Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans allow homeowners to borrow against their home’s equity for various expenses such as renovations, education, or debt consolidation.
• Home equity loan rates are influenced by external factors such as the prime rate, economic conditions, and housing market trends.
• Personal factors such as credit score, debt-to-income ratio, property insurance coverage, and home equity level are also important.
• Home equity loans offer fixed interest rates, while a home equity line of credit (HELOC) offers a revolving credit line with adjustable rates.
• Alternatives to home equity loans include HELOCs, home equity conversion mortgages, and cash-out refinances, each with its own unique characteristics.
If you’ve been making your monthly mortgage payments steadily and are wondering how to get equity out of your home, this guide is for you. In it, you’ll learn about Massachusetts home equity loan rates. We’ll explain the factors that affect your rate, and share how to find the best rates for your situation.
Finally, we’ll talk about alternatives to home equity loans — including what is a home equity line of credit, or HELOC — so you can make an informed decision. For starters, we’re going to cover what is a home equity loan in the first place.
Different types of home equit loans are a popular way for homeowners to access the equity they have built up in their home by paying their home loan over the years. You can use the money from a home equity loan for just about any expense, including home renovation, debt consolidation, and education costs.
This particular type of loan is secured by the equity that you’ve built up over time in your home, making it a lower-risk loan option for lenders to consider and approve than an unsecured loan. This is why home equity loan rates in Massachusetts, as elsewhere, tend to be lower than rates for personal loans. If you’re still paying your first mortgage, the home equity loan will technically be a second mortgage.
Unlike a home equity line of credit (HELOC), which functions as a revolving credit account, a home equity loan provides the borrower with a lump sum of cash up front. Repayment of the principal balance and interest begins immediately, typically with a fixed interest rate.
Home equity loan interest rates are influenced by economic factors, chiefly the prime rate that banks charge their most creditworthy customers. Federal Reserve policy decisions regarding interest rates can help guide the prime rate. Understanding this can help borrowers keep an eye on the news and anticipate rate fluctuations so they can make informed decisions about when you secure a home equity loan or HELOC.
It’s important to carefully weigh how interest rates can tip the scales of your financial situation over the life of a loan. The table below shows you how that monthly payment will change based on three factors: your loan amount, interest rate, and loan term.
| 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 |
What’s even more striking is the change in the total interest you’ll pay over the life of the loan. Just a 1% difference in interest rate on a $100,000 home equity loan with a 20-year term comes to more than $14,000 in interest, either paid or saved!
As noted above, banks’ prime rates play a vital role in determining Massachusetts home equity loan rates. Since 2018, the average U.S. prime rate has seen some significant ups and downs, hitting a low of 3.25% in 2020 and a high of 8.50% in 2023. These swings have a direct impact on Massachusetts home equity loan interest rates and the overall affordability of these loans for you. Having a sense of how current rates compare with historical rates can be helpful in your decision-making. The chart below is a detailed look at average rates in recent years. The graphic gives 50-plus years of rates.
| 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% |
The prime rate isn’t the only factor driving what interest rate you’re offered. Other factors also determine the level of risk associated with your application which in turn governs what interest rate you may be offered.
Your lender examined your credit score when you took out a home loan to purchase your residence, and a lender on a home equity loan will also examine your score. They’re more likely to approve you if your credit score is 680 or higher, but many prefer to see 700 or above.
You’ll need a home appraisal if you apply for a home equity loan, as the value of your property will determine how much equity you have in your home (remember, you need at least 20% equity in order to get the loan).
Once you have an appraisal, you can figure out your loan-to-value (LTV) ratio, which helps determine how much you can borrow. You can compute your personal number by adding the amount you wish to borrow to the amount you currently owe on your mortgage (if anything). Then divide that total by the appraised value of your home. Multiply the result by 100 and you’ll have a “combined LTV.” The highest LTV most lenders will allow for a home equity loan is 85%. If you’re not sure how much you might be allowed to borrow, use a home equity loan calculator.
How stable home values are in your part of Massachusetts is another thing that lenders consider. When the market is healthy and values are stable or rising, lenders are more likely to give the okay to larger loans. But when the housing market is soft, lenders may have tougher criteria and offer smaller loan amounts.
If your property is located in an area that is deemed at high risk for natural disasters such as flooding or tornadoes, higher interest rates may be in your future, as lenders consider this risky.
Policies set by individual lenders can have a noticeable impact on the interest rates they offer borrowers. That’s why you’ll want to compare offers from a few different lenders during the loan application process and look not only at the interest rate you’re offered but also at the fees.
Take the steps below to ensure you get the best rate possible.
A robust credit score can be your ticket to more attractive rates on Massachusetts home equity loans. Periodically checking your credit report for errors and making payments on time are key to securing the best terms. And here’s a bonus: A stellar credit score can also open doors to better rates on other loans, like personal or auto loans.
When you’re applying for a home equity loan, your debt-to-income (DTI) ratio is a big deal. It’s a simple calculation that compares your monthly income to your monthly debt payments. (Add up your monthly debts, divide by your gross monthly income, and then multiply the result by 100.) Lenders usually look for a DTI ratio under 36% when considering home equity loans, though some may allow up to 50%. This number tells them you can handle your current debt and have enough income to take on extra monthly payments.
We’re hoping you already have sufficient property insurance, but if you don’t, you’ll want to level up before applying for your home equity loan. This not only safeguards your property but can also lead to more favorable loan terms.
As noted above, you’ll need to keep at least 20% equity in your home to qualify for a home equity loan. This equity acts as a safety net, assuring the lender that you have a significant financial investment in your property and are less likely to default.
Fixed rates are typical for home equity loan rates, so you’ll have the comfort of knowing your monthly payments will stay the same. This can be a big help when you’re trying to budget. But keep in mind that fixed rates can be a bit higher than variable rates at the start.
We have a variety of calculators to help you figure out what you can afford, how much you can borrow, and what your monthly payment will be. Here are three useful ones if you’re thinking about how to harness your home equity.
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.
You’ll likely be looking at a range of 2% to 5% of your loan amount in closing costs. Common fees include appraisal, credit report, document preparation, and title insurance, though every lender is different (which is why it’s smart to compare fees and interest costs when you’re comparing home loan offers).
Good news: The interest on your home equity loan could be tax deductible if you’re using it to significantly improve your space. Couples filing jointly can deduct interest on the first $750,000 of a home equity loan, while single filers can deduct interest on up to $375,000. Just remember to itemize your deductions when you file your tax return to claim this benefit.
In addition to home equity loans, there are other ways to tap into your home’s equity. These include a home equity line of credit, home equity conversion mortgage, and a cash-out refinance. Each of these options has its own unique features and eligibility requirements, so it’s important to carefully consider and evaluate your choices before making a decision. These alternatives provide homeowners with different ways to access the equity they’ve built up in their home to meet their financial needs and goals.
A HELOC is a bit like a credit card, but the credit line you’re borrowing against is your home’s equity. You can borrow up to a certain amount, and you’ll only pay interest on the amount you’ve borrowed. As you think about a HELOC vs. a home equity loan, consider that while a home equity loan’s interest is typically fixed, the interest rate on a HELOC is variable, which means it can go up or down based on an index. This can cause your payments to increase, which is something to consider when deciding if a HELOC is right for you.
If you’re 62 or older, a government-backed HECM reverse mortgage could be the key to unlocking your home’s value. It offers you the flexibility to receive payments as a lump sum, regular disbursements, or a line of credit. The best part? You don’t have to make payments until you leave your home. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is a special type of mortgage refinance. It’s a bit like hitting the reset button on your mortgage, but with a bonus. You take out a new, larger loan that pays off your existing mortgage and leaves you with some extra cash in hand.
As you consider a cash-out refinance vs. home equity line of credit or a home equity loan, remember that a cash-out refi is just that: a refinance. So if you have a really sweet interest rate on your current loan, it might not make sense to refinance into a higher rate. A HELOC or home equity loan could be a better bet.
Understanding home equity loan rates in Massachusetts and what influences the rate you’ll be offered can help you decide on when you apply for a loan and ensure that you present the best possible financial picture to a prospective lender. By comparing lenders, keeping a strong credit score, and exploring all your options, including a HELOC, you can find the best rates and repayment plan for your financial goals.
Unlock your home’s value with a home equity loan from SoFi.
If you borrow $50,000 with a home equity loan and pay it back over 10 years, the monthly payments could range from $530 to $607, depending on your interest rate (this range is from 5.00% to 8.00%). But remember: The two main factors that will affect your payments are the interest rate and the loan term, so changes in either of these will change your payment.
If you’ve maxed out your HELOC and are paying it back over 20 years at a rate of 7.00%, you can expect to pay $775 per month. Of course this is just an example. You can use a HELOC repayment calculator to compute the number for your exact interest rate.
Borrow $25,000 with an interest rate of 8.00% and a term of 5 years, and you’re looking at a monthly payment of $507. Change either the interest rate or the term (or both) and your payment amounts will change as well.
The monthly payment on a $30,000 home equity loan will depend on the interest rate and the loan term, but a 10-year term and 8.00% interest rate would mean a monthly payment of $364.
There are a number of factors that can prevent you from getting a home equity loan. These can include having a low credit score, having a high debt-to-income ratio, lacking 20% equity in your home, or not having enough insurance on your property.
HELOCs have a variety of benefits, including flexible borrowing, lower interest rates than many credit cards, and the ability to pay interest on only the amount of the credit line that you’ve used. These benefits make HELOCs a great financial tool for homeowners who need a flexible and cost-effective credit solution that fits their unique financial needs and long-term goals.
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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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