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 home, typically for substantial expenses like renovations or debt consolidation.
• Home equity loan interest rates are influenced by the prime rate and home value stability.
• Factors like the borrower’s credit score, loan-to-value ratio, and property location also significantly impact home equity loan rates.
• Home equity loans offer fixed interest rates, ensuring consistent monthly payments, while HELOCs provide flexibility with variable rates and access to funds as needed.
• Closing costs and fees associated with home equity loans can range from 2% to 5% of the loan amount.
In this guide on how to get equity out of your home, we’ll cover everything you need to know about home equity loan rates in Maryland. We’ll start by taking a look at what shapes the current rates being offered by your state’s lenders. We’ll also go over the factors that can affect the rate you personally are offered, and finally we’ll provide some tips to help you find the best loan for your needs from among the different types of home equity loans available.
The first step? Let’s make sure we’re all on the same page about what is a home equity loan, exactly.
A home equity loan uses your home as collateral. For this reason, it will likely offer a lower interest rate than an unsecured personal loan. This means that if you are currently paying a mortgage and you take out a home equity loan, you’ll have a second mortgage. The interest rate on a home equity loan is usually fixed, which can be a great option for those who like to know exactly what to expect with their monthly payments.
To qualify, you’ll need to have made some progress paying off your home loan: You’ll need at least 20% equity in your primary residence. You can use the money you borrow with a home equity loan for a variety of expenses, including home improvements, education costs, medical bills, and debt consolidation.
If you’re wondering what is a home equity line of credit, and how it is different from a home equity loan, we’ll get to that below.
Home equity loan interest rates are not arbitrary; they are influenced by a variety of economic factors. Federal Reserve policy decisions regarding interest rates can influence the prime rate, which is the interest rate that banks charge their most creditworthy customers. A lender might start with its prime rate and then make adjustments based on the qualifications of an individual borrower before proposing a loan rate.
Your interest rate is a crucial factor in the affordability of your loan over time. In everyday life, a 1% difference might not seem like a lot, but if you’re borrowing a large sum of money a 1% increase in your rate can add to your monthly payments and add significantly to the total amount of interest you pay over the life of the loan. The chart below shows how different rates and terms affect the monthly payment amount.
| 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 |
Given how important your interest rate is, you might wonder how much you can expect a lender’s prime rate to vary over time. The chart below shows that the average prime rate has seen its share of ups and downs in recent years, from a low of 3.25% in 2020 to a high of 8.50% in 2023.
The graphic below shows a much longer span of time: more than 50 years. Of course, waiting for the prime rate to inch down might not make sense if you urgently need to borrow funds. But if your timeline is flexible, keeping apprised of what is expected in the market may help you decide when is the best time to borrow.
| 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% |
A variety of other factors beyond the prime rate come into play when determining your home equity loan rate in Maryland, and happily many of them — such as your credit score — are within your control. These factors can have an impact on the rate you’re offered.
You probably recall that when you got your home loan, your credit score was an important part of the lender’s criteria. The same is true with a home equity loan. Lenders usually want to see a credit score of 680 or higher from a home equity loan applicant, although higher scores may get you a better rate.
Lenders often use independent appraisals to determine the market value of your property before offering a loan. This appraised value of your home is key to determining exactly how much they are willing to lend you.
Once you know your home’s appraised value, you and the lender can compute your LTV ratio. Your combined LTV ratio is calculated by dividing the loan amount you’re seeking plus any remaining balance on your first mortgage by the appraised value of the home. The maximum combined LTV lenders typically allow for home equity loans is around 85%.
If your home’s value is on the rise, lenders are more likely to greenlight a larger home loan, as an increasing property value helps shelter them from risk. But if home values in your area are sagging, lenders may offer smaller home equity loans.
The location of your property can also contribute to your interest rate. If your home is in an area that is at a higher risk for natural disasters, you may have a higher interest rate, reflecting the fact that the lender is taking on more risk by lending to you. High-risk areas are those that are more likely to experience hurricanes, floods, tornados, or wildfires, for example.
Each lender has its own policies that might impact the interest rate you’re offered. This is why it’s smart to shop around and compare interest rates, fees, and closing costs from multiple lenders. Taking the time to do this research might help you find more favorable terms and save money over time.
To secure the most favorable home equity loan rate, prioritize caring for your credit score, diligently manage your debt-to-income ratio, procure comprehensive property insurance, and keep your home equity high. Here are the to-dos:
A higher credit score can be your golden ticket to more favorable interest rates. Check your credit report now and then and make sure there are no inaccuracies. Try not to max out all your lines of credit. And above all, pay your bills on time.
Your debt-to-income (DTI) ratio is a key player when you’re applying for a home equity loan. To figure out yours, add up all your monthly debts and divide by your gross monthly income. Multiply by 100 for a percentage. For the best home equity loan rates in Maryland, lenders typically look for a DTI ratio below 36%, though you may be able to get a loan with a DTI ratio up to 50%. A lower DTI ratio tells them you can handle your current debt and the added monthly payments of a home equity loan.
It’s a standard requirement for home equity loans to require sufficient property insurance. These policies are designed to protect you and your lender from financial loss due to property damage or destruction. When you’re looking at home equity rates in Maryland, make sure to include the cost of any added insurance in your calculations, so you can get a clear picture of the total financial commitment.
As noted above, lenders typically require homeowners to maintain at least 20% equity in their primary residence to be eligible for a home equity loan. Remember to compute equity based on your current property value, not what you paid for the property initially.
Home equity loans usually come with a fixed interest rate, which means you can count on having the same monthly payment for the entire life of your loan. While a fixed rate can keep things predictable, it might also mean that you start off with a higher rate than you would with a variable rate. A variable rate, on the other hand, might start off lower, but it could also go up (or down) over time. A HELOC (home equity line of credit) usually comes with a variable interest rate.
Take advantage of online tools and calculators to determine whether you might be eligible for a home equity loan or HELOC, to assess your borrowing capacity, and to figure out what your monthly payments might be. Here are three useful calculators:
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 on home equity loans typically range from 2% to 5%. You can expect to see fees for services such as appraisals, credit reports, document preparation, loan origination, notary, title search, and title insurance — though each lender has its own fee schedule. When considering Maryland home equity loans, it’s important to factor in costs and fees if you’re comparing one lender’s offer to another’s.
Many borrowers are pleased to discover that the interest you pay on a home equity loan is tax-deductible if you’re using the funds to substantially improve your home. If you’re filing jointly, you can deduct interest on loans up to $750,000; for single filers, the limit is $375,000. Itemizing your deductions is the key to unlocking this benefit, so a chat with a tax pro might be in order.
There are other ways to tap into your home’s equity, including HELOCs but also home equity conversion mortgages (HECMs) and cash-out refinances. Each of these options has its own set of requirements and features, so let’s take a closer look.
A HELOC is like a credit card but with lower interest rates. With a lender’s permission, you can borrow up to a certain limit and pay interest only on the amount of the credit line you actually use. One key difference in the HELOC vs. home equity loan comparison: The variable interest rates on HELOCs can change with the market, and if they go up, your costs can increase. The monthly payment on a home equity loan will remain steady. HELOCs are popular among borrowers who know they need cash — say, for a renovation project — but aren’t sure exactly how much.
An HECM is a government-insured reverse mortgage that empowers homeowners aged 62 and older to receive payments from the lender based on their home’s value. The proceeds from an HECM can be received as a lump sum, regular payments, or a line of credit. Unlike home equity loans and HELOCs, HECMs do not require you to make payments until you leave the home. Keep in mind, though, that HECMs generally have higher closing costs and longer processing times. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is like hitting a refresh button on your mortgage. This special type of mortgage refinance replaces your existing home loan with a new (larger) one, giving you the chance to pocket some cash.
If you’re contemplating a cash-out refinance vs. a home equity line of credit or home equity loan, one thing to think about is how your current mortgage rate compares to prevailing rates in the market today. You’ll need to do the math to make sure taking out a new mortgage doesn’t radically inflate the interest you will pay. Remember to include closing costs and fees in your calculations.
Knowing the ins and outs of Maryland’s home equity loan rates and the factors that sway them is key to making savvy borrowing choices. By shopping around and using online calculators to compare different lenders’ offers, you can ensure you secure the best terms and rates.
Unlock your home’s value with a home equity loan from SoFi.
When it comes to a $50,000 home equity loan, the loan term and interest rate play a big role in the size of your monthly payment. Borrowing $50,000 at a 7.50% interest rate with a 10-year term would equal a monthly payment of $594. An 8.00% interest rate and a 10-year term would mean a monthly payment of $607.
When you’re thinking about a $100,000 HELOC, keep in mind that your monthly payment will fluctuate based on the current interest rate and how much of your credit line you’ve utilized. If you used the full $100,000 and your interest rate was 8.00%, you’d pay $836 per month if you repaid the funds over 20 years. Using a HELOC monthly payment calculator will give you the most precise estimate of your payments.
When you’re looking at a $25,000 home equity loan, you need to think about how the interest rate and the loan term will affect your monthly payments. Assuming a 10-year term, an interest rate of 6.00% would mean a $278 monthly payment. An interest rate of 8.00% would mean $303.
The monthly payment on a $30,000 home equity loan would be $287, assuming an interest rate of 8.00% and a 15-year term. Changing the rate or term will result in a change in the payment amount as well.
There are a number of factors that could prevent you from getting a home equity loan. These include a poor credit history, not enough home equity, a high debt-to-income ratio, and inadequate property insurance coverage. Each of these factors is important and can affect the outcome of your application. The good news is that you can take steps to address each of these issues and increase your chances of being approved for a home equity loan.
A home equity line of credit (HELOC) offers several benefits, including flexible borrowing options, lower interest rates vs. traditional credit cards, and the convenience of only paying interest on the amount of credit that you actually use. HELOCs provide homeowners with a versatile financial tool that can be tailored to their specific needs and financial situations.
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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.
