Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans in Memphis use your home as collateral.
• Your home equity loan rate in Memphis, TN will be based, in part, on your credit score, debt-to-income ratio, and loan-to-value ratio.
• You can usually borrow up to 85% or even 90% of the equity you own in your home with a home equity loan.
• Specialized online calculators can help you figure out what kind of loan and terms you may be able to get and what your monthly payments would look like.
• Compare offers from multiple lenders to find the best rates and terms.
Welcome to our comprehensive exploration of home equity loan rates in Memphis, TN.
First things first. What is a home equity loan? Basically, it’s a way you can leverage the money you’ve already invested in your home (your equity) to get a loan.
In this guide, we’ll help you navigate the intricacies of what influences home equity loan rates and how you can position yourself to secure the most favorable terms. From understanding the different types of home equity loans, including home equity lines of credit (HELOCs) and cash-out refinances, to realizing the importance of maintaining a healthy level of home equity, we’ll walk you through the essentials. We’ll also delve into the impact of interest rates on your monthly payments and overall financial landscape.
Whether you’re eyeing home improvements, paying off high-interest debt, or undertaking other significant expenses, we’re here to empower you to make savvy financial choices.
A home equity loan is a second mortgage on your home that draws on the value you already own in your home to provide you with a lump sum of money that you can use for a variety of purposes.
You pay a home equity loan back in monthly installments over a period of five to 30 years, depending on the term you’ve opted for. Because your home secures the loan, the interest rates are typically lower than what you’d find with an unsecured personal loan. And with most home equity loans, you’ll enjoy the predictability of a fixed interest rate, which means your monthly payments will remain the same throughout the life of the loan.
If you’ve been wondering how to get equity out of your home, home equity loans can be a great option, as long as you’ve accumulated enough. To qualify for a home equity loan, you’ll generally need to have at least 20% equity in your home. In other words, your mortgage balance should be no more than 80% of your home’s market value.
Memphis home equity loan rates are determined by a number of factors, including both economic conditions and your specific financial profile.
The Federal Reserve’s policies can impact the lending market. Changes to the federal funds rate and the prime rate can lead to changes in home equity loan rates. For instance, if the prime rate increases, you can expect rates for different types of home equity loans, including home equity loans, to rise as well.
Your credit score and debt-to-income ratio can also affect the rate you’re offered. Additionally, the amount of your loan and the length of your repayment term may have an impact on your rate. Generally, larger loans and longer terms will have higher rates due to the increased risk.
The interest rate you secure can have a profound impact on the overall affordability of your home equity loan. Even a seemingly small difference in percentage points can add up to substantial savings.
Let’s break it down by looking at the chart below, which shows a $75,000 home equity loan with a 20-year repayment term. At an interest rate of 8.00%, your monthly payment would be $627, and the total interest you’ll pay over the loan term would amount to $75,559. But if your rate is just a percentage point lower, at 7.00%, your monthly payment would drop to $581, with the total interest shrinking to $64,554. That’s $11,005 in extra interest that the lower rate could save you.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Home equity loans (unlike HELOCs, for instance) often come with fixed interest rates. That means that your monthly payment amounts don’t change throughout the duration of the loan. This predictability can be a real plus, but it’s worth noting that fixed rates might be a bit higher than the starting rates for adjustable rate loans.
Adjustable rates, however, are just that — after an initial, usually lower-rate, period, they can change based on the market. That creates the potential for higher payments down the line.
It’s important to weigh your financial situation and how comfortable you are with risk when deciding between the two. If you like the idea of a consistent payment, a fixed rate might be the way to go. But if you’re not bothered by the possibility of rate changes, an adjustable rate could work for you.
Predicting the ebb and flow of interest rates is akin to forecasting the weather — there are an enormous number of factors at play.
Take the prime rate, for example. Its recent history demonstrates its variability. As you can see in the chart below, it plummeted to 3.25% in March of 2020 and soared to 8.50% in July, 2023.
Taking a longer historical perspective, below, we can see clearly that ups and downs in the prime rate have been the norm for decades.
| 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% |
Fluctuations like these have an immediate impact on home equity loan rates in Memphis, TN, making it crucial to stay on top of current market conditions. While nobody can predict the future with absolute certainty, understanding past patterns may help you time your application to get a more favorable rate.
To be eligible for the most favorable home equity loan rates, you’ll want to present a solid financial picture. Lenders will generally scrutinize your credit score, debt-to-income ratio, and the loan-to-value ratio to determine your eligibility and the interest rate they will offer you. For instance, loan-to-value ratio compares the amount of your loan to the appraised value of your house, and, naturally, lenders want your house value to be higher, so they typically look for an LTV of 85% or less – which can be good to know as you assess how big a loan you can expect to get. Even if you haven’t decided yet on a HELOC vs. a home equity loan, the tactics are the same to secure the most competitive interest rates.
To qualify for a home equity loan, you’ll need to keep at least 20% equity in your home.
Calculating how much equity you have is simple: Just subtract the mortgage balance you still owe from your home’s current value.
For example, if your mortgage balance is $400,000 and your home is now valued at $550,000, your equity would be $150,000.
Most lenders allow you to borrow up to 85% or sometimes 90% of your available equity, which means in this scenario, you could potentially access as much as $135,000. A home equity loan calculator can be a useful tool as y\\ou assess exactly how large a loan may be at your disposal.
Lenders in Memphis often look for a credit score of 680 or higher, with many favoring scores of 700 and above. A healthy credit history indicates your ongoing financial prudence – and can translate to more appealing home equity loan rates.
To strengthen your credit standing, maintaining a consistent payment record, keeping credit card balances under control, and not opening multiple new accounts in quick succession are key.
It’s also advisable to review your credit report regularly for inaccuracies and address any discrepancies. That can also contribute to a healthier score, potentially making you a more desirable candidate for a loan with a lower interest rate.
Next, let’s talk about your debt-to-income (DTI) ratio. It’s a big deal when it comes to getting a home equity loan. This ratio compares your monthly income to your monthly debt payments, including the one you’re hoping to add with your new home equity loan. Lenders typically look for a DTI below 50%, but if you really want to impress them, aim for 36% or lower.
To get your ratio in a good place, consider paying down some of your existing debts, finding ways to increase your income, or even a bit of both strategies. A lower DTI can significantly boost your chances of getting the home equity loan you want, with terms that work for you.
Property insurance is a necessity when you’re applying for a home equity loan, especially if your home is in a flood or disaster-prone area. This insurance is a safety net for both you and the lender, ensuring that your property is financially protected in case of damage.
It’s crucial to have comprehensive coverage that meets all of your lender’s requirements. This may include flood insurance, depending on your home’s location. Having the right property insurance not only makes you more likely to secure a loan, but also may help give you peace of mind, knowing that your home is protected against the unexpected.
Using online tools and calculators can help you make the best decision for your home equity loan.
For example, a mortgage payment calculator can help you estimate your monthly payments based on the loan’s amount, interest rate, and repayment term. Using one lets you find out easily that, if you were to borrow $75,000 at 8.00% interest for 20 years, you could expect to pay around $627 per month.
To take another example, a loan comparison tool can help you compare different lenders and the home equity loan rates they offer so that you can find the best deal for your financial situation.
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 can expect closing costs for home equity loans to hover between 2% and 5% of the loan amount.
Common fees include appraisal fees ($300-$500), credit report fees ($30-$50 or more), and title insurance (0.5%-1.0% of the loan amount). Loan origination fees can vary from 0.5% to 1.0% of the loan amount. Title search fees generally range from $75 to $250 or more, and document preparation can vary from $100 to $500; be billed on an hourly basis if an attorney is involved; or be built into the origination fee.
While no-closing-cost home equity loans may be an option, they often come with higher interest rates.
By shopping around and comparing multiple lenders, you can find the most cost-effective choice for you.
Here’s another possible benefit of home equity loans to factor into your considerations.
The interest on your home equity loan may be tax deductible if you’re taking out the loan in order to buy, build, or improve your home. For single filers, interest is deductible on the first $375,000 of loan debt. Spouses filing together can deduct the interest on up to $750,000 of debt. But you will need to itemize to claim this deduction.
And also note: This tax break currently runs through 2025. It may be extended beyond that, though, so consult your tax advisor to get the most up-to-date advice.
For homeowners looking for financial flexibility, there are a few alternatives to home equity loans to consider. Home equity lines of credit (HELOCs) and cash-out refinances are two common options that also let you draw on the equity in your home to access cash.
HELOCs offer a flexible way to borrow, with variable interest rates. They have a draw period, during which you can pull out funds as you need them, followed by a repayment period.
A cash-out refinance is a type of mortgage refinance that replaces your current mortgage with a new one, allowing you to borrow more than you owe and keep the difference.
Either option can be a smart way to tap into your home’s equity, but it’s important to compare the terms and costs of each to find the right fit for your financial goals and situation.
What is a home equity line of credit? A home equity line of credit (HELOC) is like a credit card in that it allows you to borrow up to a certain limit and pay interest only on the amount you actually borrow. Generally, you have a “draw period” during which you can take out funds and pay only the interest for what you borrow. After that comes a repayment period, during which you’re paying back principal and interest. The interest rate on a HELOC is typically variable, meaning it can fluctuate with the market. This could result in your costs rising if interest rates go up.
To qualify for a HELOC, you typically need a credit score of at least 680, but 700 or more is preferable. You should also have a debt-to-income (DTI) ratio of less than 50%, but ideally less than 36%. HELOCs can be particularly useful for ongoing expenses and can provide access to up to as much as 90% of your home equity.
If you want to figure out how much the monthly payments for a HELOC would cost, you might consider using a HELOC monthly payment calculator.
And if you’d like to calculate how much interest you’d have to pay during the “draw” period of a HELOC, try a HELOC interest-only calculator.
A cash-out refinance is a strategic move: You take out a new mortgage, pay off your existing home loan, and pocket the difference in cash. The amount you can receive is based on your home equity, with most lenders allowing borrowing up to 80% of your home’s value.
If you’re weighing the benefits of a cash-out refinance vs. a home equity line of credit, note that the requirements for borrowing are likely to be different. It’s generally easier to qualify for a cash-out refi than for a home equity loan or HELOC. Cash-out refinances typically require a minimum credit score of 620 and a DTI ratio of 43% or less. They can have either fixed or variable interest rates, with variable rates sometimes offering more equity access.
Unlike a home equity loan, a cash-out refi results in a single monthly payment, which can make it easier to manage.
As you think about whether a home equity loan makes sense for you, keep in mind that a strong credit score and a balanced debt-to-income ratio are your best friends when it comes to securing the most favorable home equity loan rates in Memphis, Tennessee. Don’t forget to have your property insurance in order, too, keep an eye on interest trends, and be sure you understand the nitty-gritty of closing costs and fees. Lastly, consider the versatility of HELOCs and cash-out refinances — one of these alternatives might just be a good fit for your financial needs and aspirations.
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.
Financing big purchases, paying for home renovations, and consolidating high-interest debt are all goals that may warrant taking out a home equity loan. You receive the loan as a lump sum, and the interest rate is typically fixed, so you know what your monthly payments will be. However, your home is the collateral for the loan, so if you don’t make your payments, you could lose your home to foreclosure. Be sure to assess your financial situation and compare offers from multiple lenders to get the best home equity loan rates.
The interest rate and term of the home equity loan determine exactly what the monthly payment will be. For instance, if your fixed-rate $50,000 home equity loan has a 6.00% rate over a 15-year term, you’d be looking at around $422 each month. If the rate were to be just two percentage points higher, at 8.00%, your monthly payment would increase to $478. These figures underscore the importance of securing a competitive rate to make sure your monthly payments are comfortably within reach. Lenders in Memphis typically weigh your credit score, debt-to-income ratio, and loan-to-value ratio when determining the rate you’re offered.
What the monthly payment on a $30,000 home equity loan would be depends on the interest rate and the term of the loan. For example, at a rate of 6.00% over a 15-year term, the monthly payment would be approximately $253. If the interest rate is 8.00%, the monthly payment would rise to $287. As you see, your home equity loan rate has an impact on your monthly financial obligations, so it’s worth shopping around to find a good one.
Home equity loans can offer you a variety of benefits, including a lump sum payment with a fixed interest rate, which can ensure that your monthly payments remain stable and predictable. These loans are often suited to large, one-time expenses such as home renovations or consolidating high-interest debt. Additionally, home equity loan rates are typically lower than those of unsecured loans, making them a cost-effective option when you need money. However, it’s important to consider the risks carefully, including the possibility of foreclosure if you don’t make your payments on time.
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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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