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 for various purposes such as renovations, education, or debt consolidation.
• Home equity loan interest rates are influenced by factors like the prime rate and local housing market conditions.
• Michigan home equity loan rates have fluctuated over the years due to changes in the prime rate and local economic conditions.
• Qualifying for the lowest Michigan home equity loan rates involves cultivating a strong credit score, managing debt-to-income ratio, obtaining adequate property insurance, and maintaining sufficient home equity.
• Home equity loans offer fixed interest rates, providing predictable monthly payments.
A home equity loan allows you to get equity out of your home, and because it uses your home as collateral, it will likely offer a lower interest rate than an unsecured personal loan. In this guide, we’ll cover everything you need to know about home equity loan rates in Michigan. We’ll look at how rates are determined and provide the inside scoop on how you can qualify for the best available rate on a home equity loan.
But first, let’s make sure we cover what is a home equity loan so you can understand how it’s different from other types of loans.
If you’ve been diligently paying off your home loan, you have built up equity in your property. A home equity loan allows you to borrow against this and receive a lump sum of cash that you can use for any purpose. The interest rate is usually fixed, which can make repayment easy to plan for; monthly payments will remain the same over the entire repayment term, which may be anywhere from 5 to 30 years.
To qualify for a home equity loan, you’ll need to have at least 20% equity in your primary residence. Home equity loans can be used for a variety of purposes, including home improvements, education, medical bills, and debt consolidation. (If you’re wondering what is a home equity line of credit, we’ll get to that — and how it differs from a home equity loan — below.)
Home equity loan interest rates are a product of various economic elements, with the prime rate playing a significant role. The prime rate is what banks charge their most creditworthy customers. Federal Reserve policy decisions on interest rates drive banks’ prime rates. So if you tune into the news you may have a hint of where home equity loan rates in Michigan may be going.
When it comes to any loan, the interest rate is a big deal. Even a 1% difference in the rate can change your monthly payment and the total amount you’ll pay over the life of the loan. For example, on a $60,000 home equity loan with a 10-year term, a 1% difference in the interest rate (from 7.00% to 8.00%) could mean an extra $31 per monthly payment and an additional $3,758 in interest paid over the life of the loan.
By keeping an eye on changes in the prime rate, you can get a feel for when the time might be right to apply for a home equity loan. The chart below shows the average prime rate in the U.S. in recent years, from a modest 3.25% in 2020 to a peak of 8.50% in 2023. You can also see how the rate has fluctuated across more than 50 years.
| 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% |
There are several factors beyond the prime rate that influence exactly what rate any individual borrower in Michigan may be offered. Banks and other lenders use these details to determine your creditworthiness and the level of risk associated with making a loan.
If you’ve got a solid track record of making your payments on time, you’re in a great position. Lenders are more likely to offer you a lower interest rate if you’ve shown that you’re a responsible borrower. Most lenders in Michigan will want to see a credit score of at least 680 for a home equity loan, but the higher your score, the better your chances of getting a good rate.
Lenders typically determine the value of your property by ordering an independent appraisal to establish the exact amount you can borrow. This process helps ensure that you have enough equity in your home to qualify for the loan you want, and that the loan amount you request is below the appraised value of the home.
Once you and a lender know your home’s appraised value, the loan-to-value (LTV) ratio can be determined. 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%.
The ebb and flow of home values in your corner of Michigan can significantly impact a lender’s decision about how much to lend and at what rate. When the housing market is up, lenders are often more willing to greenlight larger loans. But when values dip, the lending landscape can become more conservative.
If your property is located in a high-risk area, such as an area prone to tornados or flooding, you may be charged a higher interest rate. This is because these areas are more likely to experience property damage and financial losses, which can lead to a higher risk of default.
When it comes to choosing the best home equity loan, the policies of various lenders can have an impact on the interest rate you receive. To make sure you’re getting the best deal, take the time to shop around and compare home equity rates in Michigan, as well as fees and closing costs, from multiple lenders. This can help you save a significant amount of money over the life of your loan.
Now that you understand the factors lenders weigh when deciding what interest rate to offer — or whether to lend to you at all — you can take these steps to make sure that you get the best loan terms possible:
Of course you’ll need to pay your bills on time to cultivate a healthy credit score. But you’ll also want to periodically check your credit report for any inaccuracies (yes, mistakes do happen). And try to avoid using the max on all your credit lines at one time.
Your debt-to-income (DTI) ratio plays an important role in determining your eligibility. Typically, lenders like to see a DTI ratio that falls within a range of 36% to 50% for home equity loans. To compute your own DTI ratio, add up all your monthly debts (car payment, student loan, etc.) and divide that by your gross monthly income. If you’re spending more than half your income on debt, you may need to dial that back before applying for a loan.
When you own a home, having enough property insurance is a must. And if you want to take out a home equity loan, it’s non-negotiable, particularly if you live in a flood-prone area.
When you’re considering a home equity loan in Michigan, you’ll need to keep at least 20% equity in your home, as noted above. Remember that when you’re figuring out your home equity, you should use your home’s appraised value, not its sale price when you originally made the purchase.
With a home equity loan, you’ll typically have a fixed interest rate. This means you’ll know exactly what your monthly payment will be for the entire life of the loan. While fixed rates provide peace of mind, they can sometimes be higher initially than variable rates, which can start lower but may increase over time.
Online tools and calculators can help you get a precise estimate of the payments you’ll make for your home equity loan or home equity line of credit (HELOC). You can easily run different scenarios through the calculators to see how, say, different loan amounts or interest rates might change your monthly payment amount. Here are a few of our favorite 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.
Interest rates are the main driver of home equity loan costs in Michigan, but each lender has its own fee and closing cost schedule. Closing costs can be from 2% to 5% of the loan amount. Make sure you look at all the costs associated with a potential loan and compare them head to head before selecting a lender and loan package.
Good news: The interest you pay on a home equity loan can be a tax write-off if the funds you borrow are used for home improvements (so keep those receipts). Couples filing joint tax returns can deduct interest paid on up to $750,000 of qualified home equity loans, while single filers are permitted to deduct interest paid on loans of up to $375,000. To claim this benefit, you’ll need to itemize your deductions. For the nitty-gritty on maximizing your tax benefits, a sit-down with a tax advisor is the way to go.
In Michigan, homeowners have a variety of alternatives to traditional home equity loans. These different types of home equity loans include home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances. Let’s look at the details, as they are all different:
The qualification process for a home equity line of credit (HELOC) is similar to that for a home equity loan but in practice, a HELOC functions more like a credit card. You get a lender’s permission to borrow up to a certain limit, but you only pay interest on the portion of that credit line you actually use. As you weigh the HELOC vs. home equity loan decision remember that the HELOC’s interest rate is usually variable and so can increase.
An HECM, or Home Equity Conversion Mortgage, is a government-insured reverse mortgage program that enables homeowners who are 62 years of age or older to withdraw some of the equity in their home. You can choose to receive the money from an HECM as a lump sum, fixed monthly payments, a line of credit, or a combination of these. Unlike a home equity loan, HECMs do not require borrowers to make monthly mortgage payments. (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. With a cash-out refi, you’ll take out a new mortgage that’s larger than your existing one. You’ll then pay off the old loan and be left with extra cash to use as you please. Considering a cash-out refinance vs. a home equity line of credit? One thing to remember is that a cash-out refi leaves you with one monthly payment instead of two, which some borrowers like. However, if your existing mortgage rate is well below current rates in Michigan, you may find that doing a refinance won’t save you money on interest charges. Use a home mortgage calculator to run the numbers before you proceed.
Understanding home equity loan rates and the many factors that influence them is key to making a smart financial decision about how to borrow money. By comparing multiple lenders, working to cultivate a strong credit score, and considering alternatives to home equity loans, you can get the rate and terms that are most favorable for you.
Unlock your home’s value with a home equity loan from SoFi.
If you’re thinking about taking out a $50,000 home equity loan, it’s important to understand that the monthly payment could vary depending on the interest rate and loan term. A 6.00% rate and a 20-year term would mean a monthly payment of $358. An 8.00% interest rate and a 10-year term would mean you pay $607 per month.
The monthly payment on a $100,000 home equity line of credit (HELOC) can fluctuate based on how much of the line of credit you have used. If you used all $100,000 and repaid it over a 20-year term at 7.00% interest, you would pay $775 per month.
When you’re looking at a $25,000 home equity loan, remember that your payment is determined by the interest rate and the loan term. To get a clear idea of what your monthly payment might be at different terms and rates, use a home equity loan calculator.
At a 7.00% interest rate, borrowing $30,000 with a home equity loan would cost you $348 per month if you repaid the loan with interest over 10 years.
Things that could hold you back from getting a home equity loan include a credit score that’s too low, not enough equity in your home, a high debt-to-income ratio, and inadequate property insurance.
A HELOC, or home equity line of credit, offers flexibility. You only borrow what you need at any given time, and you only pay interest on the amount of the credit line that you have used. This makes HELOCs a popular choice for homeowners who know they need some cash on hand —say, for a home renovation — but aren’t sure exactly how much.
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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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