Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans use the equity in your home as collateral.
• Rates are based on your credit score and debt-to-income ratio, among other factors.
• Fixed rates offer the comfort of predictable monthly payments.
• Compare offers from several lenders before signing on for a home equity loan.
• Consider alternative methods like a home equity line of credit or a cash-out refinance before deciding how to borrow.
Welcome to our guide on home equity loan rates in Miami. Here, we’ll thoroughly explain what a home equity loan is and how the interest rate you’re offered by a lender will be set. You’ll learn what factors can influence rates, and how to get the best deal. Whether you’re considering a home equity loan for a renovation, to consolidate debt, or to finance a big purchase, we’ll help you understand the benefits and risks, and explore alternative financing options.
A home equit loan is essentially a second mortgage that allows you to borrow a lump sum based on the equity you have in your home. (Your equity is the home’s market value minus whatever you owe on your original home loan.) Most lenders will offer loans up to 85% of your total equity. Since these loans are secured by your home, they typically offer lower interest rates than unsecured personal loans, making them a smart choice for major expenses or consolidating debt. Borrowers begin repaying their home equity loan immediately after receiving the funds. Because these loans have fixed interest rates, the payment amount is the same each month over anywhere from five to 30 years.
Home equity loans are often confused with a home equity line of credit, but they are different. We’ll explain the latter below.
The interest rates for different types of home equity loans are determined by a variety of factors, including the state of the economy and your personal financial situation. One of the most significant factors is the Federal Reserve’s decisions on interest rates. Lenders typically base their home equity loan rates on the prime rate, which is influenced by the Fed’s policies. If the prime rate goes up, rates on home equity loans tend to go up as well. Your credit score, debt-to-income (DTI) ratio, and how much equity you have also play a role in the rate you’re offered.
As you think about how to get equity out of your home, one of the most important considerations will be current interest rates. Even a slight variation in rates can lead to significant savings or added costs. For instance, if you take out a $100,000 loan with a 20-year term, an 8.00% rate would mean paying a total of $100,746 in interest, while a 9.00% rate causes your total interest paid to $115,934 — that’s a $15,000 increase.
Recommended: HELOC vs. Home Equity Loan
While no one has a crystal ball that predicts interest rates, we can look at recent history to get an idea of what could be considered a “high” or “low” rate. The prime rate, which is the rate that banks use to set their own interest rates, was as low as 3.25% in 2020 and as high as 8.50% in 2023. But as you can see from the graph, rates below 4.00% don’t come around very often. By keeping an eye on the prime rate and exploring what different lenders are offering before applying, some borrowers can time their application for a better rate.
| 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 is outside your control. But other factors that determine your interest rate are within your control. Take these steps before you apply to better your chances of snagging the lowest available home equity loan rate in Miami:
To be eligible for a home equity loan, you need at least 20% equity in your home. Calculating your equity is simple: Subtract your current mortgage balance from your home’s estimated value (find the value on a real estate site). For instance, if your mortgage balance is $400,000 and your home is valued at $550,000, your equity sits at $150,000. Next step: Divide your equity number by the estimated value to get a percentage of equity (in this case 27%). By keeping a healthy cushion of equity, you’re setting yourself up for the most favorable home equity loan rates. You can get a sense of how much you might be able to borrow based on your equity by using a home equity loan calculator.
Your DTI ratio is a key player where interest rates are concerned. To learn your DTI ratio, add up your monthly debts and divide by your gross monthly income. The sweet spot for a home equity loan is typically below 50%, but the real magic number is 36% or lower. A low DTI ratio tells lenders you’re a pro at managing monthly payments, and that can lead to more attractive home equity loan rates. To boost your DTI, think about paying down those lingering debts, finding ways to increase your income — or even better both.
Property insurance safeguards your investment in your home. It also protects a lender’s investment when you have a home equity loan. Having adequate coverage can positively impact the rates you’re offered, as well-insured properties are seen as lower risk by lenders. If you’re uncertain about the coverage needed, check with a lender to see what type of coverage would meet your lender’s requirements.
Financial tools and calculators can help you estimate your monthly payments and understand the impact of different loan terms on your budget. Check out these user-friendly tools:
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 for a home equity loan generally fall between 2% and 5% of the loan amount. These typically cover the appraisal, credit report, document preparation, loan origination, notary, title search, and title insurance fees. Some lenders offer no-closing-cost loans, but these may have higher rates.
Here’s a tip that could save you some money: The interest you pay on a home equity loan could be tax deductible if you use it to buy, build, or improve your home. The current guidelines are in place through 2025, and there’s talk of extending them (so check with a tax advisor for the latest). Joint filers can deduct interest on loans up to $750,000, and single filers can deduct interest on loans up to $375,000. Just remember, you have to itemize to claim this deduction.
A home equity loan isn’t the only way to borrow based on your equity. Here are two other popular options:
A HELOC is a bit like a credit card, but with lower interest rates because your home is the collateral. It gives homeowners the flexibility to borrow what they need as they need it, up to a predetermined limit. With a HELOC, you only pay interest on the amount of the credit line that you actually use. After an initial “draw” period (often 10 years) when you can use the credit line, you begin to repay the principal plus interest. To see what payments might be like during the draw period, use a HELOC interest-only calculator. The interest rate on a HELOC is variable and can change over time, which means your costs could go up if rates rise. A HELOC repayment calculator can help you see what payments would be like at different interest rates.
To qualify for a HELOC, you typically need a credit score of at least 680, but a score of 700 or higher is preferred, and a debt-to-income (DTI) ratio no higher than 50%, with 36% or less being ideal. HELOCs can be a good option for homeowners who want to borrow up to 90% of their home’s equity and pay for expenses over time.
A cash-out refinance is a that replaces your existing mortgage with a new one, larger in size, and hands you a lump sum to use as you wish. The amount you receive is based on your home equity, with lenders often green-lighting up to 80%. To qualify, you’d typically need a credit score of at least 620 and a DTI ratio under 43%. Because it’s a new mortgage, you can opt for fixed or variable interest rates. With a refi, you’ll have a single monthly payment that covers both your home mortgage and the lump sum you borrowed.
Here’s a quick comparison of 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 (a HELOC interest-only calculator is useful then). Then there is 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) |
To get the best home equity loan rates in Miami, you’ll want to take good care of your credit score, manage your DTI ratio, and obtain thorough property insurance coverage. When you compare offers from multiple lenders, be sure to consider closing costs and fees as well as interest rates. Taking the time to think about these factors can help you make the best decision for your finances.
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Unlock your home’s value with a home equity loan from SoFi.
Home equity loans are a versatile financial tool you can use to cover large purchases, home improvements, and to consolidate high-interest debt. Because the loan is a lump sum and you begin repaying what you owe immediately, it’s a good idea to plan how you’d like to spend the loan and how you will pay it back before you sign on.
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 ends, you’ll pay both the principal and interest. If you were repaying $100,000 over 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.
The payment on a $30,000 home equity loan is determined by the rates and loan term. For example, at a 7% interest rate over a 15-year term, the estimated monthly payment would be about $224. Extending the term to 20 years reduces the monthly payment to $180 but increases the total interest paid. Compare different lenders and loan terms to find the most affordable option.
Home equity loans come with fixed interest rates, ensuring your monthly payments remain steady and protecting you from the ebb and flow of rates. They usually offer lower rates than unsecured personal loans, which makes them a smart choice for significant, one-time expenses such as home improvements or consolidating debt. And here’s a bonus: the interest you pay on home equity loans may be tax-deductible if you use the funds for home improvements, up to $750,000 for joint filers and $375,000 for single filers. This could be a great way to reach your financial goals and potentially save on borrowing costs.
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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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