Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the Federal Reserve’s monetary policy, as well as the borrower’s credit score and debt-to-income ratio.
• A home equity loan is a good way to cover a large, one-time expense.
• Home equity loans tend to have fixed interest rates.
• The interest on home equity loans may be tax-deductible if you use the funds for home improvements.
• Compare rates and terms from multiple lenders to find the best option.
This comprehensive guide to home equity loan rates in Murfreesboro, Tennessee, will help you understand how rates are shaped and what you can do to secure the best deal. Whether you’re considering a home renovation, paying down high-interest debt, or making a major purchase, you’ll come away with the knowledge to make informed decisions about borrowing. By the end of this guide, you’ll be well prepared to navigate the home equity loan market and find a loan that meets your needs.
To understand the importance of home equity loan interest rates, it helps to have a grasp of what a home equity loan is in the first place. A home equity loan is a second mortgage. Once approved, the borrower gets a lump sum of money. They immediately begin repaying the loan, with interest, over a fixed term — typically between five and 30 years. Because the loan is secured by your home, you can generally get more favorable terms than you would with an unsecured personal loan. But this also means that if you don’t repay the loan, you risk foreclosure.
To qualify for a home equity loan, you typically need at least 20% equity in your home. Equity is the difference between your home’s value and how much you owe on your mortgage. For example, if your home is worth $500,000 and you owe $350,000, you have $150,000 in equity. A home equity loan calculator can help you see almost instantly how much you would likely be able to borrow.
Recommended: What Is a Home Equity Line of Credit?
Rates on different types of home equity loans are influenced by a variety of factors, from the economic climate to your personal financial situation. Federal Reserve policies have a ripple effect on lending, and lenders’ rates tend to follow the prime rate. Your credit score and debt-to-income (DTI) ratio are pivotal; the higher the score and the lower the ratio, the more favorable your rates. Loan size and term also come into play.
The interest rate you get will largely determine the affordability of your home equity loan, just as it did when you bought your home and took out your home loan. Even the slightest rate change, down or up, can translate to significant savings or costs. Consider a $100,000 loan with a 15-year term at 8.50% — that’s a $985 monthly payment and a total of $77,253 in interest. Now, bump that rate to 9.50% and your monthly payment jumps to $1,044, with total interest of $87,961. So it’s clear that nabbing a lower rate could have big benefits.
Here are other examples of loan rates and terms for different loan amounts. Note that the longer the term, the lower the monthly payments — but the more you will pay in interest over the life of the loan.
| 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 |
Predicting interest rate movements is like trying to forecast the weather — it’s not error-proof. But having a sense of the recent history of the prime rate can give you valuable perspective on current rates. The prime rate hit a low of 3.25% in 2020 and a high of 8.50% in 2023. These fluctuations have a direct impact on the rates you might see in Murfreesboro. To get the best deal, some borrowers try to time your application for when the prime rate is low. You may not be able to wait, but you can shop around to see what rates different lenders are offering.
| 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% |
Securing the most favorable home equity loan rate hinges on your financial standing. Lenders will scrutinize your credit score and DTI ratio to assess your application. Prepare for your application by taking these steps:
To be eligible for a home equity loan, you’ll need at least 20% equity in your home. Give yourself an equity checkup by subtracting your mortgage balance from your home’s current value. (Look up your home value on a real estate web site.) For instance, if your mortgage balance is $400,000 and your home is estimated to be worth $550,000, your equity would be $150,000. To determine the percentage, divide your equity by the home value — in this case, you have 27% equity.
To get the most attractive home equity loan rates, a robust credit score is your ticket. Lenders usually favor scores of 680 or higher, with the 700 mark giving you access to better rates. The higher your score, the more financially prudent you appear, potentially translating to more appealing loan terms. If you have a track record of timely payments and judicious credit management, a lower interest rate could be in the cards. It’s a smart move to peruse your credit report for any glitches and address them before you apply.
Your DTI ratio is a critical piece of the home equity loan puzzle. Lenders generally look for a DTI below 50%, with 36% or lower being ideal. To calculate your DTI, divide your total monthly debt payments by your gross monthly income. The lower the ratio, the better your chances of securing a competitive rate. If your DTI is on the higher side, consider chipping away at existing debts or finding ways to boost your income. Not only will this improve your odds of approval, but it could also lead to a more favorable rate.
Property insurance is a must-have for most home equity loans, especially in areas with a history of flooding. This insurance shields both you and the lender in the event of property damage. When you apply for a home equity loan, lenders will want to see proof of property insurance. Making sure you have the right coverage can not only help you secure the loan but also potentially influence the rates you’re offered.
Online tools can help you make decisions about the loan amount and loan type you’re going to choose. These are a few of our favorites.
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.
In Murfreesboro, closing costs typically run from 2% to 5% of the loan. These fees can include the appraisal, credit report, document preparation, origination, notary, title search, and title insurance. When you compare offers from different lenders, don’t just look at interest rates — consider fees as well.
The interest on a home equity loan could be tax deductible if it’s used to improve your home. For those who are married and file jointly, you can deduct interest on loans up to $750,000; for single filers, that’s up to $375,000. Just remember, you need to itemize your deductions to claim this benefit so a consultation with a tax advisor might be in order.
There are other ways to borrow based on your home equity, so before you set your sights on a home equity loan, it’s worth exploring a home equity line of credit (HELOC) and a cash-out refinance. All three tap into your home’s equity, but each comes with its own set of features and requirements.
A HELOC is similar to a credit card in that you have a certain limit you can borrow up to. You only pay interest during the draw period (a HELOC interest-only calculator can be helpful at this time). Then after some time, typically 10 years, you’ll pay back the principal and interest (this is when a HELOC monthly payment calculator is handy).
To qualify, you typically need a credit score of 680 or higher (700 is preferred) and a debt-to-income ratio of less than 50% (36% is the ideal). When you consider a HELOC vs. a home equity line of credit, HELOCs tend to be best for people who aren’t sure exactly how much they will need to borrow or for expenses that will be covered over time instead of all at once.
A cash-out refinance replaces your existing mortgage with a larger one, providing you with a lump sum based on your home equity. As you consider a cash-out refinance vs. a home equity line of credit, these are some differences: Qualifying for a cash-out refinance is often more accessible than for home equity loans or HELOCs, typically requiring a credit score of 620 or higher and a debt-to-income ratio under 43%. Rates can be fixed or variable, and unlike with a home equity loan or HELOC, you’ll have just one payment to manage.
Here’s a look at how the three options stack up:
| 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, followed by 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) |
Home equity loans are a powerful resource for homeowners seeking to leverage the equity in their property. Cultivating a robust credit standing, managing your DTI ratio, and having a solid base of home equity can lead to more favorable loan terms. Alternatives like a HELOC or cash-out refinance present different benefits. Always weigh your options, comparing lenders and loan products to pinpoint the best match for your circumstances.
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.
You can use the funds from a home equity loan for any purpose. Some borrowers fund major home improvements or pay for a child’s college education. Others consolidate higher-interest debts. Before signing on to a home equity loan, make sure how you’re using the money supports your long-term financial plan and run the numbers to ensure that you’re able to make the monthly payments.
The monthly payment for a $50,000 home equity loan varies with the interest rate and term. For instance, a 20-year fixed-rate loan at 8.00% interest would mean approximately $418 per month. At a 7.00% rate, payments would be $388.
A $100,000 HELOC often comes with a variable interest rate. During the draw period, you might only need to pay interest on the funds you use. Once the draw period concludes, you’ll pay both the principal and interest. If you were repaying the full $100,000 over a period of 20 years and the interest rate held steady at 8.00%, your monthly payment would be $836.
There are a few things that could stand in the way of securing a home equity loan. Lenders often look for a minimum credit score of 680, and a DTI ratio below 50%. And if you don’t have at least 20% equity in your home, a home equity loan could be out of reach.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*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.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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