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 they have built up in their homes, using their property as collateral.
• Home equity loan interest rates are influenced by factors such as the prime rate, the borrower’s credit score, the loan-to-value ratio, and current market conditions.
• Fixed-rate home equity loans offer stability and predictability in monthly payments, while variable-rate loans may offer lower initial rates but can fluctuate over time.
• There are alternatives to home equity loans, such as HELOCs, HECMs, and cash-out refinances, each with its own unique features and requirements.
• Homeowners should carefully consider all factors, including interest rates, fees, and repayment terms, before choosing a home equity loan or alternative.
Welcome to our guide on home equity loan rates in Minnesota. We’re here to help you understand the factors that influence these rates and how to secure the best deal on a home equity loan. We’ll also cover how to get equity out of your home, and the different types of home equity loans and lines of credit. Armed with this knowledge, you’ll be ready to make a smart decision about home equity loans in the North Star State.
What is a home equity loan? A home equity loan uses your home as collateral, which often translates to lower interest rates compared to unsecured personal loans. The interest rate is typically fixed, which means your payments will be consistent.
To qualify, homeowners should have at least 20% equity in their primary residence. Lenders determine the maximum loan amount based on the combined loan-to-value ratio (CLTV). You can estimate your CLTV easily:
• Current mortgage balance + proposed home equity loan = X
• X / appraised home value = CLTV
Here’s an example of how that looks for a home that appraised for $400,000. Let’s say the owner owes $250,000 on the existing mortgage and wants to borrow $75,000 with a home equity loan:
• $250,000 + $75,000 = $325,000
• $325,000 / $400,000 = 81%
With a CLTV of 81%, this owner is in a good position to obtain the desired $75,000 loan. The funds from home equity loans can be used for a variety of expenses, such as renovations, education, medical bills and debt consolidation.
Home equity loan interest rates are not arbitrary. They’re influenced by a variety of economic factors, including the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers. Federal Reserve policy decisions regarding interest rates can also influence home equity loan rates. Understanding the factors that influence home equity rates can enable borrowers in Minnesota to anticipate rate fluctuations and make informed decisions about home equity loans.
The interest rate you secure can have a significant impact on your ability to afford a loan over the long term. When considering a 20-year home loan, a seemingly small 1% difference in the interest rate can translate to substantially higher costs: an additional $11,000 in interest, as illustrated in the chart below.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,5547 |
The prime interest rate is a key indicator of the direction home equity loan rates are likely to take. By keeping an eye on the prime rate and how it moves, you can get a better understanding of what’s happening in the lending market and how the changes might affect you. This can help you make smarter decisions about when to apply for a home equity loan and what kind of terms to look for.
Since 2018, the prime rate has fluctuated significantly. It hit a low of 3.25% in 2020 and a high of 8.50% in 2023. These fluctuations have a notable impact on a variety of financial products, including home equity loans in Minnesota.
| 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 factors can affect your home equity loan rate, including your credit score, home value, home value stability, loan-to-value ratio, property location, and lender policies. Lenders analyze these metrics to determine the level of risk associated with each loan application, and that risk will directly affect the rates you’re offered.
If you have a history of making your payments on time and a good credit score, you might be able to score a lower interest rate on a home equity loan. Most lenders will want to see a credit score of 680 or higher, and many will prefer a score of 700 or above.
Lenders often use independent appraisals to help them figure out a home’s market value, which in turn helps them set appropriate borrowing limits. The appraisal is also used to determine a homeowner’s equity position, which is the amount of the home’s value that the homeowner actually owns. The more equity you have, the more you can borrow.
As mentioned above, the loan-to-value (LTV) ratio is a key number that lenders use when you apply for a home equity loan. It’s calculated by dividing the loan amount by the appraised value of the property. Most lenders will let you borrow up to 85% of your home’s value. The LTV ratio helps lenders set your interest rate and loan terms. If you’re not sure how much you might be allowed to borrow, you can run the numbers with a home equity loan calculator.
The stability of home values can significantly impact the amount of equity homeowners can access and utilize. When home values experience an upward trend, lenders may be more inclined to approve larger loan amounts, as the increasing value of the property mitigates some of the associated risk. Conversely, if home values decline, the lender’s risk exposure increases, potentially leading to stricter lending criteria and lower loan amounts.
If your property is in an area with a higher risk of natural disasters, you might have to pay a higher interest rate. That’s because things like severe storms, floods, and wildfires can cause a lot of damage and uncertainty, for homeowners and lenders alike.
When you’re looking into home equity loans in Minnesota, don’t forget to check out the policies of the lenders you’re considering. They can have a big impact on the interest rates you’re offered. To make sure you’re getting the best deal, shop around and compare interest rates, fees, and closing costs from a few different lenders. It takes time, but it’s worth it to know you’re getting the most favorable terms.
To get the best home equity loan rates in Minnesota, you’ll need to have a strong credit score, a good debt-to-income ratio, adequate property insurance, and a good amount of equity in your home. If you can follow these guidelines, you should be able to secure a competitive home equity loan rate.
A robust credit score can open doors to more attractive interest rates on home equity loans. Typically, the higher your credit score, the better your chances of securing a lower rate. Lenders see a high credit score as a sign of reliability, which makes you a more appealing candidate. This can translate to significant savings over the loan’s lifetime.
Your debt-to-income (DTI) ratio is a key metric in determining your eligibility for a home equity loan. This ratio compares your monthly income to your monthly debt obligations, which gives the lender a better understanding of your financial situation. Lenders typically want to see a DTI ratio below 36% — though some lenders will go as high as 50% — when considering you for a home equity loan. If you want to increase your chances of getting approved, focus on paying down your existing debt.
When it comes to homeownership, having the right property insurance is a must, especially if you’re planning on taking out a home equity loan. This is especially important in areas where flooding is a concern. Having the right insurance can help protect your home and your finances, giving you peace of mind and helping you stay on track with your financial goals.
In Minnesota, it’s recommended that homeowners maintain at least 20% equity in their home to qualify for a home equity loan. The 20% equity requirement is in place to protect borrowers from taking on more debt than they can handle and to protect lenders from the risk of default.
Home equity loans in Minnesota typically come with fixed interest rates, which means you’ll know what your monthly payments will be for the life of the loan. While fixed rates offer predictability, they can also start off higher than variable rates, which may be lower at the outset.
Our comprehensive tools and calculators help you determine your eligibility for a home equity loan and estimate your potential monthly payments. They’re designed to help you make well-informed decisions about your financial future and reach your financial goals. Here, in addition to the home equity loan calculator, you’ll find a HELOC repayment calculator and a HELOC interest only calculator.
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.
The closing costs for home equity loans typically range from 2% to 5% of the loan amount. These may include appraisal, credit report, document preparation, origination, notary, title search, and title insurance fees.
Origination fees can be anywhere from 0.5% to 1% of the loan amount. Title insurance can cost 0.5%-1% of the loan balance. Since fees can vary so much from lender to lender, it’s important to compare them when looking for a Minnesota home equity loan.
You may have heard about the tax benefits of a home equity loan. If you’re using the funds to improve your home, the interest you pay could be tax-deductible. For joint filers, you can deduct the interest on up to $750,000, and for single filers, it’s $375,000. To claim this benefit, you’ll need to itemize your deductions. It’s always a good idea to consult with a tax advisor to maximize your tax benefits.
In Minnesota, homeowners have access to a variety of home equity and mortgage refinance products. Home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances are just a few. Each of these options comes with its own set of unique characteristics and eligibility criteria.
Now, let’s talk about the home equity line of credit, or HELOC. It’s like having a credit card that’s backed by your home, which translates to lower interest rates. With a HELOC, you can borrow up to a certain limit and you only pay interest on what you actually use. The interest rates on HELOCs are variable, which means they can change with the market. This could lead to increased costs if the rates go up, and you might see your payments increase during economic shifts.
The difference between HELOCs vs home equity loans can be hard to remember, so here’s an at-a-glance comparison:
| HELOC | Home Equity Loan | |
|---|---|---|
| Type | Revolving line of credit | Installment loan |
| Interest Rate | Usually variable-rate | Usually fixed-rate |
| Repayment | Repay only what you borrow; you may have the option to make interest-only payments during the draw period. | Starts immediately at a set monthly payment. |
| Disbursement | Charge only the amount you need. | Lump sum. |
If you’re 62 or older and want money to supplement your income or pay for health care expenses ,you may consider an HECM. It allows you to convert a portion of your home equity into cash. The loan becomes due, with interest, when you move, sell your home, or pass away.
A cash-out refinance is a new mortgage that pays off your old one and lets you borrow extra cash. Lenders usually cap the amount you can borrow at 85% of your home’s equity. Unlike a home equity loan or HELOC, a cash-out refinance leaves you with only one monthly payment, not two.
Recommended: Cash Refinance vs Home Equity Line of Credit
Understanding Minnesota home equity loan rates and the factors that influence them can help you make more informed financial decisions. By comparing rates from multiple lenders, keeping an eye on your credit score, and exploring other financing options, you can find the best home equity loan for your needs and financial goals.
Unlock your home’s value with a home equity loan from SoFi.
The interest rate and loan term will determine your monthly payment. An 8.00% interest rate and a 10-year term would mean a monthly payment of $607. Score a 6.00% rate and choose a 20-year term and you’d pay $358 per month.
The monthly payment on a $100,000 HELOC is influenced not only by the interest rate but also by the amount of the HELOC that is actually drawn. If you used the entire $100,000 and repaid it over 20 years at 7.00% interest, you would need to come up with $775 per month. To get a better understanding of your potential monthly payments, consider using a HELOC calculator.
The two most important factors that will determine your monthly payment are the interest rate and the length of the loan. To get an estimate, you can use a home equity loan calculator. But to give you an idea, an 8.50% interest rate repaid over 10 years would give you a $310 monthly payment.
Interest rates and repayment terms play a big role in what you’ll owe each month, so a calculator tool can be an invaluable guide. But if you had a 7.00% interest rate and repaid the loan over 10 years, you’d pay about $348 per month.
There are a few things that could disqualify you from getting a home equity loan. A low credit score, not enough equity in your home, too much debt compared to your income, and not having enough insurance to protect your home are a few of the most common reasons.
A HELOC is a flexible borrowing option, with lower interest rates compared to credit cards, and you pay interest solely on the borrowed amount. Plus, the potential tax-deductibility of the interest paid on HELOCs adds to their appeal.
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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.
