favorable loan terms. To give your score a boost, focus on making timely payments, keeping credit card balances in check, and steering clear of new debt. Regularly check your credit report and dispute any errors you find.
Your DTI ratio is a key metric if you’re concerned about your home equity loan eligibility. Lenders generally look for a DTI below 50%, with the best position being under 36%. To determine your ratio, add up your monthly debts and divide by your gross monthly income. To keep your DTI in check, think about chipping away at existing debts, finding ways to boost your income, or both.
Property insurance is often a must-have for home equity loans, especially if you live in an area prone to flooding or other natural disasters. Lenders want to be sure that the property securing the loan is well protected. Having the right insurance can give you peace of mind and might even affect the home equity loan rates you’re eligible for.
Online calculators can help you determine how much you can borrow, what your monthly payments might look like, and how different factors — like your loan amount or term — 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 some good news: The interest on home equity loans can be tax-deductible if the funds are used to significantly improve your home. If you’re married and filing jointly, you could potentially deduct interest on up to $750,000 of qualified home equity loans. For single filers, the limit is $375,000. To take advantage of this deduction, you’ll need to itemize your deductions when you file your tax return. It might be worth consulting a tax advisor to see how this could benefit you based on your financial situation.
In addition to home equity loans, a home equity line of credit (HELOC) and a cash-out refinance are also good ways to leverage your home equity. It’s worth considering both of these options if you’re looking into a home equity loan.
A HELOC is a bit like having a credit card with a limit determined by your home equity. During the HELOC’s initial “draw” period, often 10 years, you borrow money as you need it and only pay interest on the amount you draw. (You can use a HELOC interest-only calculator to see what payments might look like.)
After the draw period ends, you will repay all that you owe with interest. This is when you can use a HELOC repayment calculator to estimate costs. It’s helpful, since HELOC interest rates are variable — meaning they might go up or down with the market.
To qualify for a HELOC, you’re generally going to need a 680 credit score (though many lenders prefer 700) and a DTI ratio of 50% or less (ideally 36% or under). As you’re thinking about a HELOC vs. a home equity loan, you might consider a HELOC if you’re not sure exactly how much you’ll need to borrow or if your expenses will be ongoing.
A cash-out refinance is a mortgage refinance that replaces your existing home loan with a larger one, granting you cash based on your equity (up to 80%). Typically, you’d need a credit score of 620 or above and a debt-to-income ratio of less than 43%. The beauty of this option is the flexibility it offers. It’s an entirely new loan, so you can choose one with a fixed or variable interest rate. Of course, you’ll want to carefully consider the cost of your existing home loan and those of a refi to make sure that current interest rates are competitive.
Here’s a quick guide comparing a cash-out refinance vs. 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 ready to take the leap into borrowing based on your home equity, remember to keep your credit score in good shape, your debt-to-income ratio low, and your property insured. Use online tools to make sure you understand what your monthly payments would be, so you can plan for these costs. Consider rate and loan offers from multiple lenders to help you get the best available terms in Madison.
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.
Whether you need to purchase a big-ticket item, undertake a home makeover, or just want to streamline high-interest debts into one, more affordable payment, a home equity loan could be a smart solution. Just remember to consider monthly costs carefully and to have a plan to pay off what you borrow.
The monthly payment for a $50,000 home equity loan 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. However, 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 interest-only payments are required, followed by a repayment period. During the draw period, you pay interest only on the funds you use. Once the draw period concludes, you’ll repay 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 comes with a variable interest rate. Plan for changes to avoid financial strain.
There are a few things that might prevent you from securing a home equity loan. Most lenders look for a credit score of at least 700, although some may be open to lower scores. Your debt-to-income (DTI) ratio should not exceed 50% (and ideally be closer to 36%) to ensure you can comfortably handle the additional financial responsibility. And you’ll need to have at least 20% equity in your home.
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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.
