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• Home equity loans are a popular way for homeowners to access the equity they have built up in their homes.
• Home equity loan rates fluctuate based on credit score, home value, and loan-to-value ratio.
• External factors such as home value stability and lender policies can also affect home equity loan rates.
• Fixed interest rates provide predictable monthly payments.
• There are helpful calculators available to assist borrowers in understanding their loan options and making informed decisions.
Introduction to Home Equity Loan Rates
Home equity loan rates in New Mexico will be an important factor if you’re thinking about how to get equity out of your home. But to grasp just how important rates are, it helps to understand how home equity loans work in the first place — how lenders decide what rate to offer prospective borrowers and how borrowers qualify for the loan and repay it. A thorough understanding of what is a home equity loan will help you make well-informed financial decisions. So study this guide. And if you’re wondering what is a home equity line of credit, we’ll get to that, too.
How Do Home Equity Loans Work?
Different types of home equity loans are a popular way for homeowners to access the equity they have built up in their home by making consistent payments on home loans over the years. You can use the money from a home equity loan for just about any expense, including home renovation, debt consolidation, and education costs.
This particular type of loan is secured by the equity that you’ve built up over time in your home, making it a lower-risk loan option for lenders to consider and approve than an unsecured loan. For this reason, home equity loan rates in New Mexico, as elsewhere, tend to be lower than rates for personal loans.
Unlike a home equity line of credit (HELOC), which functions as a revolving credit account, a home equity loan provides the borrower with a lump sum of cash up front. Repayment of the principal balance and interest begins immediately, typically with a fixed interest rate.
The table below shows you how that monthly payment will change based on three factors: your loan amount, interest rate, and loan term.
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
What’s even more striking is the change in the total interest you’ll pay over the life of the loan. For example, a 1% difference in interest rate on a $100,000 home equity loan repaid over 20 years comes to more than $14,000 in interest, either paid or saved!
Where Do Home Equity Loan Interest Rates Come From?
The interest rates that lenders charge on home equity loans are influenced by a number of different factors, including the prime rate and the current economic climate, among other considerations.
New Mexico Home Equity Loan Rate Trends
By gaining an understanding of the historical trends in home equity loan interest rates, borrowers can potentially anticipate upcoming fluctuations in the rates, enabling them to make more informed financial decisions regarding their home equity loans. This is particularly relevant when considering the current home equity rates in New Mexico.
Historical Prime Interest Rates
If you’re thinking about getting a home equity loan, examining historical U.S. prime rates can give you some perspective on the prevailing interest rate trends. Below, you’ll see an example of how rates shift incrementally over a brief period of several years, as well as the ebb and flow over many decades.
Fortunately the prime rate isn’t the only thing that lenders factor into the decision about what interest rate to offer an individual borrower. There are a number of other important factors and many of them are within your control.
Credit Score
A robust credit score can be instrumental in securing more advantageous loan terms and potentially lower interest rates. Generally speaking, for a home equity loan in New Mexico, you’ll need a minimum credit score of 680, and higher is better.
Home Value
Don’t be surprised if a prospective lender requests an appraisal of your home. The home’s value will help determine both how much equity you have in the property (you need a minimum of 20% equity to get a home equity loan) and how much you can borrow against your property.
Loan-to-Value (LTV) Ratio
The loan-to-value ratio (LTV) is a crucial factor that lenders consider when determining the interest rate offered on a New Mexico home equity loan. It represents the percentage of the home’s appraised value that the lender is willing to lend against.
Once you and the lender know your home value, you can determine your LTV ratio. Most lenders will let you borrow up to 85% of your home’s value, though the exact number can vary. The higher your LTV, the higher your interest rate is likely to be.
In the case of a home equity loan, the combined amount of any remaining first mortgage and your new home equity loan will need to be under 85%. You can calculate your combined loan-to-value ratio (CLTV) easily:
(Current mortgage balance + proposed home equity loan amount) ÷ Home appraised value = CLTV
Home Value Stability
Stable home values are reassuring to lenders, and you can expect better rates and more liberal loan amounts in a real estate market where prices are on the upswing. If your local market is depressed, lenders will be more cautious and interest rates may be higher.
Lender Policies
Different lenders have varying policies that affect the interest rates they offer. These policies can have a significant impact on the overall cost of borrowing, so it is crucial for borrowers to carefully consider and compare the terms offered by lenders before making a decision.
Property Location
The geographic location of the real estate in question can have a significant bearing on the interest rate offered by lenders, with areas that are considered to be at higher risk for natural disasters such as wildfires or tornados often being offered higher interest rates.
How to Qualify for the Lowest Rates
In order to secure the most favorable home equity loans in New Mexico, it’s helpful to take these steps:
Build a Strong Credit Score
Taking good care of your credit score can potentially help you unlock more favorable loan terms, saving you a significant amount of money over the life of your loan. This means checking your credit report periodically, correcting any inaccuracies, and not using the entire credit line on your credit cards. Your smartest move, of course, will be paying your bills on time.
Manage Debt-to-Income Ratio
A lower debt-to-income (DTI) ratio can significantly enhance your prospects of qualifying for a home equity loan. Your DTI is the total of all your monthly debts (including your car payment or student loan payment) divided by your gross monthly income. To qualify for a home equity loan in New Mexico, you’ll typically need a DTI on the lower end of the spectrum: 36% or less. But some lenders may allow a DTI as high as 50%.
Obtain Adequate Property Insurance
It is crucial to ensure that your property is adequately insured — it will safeguard your investment and help ensure you can pass muster with a potential lender.
Maintain Sufficient Home Equity
As noted above, you need 20% equity in your home to use your property as collateral on a home equity loan.
Fixed vs. Variable Interest Rates
Home equity loans are typically distinguished by fixed interest rates and predictable monthly payments. In contrast, a HELOC typically has a variable interest rate. The introductory rate on a HELOC might be lower than on a home equity loan, but remember that variable rates can go up — and so, potentially, will monthly payments. Opting for fixed rates can make setting and sticking to a monthly budget easier.
Tools & Calculators
There are a variety of helpful tools and calculators available to assist borrowers in understanding their loan options. Here are three of our favorites:
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 and Fees
Closing costs and associated fees are important factors to consider when applying for a home equity loan, as they can significantly impact the overall cost of borrowing. Fees can vary depending on the lender, the loan amount, and the borrower’s credit history, so make sure to carefully review them before finalizing a home equity loan agreement. Some fees you might see include origination fees, title insurance and title search fees, and credit report fees. Some lenders offer no-closing-cost loans; it’s important to consider that these loans often come with higher interest rates compared to traditional loans with closing costs.
Tax Deductibility of Home Equity Loan Interest
IRS guidelines determine the tax deductibility of interest paid on loans. Borrowers can deduct the interest paid on the first $750,000 of a mortgage, home equity loan, or HELOC ($375,000 for couples filing separately). Just remember, you’ll need to itemize your deductions to use this benefit.
Alternatives to Home Equity Loans
As we’ve seen, a HELOC is one alternative to a conventional home equity loan. But it’s not the only option. Let’s take a look at several alternatives to home equity loans in New Mexico.
Home Equity Line of Credit (HELOC)
HELOCs provide flexibility, convenience, and versatility in borrowing and repaying, making them a widely popular alternative to traditional home equity loans. The primary advantage of a HELOC is that you only borrow from your credit line what you need at any given time — so you aren’t paying interest on the entire credit line amount if you aren’t using it.
When considering a HELOC vs. a home equity loan, remember that HELOCS can have a variable interest rate, as noted above. So your monthly payment amount may be somewhat unpredictable.
Home Equity Conversion Mortgage (HECM)
HECMs provide a way for homeowners aged 62 and over to access the equity built up in their home without the burden of making regular monthly payments. These government-sponsored reverse mortgages can be a great financial tool for people looking to supplement their retirement income or cover unexpected expenses.
The funds from an HECM can be received as a lump sum, regular payments, or a line of credit. Unlike home equity loans and HELOCs, HECMs don’t require monthly payments; repayment is only necessary when you leave or sell the home. While HECMs generally have higher closing costs and a lengthier processing time than home equity loans and HELOCs, they offer unique benefits. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
Cash-Out Refinance
Cash-out refinances offer homeowners a way to tap into their accumulated home equity while simultaneously refinancing an existing mortgage. This financial strategy works much like a typical mortgage refinance but allows you to borrow an extra amount of cash to use for any purpose, including debt consolidation, home renovations, or even investments. Just remember that if you have a very low rate on your current home loan, refinancing could leave you with a significantly higher rate — so you’ll want to do the math to make sure a refi makes financial sense.
In New Mexico, understanding the most favorable home equity loan (or HELOC) interest rates available can help you make well-informed decisions regarding your financing options. Carefully considering your credit score, home equity level, and other financial obligations before you dive into the home equity loan market is an essential step.
Unlock your home’s value with a home equity loan from SoFi.
What would my monthly payment be on a $50,000 loan?
As a general rule, the monthly payment on a $50,000 home equity loan depends on two primary factors: the interest rate and the loan term. If you borrowed $50,000 at 8.00% interest and repaid it over 20 years, your monthly payment would be $418.
What is the monthly payment on a $100,000 HELOC?
The monthly payment for a $100,000 HELOC can vary based on the current interest rate and the amount of the credit line that is drawn. If you borrowed $100,000 at a rate of 7.00% and paid it back over 20 years, your monthly payment would be $775.
What is the payment on a $25,000 home equity loan?
Paying off a $25,000 home equity loan at 7.00% interest over 10 years would cost you $290 per month. But if either the interest rate or repayment term (or both) change, your payment amount would change, too.
What would the payment be on a $30,000 home equity loan?
When considering a $30,000 home equity loan, you should understand that the repayment amount is influenced by two key factors: the interest rate you obtain and the chosen repayment term. Using a home equity loan calculator can help you compute the precise payment amount depending on your specific situation.
What could disqualify you from getting a home equity loan?
There are several important factors that can disqualify you from being approved for a home equity loan, including having poor credit, lacking sufficient equity in the home, and having a high debt-to-income ratio. Be sure to carefully consider these factors and consult with a financial advisor before applying for a home equity loan.
What are the benefits of a HELOC?
HELOCs are a popular choice for borrowers seeking financial flexibility and cost savings due to their flexible borrowing options, lower initial costs, and the ability to pay interest solely on the amount of the credit line that is used.
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