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.
• Your credit score, debt-to-income ratio, and equity level all play a part in your rate.
• Fixed interest rates are great for those big, one-time expenses that need a stable payment.
• Solid property insurance coverage is a must, particularly in areas prone to flooding.
• The interest on home equity loans may be tax-deductible if used for home improvements.
• Other options include a home equity line of credit (HELOC) and a cash-out refinance.
Welcome to our comprehensive guide to home equity loan rates in Nashville, TN. We’re here to help you, as a homeowner, understand the factors that influence these rates and how to secure the most favorable terms. We’ll delve into the various elements that impact rates, from the Federal Reserve’s policies to your credit score and debt-to-income ratio. We’ll also discuss the potential advantages and drawbacks of home equity loans. Your first step: understanding exactly what a home equity loan is.
A home equity loan is a second mortgage that uses your home as collateral, providing you a lump sum of money to use for a variety of purposes. The funds are disbursed all at once and you immediately begin repaying what you borrowed, plus interest, in equal monthly installments over a period of five to 30 years. Because you’re using your home as collateral, interest rates are typically lower than those of unsecured personal loans. And the fixed interest rate lets you enjoy the predictability of consistent monthly payments. To qualify, you’ll need at least 20% equity in your primary residence.
A home equity loan calculator can help you see what size loan you might qualify for.
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 own financial profile. Lenders typically peg their rates to the prime rate. Any adjustments to the prime rate often translate to changes in home equity loan rates.
As with your original home loan, your credit score and debt-to-income (DTI) ratio also play a part in the interest rate you are offered. The amount of your loan and length of your repayment term can sway rates, as does market competition among lenders.
The interest rate you secure for your home equity loan can make a world of difference in terms of affordability over the loan’s lifetime. Even the slightest variation in rates can lead to significant differences in the total interest you’ll pay. For instance, a $100,000 loan at 8.50% over 15 years would mean a monthly payment of $985 and total interest of $77,253. But nudge that rate to 9.50%, and suddenly your payment is $1,044, with the total interest ballooning to $87,961. That’s an extra $10,700 in interest over the loan’s life. Here are more examples of how the rate and term impact payments.
| 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 |
As you’re considering how to get equity out of your home, you’ll probably think about how you might time your loan application to achieve the lowest possible rate. But predicting the prime rate is a bit like trying to forecast the weather, and not every borrower has time to wait for a low spot. The rate has seen its fair share of ups and downs, as you can see from the graphic and chart. Don’t beat yourself up if you can’t time your application to coincide with the absolute most favorable conditions. If you need a loan, focus on comparing offers from different lenders to get the best possible rate for you.
| 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% |
To snag the most attractive home equity loan rate, you’ll want to present a solid financial profile. Before you apply, take a moment to assess your finances and take these steps:
You need to keep at least 20% equity in your home to qualify for a home equity loan. To determine your equity percentage, subtract your mortgage balance from your estimated home value (find the latter on a real estate site). Then divide the sum by your estimated home value to arrive at a percentage. The more equity you have, the better your chances of scoring a loan with favorable terms, and the easier it is to handle your financial commitments.
Lenders typically favor a credit score of 680 or above for home equity loans, with many leaning toward 700 or higher. A robust credit score is a testament to your financial acumen and can translate to more favorable home equity loan terms. To enhance your credit score, concentrate on being punctual with payments, maintaining low credit card balances, and steering clear of new debt. It’s also wise to review your credit report for any inaccuracies and challenge them if necessary. A higher credit score can make it simpler to secure the capital you need for significant purchases, home improvements, or consolidating debt.
Your debt-to-income (DTI) ratio is a key number that lenders look at when you apply for a home equity loan. It’s simply your total monthly debt obligations divided by your gross monthly income. Most lenders prefer a DTI below 50%, but the lower the better. A lower DTI ratio shows that you have a better handle on your monthly payments, which can lead to more favorable rates. To improve your DTI, consider paying down your existing debts, increasing your income, or both. This can make you a more attractive borrower and could potentially lower your interest rate.
Property insurance is usually a must-have if you want to qualify for a home equity loan. This insurance safeguards the lender’s investment but also covers your home in the event of damage. Having the right coverage can also sway the terms of your loan, including the rates you’re eligible for. If you’re in a high-risk area, mull over extra coverage to meet lender demands and to keep your investment safe.
Recommended: What Is a Home Equity Line of Credit?
Online calculators can help would-be borrowers get a sense of what their monthly payments and total interest costs might be based on different loan amounts, terms, and rates. 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.
When it comes to closing costs for home equity loans, you’re typically looking at a range of 2% to 5% of the loan amount. These costs cover things like an appraisal, credit reports, and origination fees. Title insurance and a title search are also on the fee list.
Here’s some good news: The interest on your home equity loan could be tax deductible if you’re using the money you borrow to buy, build, or significantly improve your home. The current rules are in place though 2025, but they may be extended (so keep in touch with a tax advisor). If you’re filing jointly, you can deduct interest on loans up to $750,000; for single filers, it’s up to $375,000. Just remember, you’ll need to itemize to claim this deduction.
There are a few other ways to tap into your home’s equity, including a home equity line of credit (HELOC) or a mortgage refinance called a cash-out refinance. Make sure you understand how they work before you decide on a loan type.
A HELOC is a bit like having a credit card with a lower interest rate, allowing you to borrow money as you need it up to a certain limit and only paying interest on the amount you actually use. Unlike a home equity loan, which requires you to begin repaying interest and principal immediately, a HELOC has a “draw” period of up to 10 years, during which you can draw against the credit line but only pay interest. (Play around with a HELOC interest-only calculator if you want to get a sense of what payments would be.)
After the draw period ends, you enter a repayment period where you pay back principal plus interest. (At that point you could use a HELOC monthly payment calculator.) When you consider a HELOC vs. a home equity loan, one important difference is that HELOCs typically have a variable interest rate.
To obtain a HELOC, most lenders require a minimum credit score of 680 (though 700 is preferred) and a debt-to-income ratio of no more than 50% (though 36% is ideal). HELOCs can be a good option when you’re not sure how much you need to borrow or when you need to borrow it over a period of time.
A cash-out refinance lets you replace your existing mortgage with a new, larger one and pocket the difference to use as you wish. The amount you can cash out is determined by your home equity, with most lenders allowing you to borrow up to 80%. Typically, you’ll need a credit score of 620 or higher and a debt-to-income ratio under 43% to qualify. The beauty of a cash-out refi is that you can choose between fixed or variable rates, with variable rates potentially granting access to more equity. Below, a quick guide to a home equity loan vs. a cash-out refinance vs. a home equity line of credit:
| 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 can be a great way for homeowners to access the money they need for a variety of large expenses. To get the best possible interest rate, be sure you have a strong credit score, a manageable DTI ratio, and full property insurance coverage. Use calculators to estimate payments and fees, and don’t forget to factor in closing costs. Be sure to compare offers from multiple lenders — you’ll be better able to choose the best option for your financial goals.
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.
Home equity loans are versatile, whether you’re eyeing a major purchase, home improvements, or wish to consolidate higher-interest debt. They’re a great way for homeowners to access the equity they have built up in their home without selling. Just remember, your home is on the line when you borrow with a home equity loan, so make sure you use the funds wisely and have a plan in place to make your monthly payments.
The monthly payment on a $50,000 home equity loan is contingent on the interest rate and term you select. For instance, at an 8.00% interest rate, for instance, a 10-year loan would have you paying $607 a month. Opt for a 20-year term, and that monthly commitment drops to approximately $418. You can use a mortgage payment calculator to get a clearer picture of your payments and how different rates and terms can affect them.
A $100,000 HELOC often comes with a variable interest rate, meaning it can change with the market. During the draw period, you will likely only have to pay interest on the amount you’ve withdrawn. For example, if you take out the full $100,000 at an interest rate of 7.50%, your monthly interest payment would be around $625. Once the draw period ends, you enter the repayment period, which is usually 20 years, and you’ll be paying back both the principal and interest. At that point, if the interest rate is still 7.50%, the monthly payment would be $806.
There are a few things that might prevent you from getting a home equity loan. If you don’t have at least 20% equity in your home, or have a low credit score or a high debt-to-income (DTI) ratio, you might not qualify. A history of missed payments or a recent foreclosure could also disqualify you. Before you apply, take a look at your financial situation and see if there are any ways you can improve your credit score or DTI ratio.
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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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