Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates in New York City are determined by your credit score, your debt-to-income ratio, and other factors.
• To secure the best rates, aim for a credit score of 700 and a debt-to-income (DTI) ratio under 36%.
• The rates you may be offered by lenders are impacted by the prime rate, Federal Reserve policy, and your personal financial profile.
• Even a small difference in home equity loan rates can add up to substantial savings over the life of your loan.
• The interest you’ll pay on a home equity loan could be tax-deductible if you use the money for home improvements.
• Other options, like HELOCs and cash-out refinances, come with their own set of perks and pitfalls.
What is a home equity loan? What’s most important to know is that it’s a great way for you, as a homeowner, to access the value you’ve built in your home. It’s an option many people who’ve built equity in their properties use to relieve pressure when they need cash.
In this article, we’ll cover everything you need to know about home equity loans. We’ll discuss factors affecting loan rates and give you tips that will help you get the best rate possible. We’ll also explain the different types of home equity loans, including home equity lines of credit (HELOCs) and cash-out refinances, along with the pros and cons of each.
Whether you’re planning a home renovation, working to consolidate high-interest debt, or making a major purchase, getting an understanding of home equity loan rates in New York City can help you make smart financial decisions and set you up for a bright economic future.
A home equity loan is a second mortgage. You receive a lump sum of cash, which you then repay, usually in fixed monthly installments, over five to 30 years. The loan is secured by your home, and that can give you access to lower interest rates than you would get with an unsecured personal loan.
One important thing you’ll want to keep in mind: In order to draw on the equity in your home, you have to actually have built equity in your home. You can still be working to pay off your mortgage, but the amount you owe shouldn’t be greater than the house’s worth. Typically, lenders will want you to have 20% equity at the minimum in your home to qualify.
Looking at a HELOC vs a home equity loan is where many homeowners begin their comparisons to find the right financing tool for their situation. Here’s how the two loan types compare if you use them to pull equity out of your home.
| 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 plus interest; 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 have been diligently paying off your mortgage and are wondering how to get equity out of your home, a home equity loan may be the right option for you.
The rates you might be offered when shopping for a home equity loan are the product of many influences, from the broad economic landscape to your own financial standing.
Federal Reserve policy — including changes to the federal funds rate — can send ripples through the lending market, causing changes that impact the prime rate. When the prime rate moves up or down, so do home equity loan rates.
Keep an eye on these factors. You’ll be better prepared to anticipate rate shifts and make confident decisions about when you should pursue a home equity loan.
On a personal level, your credit score and DTI ratio are also key drivers in the rates you’ll be quoted as a potential borrower. You have more control over these things, so try to prepare for applying for a home equity loan by working to improve them.
The interest rate on your home equity loan can make a world of difference in how affordable it is over time, as you pay it down. You should know that even a seemingly small difference in the rate can lead to significant savings or extra costs.
To demonstrate just how much your interest rate can impact your loan costs, the chart below shows monthly payment amounts and the total interest you’d pay for a $75,000 home equity loan with a 20-year repayment term. We’ve calculated both the monthly payment and the total interest you’ll pay at several rates.
If you have an 8.00% interest rate, your monthly payment is approximately $627 and the total interest over the loan’s term adds up to $75,559. If the interest rate is one percentage point lower, at 7.00%, your monthly payment would be about $581 and your total interest $64,554. That means the lower rate could save you $11,005 in interest.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Home equity loans tend to come with fixed interest rates. But some New York City lenders may offer adjustable rates, and different home equity loans like home equity lines of credit (HELOCs) and cash-out refinances also offer adjustable rates. That’s why it’s a good idea to consider which you might prefer.
A fixed rate never changes through the loan’s life. That gives you the assurance of consistent monthly payments over the duration of the loan. Such predictability is a great tool for your budgeting and financial planning.
Adjustable rates tend to start off slightly lower than fixed rates, but after an initial period, they change in accordance with market rates. That can lead to higher payments and create some uncertainty about what to expect over the term of the loan.
When you’re thinking about home equity loan rates, it’s smart to consider the merits of fixed versus adjustable rates, taking into account your financial standing and comfort with risk.
Predicting interest rate movements is something like a day at the races – it’s all but impossible to know what will happen with certainty. But by looking at the trends in recent history, you can get a better sense of what sort of movement might be coming.
Let’s take a look at the prime rate, a pivotal driver in the home equity loan rate game. Its recent timeline shows just how volatile it is. As you can see in the chart below, it dropped to 3.25% in 2020, then steadily rose to 8.50% in 2023.
Since 2018, the prime rate has seen its share of ups and downs, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023. Take a look at the history of the prime rate to get a sense of how high or low it may go this year.
Source: TradingView.comSince 2018, the prime rate has seen its share of ups and downs, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023. Take a look at the history of the prime rate to get a sense of how high or low it may go this year.
| 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% |
As we have mentioned, these kinds of fluctuations impact the rates you might encounter in New York City. But despite some unpredictability, staying in the know about financial trends and working on your financial standing can help you time your application to sync with favorable economic conditions. With some luck, this can help you score competitive rates.
To secure the most competitive home equity loan rates in New York City, you’ll want to keep in mind a few factors when shopping for a HELOC vs. a home equity loan. Take the following steps before beginning the application process, and you’ll be positioned to land an interest rate and term that are not just favorable, but smart and manageable.
To qualify for a home equity loan, you need at least 20% equity in your home. To figure out your equity, subtract the outstanding balance on your mortgage from the estimated value of your home. Divide the answer you get by your home’s estimated value to arrive at a percentage of equity. The higher that percentage is, the better off you are.
To land the best available home equity loan rate, you also need a robust credit score. Lenders often look for a score of 680 or higher, and many require a score above 700. A higher credit score is viewed by lenders as a sign of financial savvy. It can open the door to favorable loan terms. If you focus on making timely payments, reducing credit card balances, and steering clear of new debt, you may succeed in boosting your credit score and your chances of qualifying for a home equity loan with a lower interest rate.
Your DTI ratio is an important factor when it comes to qualifying for a home equity loan and getting a good rate. Lenders typically want to see a DTI ratio of 50% or less. If yours is 36% or lower, you may qualify for the lowest interest rates. How can you manage your DTI effectively in New York City? Try to pay down your existing debt, increase your income, or achieve some combination of the two.
Property insurance is a must-have if you want to qualify for a home equity loan. Insurance is a safety net for both you and the lender should damage occur, so make sure your coverage is comprehensive.
Online tools and calculators can ease your quest for the best home equity loan rates by making calculations and budgeting simple. You can choose among multiple tools.
Here’s one to explore: A home equity loan calculator shows you how big a loan you might qualify for. It’s a nifty tool that can give you a clear picture of what to expect and make sure you won’t overextend yourself financially.
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 the cost of closing on a home equity loan, expect to pay 2% to 5% of the loan amount. Keep in mind that everything seems to cost more in New York City. The table below shows some typical prices on the menu of costs.
| Service | Typical Fees |
|---|---|
| Appraisal | $300-$500 |
| Credit report | $30-$50 or more |
| Document prep | $100-$500 |
| Loan origination | 0.5%-1.0% of the loan amount |
| Notary | $20-$100 |
| Title insurance | 0.5%-1.0% of the loan amount |
| Title search | $75-$250 or more |
The interest you pay on your home equity loan may be tax-deductible if you use the funds to improve your home. For single filers, interest on the first $375,000 of loan debt is deductible. Married couples who file jointly can deduct interest on up to $750,000 of debt. Just remember, you’ll need to itemize if you want to take advantage of this option. A tax advisor can help you figure out what will make the most sense for your situation.
A home equity loan isn’t the only way to leverage your property’s value. You might also want to consider a cash-out refinance or a home equity line of credit (HELOC). A cash-out refinance involves taking out a new mortgage for a larger sum than your existing home loan. You receive the difference as a lump sum. With a HELOC, on the other hand, you apply for a credit limit, secured by your home, that you can borrow against as needed. You’ll pay interest only on the cash you draw out.
Learn more about cash-out refinance vs. home equity line of credit similarities and differences, and you can understand the options and make the best choice.
What is a home equity line of credit? A HELOC is a lot like a credit card, offering homeowners the freedom to borrow up to a set limit and pay interest solely on what they use. Usually, you can pull out funds during an initial “draw” period, followed by a repayment period in which you must repay the principal and remaining interest. Rates on HELOCs are generally adjustable. Unlike a home equity loan, a HELOC is about flexibility. Then again, adjustable interest rates mean your rate and your payments can fluctuate, potentially impacting your costs down the line.
Qualifying for a HELOC often requires a credit score of 680 or higher (700 is better) and a DTI ratio that’s ideally below 36% (but at the most 50%). HELOCs may allow you to borrow up to 90% of the equity you have in your home. To see how the loan would look as you pay it down, load some hypothetical numbers into a HELOC repayment calculator.
Just want to know how much the monthly payments would be on your hypothetical HELOC? Run some figures on a HELOC monthly payment calculator. You can play around with different interest rates and terms to find out how they might affect your payments, and how much of a loan you can afford. And if you’d like to calculate how much interest you’d have to pay during the “draw” period of a HELOC, try out a HELOC interest-only calculator.
A cash-out refinance is a strategic mortgage refinance. You swap your original mortgage for one that’s larger than what you currently owe — then receive the difference in a lump sum. Rates on cash-out refis may be fixed or adjustable. It’s usually easier to qualify for a cash-out refi than it is for a home equity loan or a HELOC. Lenders have different standards, but often, cash-out refis require a 620 minimum credit score and a DTI ratio of 43% or less.
Recommended: HELOC Repayment Calculator
If you’re thinking about applying for a home equity loan in New York City, it’s smart to build an understanding of key factors that tend to drive interest rates. Your credit score, DTI ratio, and equity level all play a role in the kind of rate you’ll qualify for. Simply shopping around can also go a long way toward getting yourself the best available rate. And if a home equity loan isn’t a fit, remember that HELOCs and cash-out refinances have their own benefits.
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.
Funding home improvements and consolidating high-interest debt are two popular reasons why people tend to apply for home equity loans. If you decide to pursue a home equity loan, remember to use funds wisely and make sure the loan fits into your long-term financial plan.
Your monthly payment after you take out a $50,000 home equity loan can vary depending on the interest rate and the loan term. For example, if you pull out equity at a 7.00% interest rate over a 15-year term, the monthly payment would be about $449. At a 9.00% interest rate over 15 years, the payment would be around $507. A loan calculator can help you figure out what your monthly payments would be with an array of variables.
A number of factors might get in the way of your securing a home equity loan. First, lenders typically require a minimum credit score, generally around 680 or more, and having a lower one could disqualify you. A high debt-to-income (DTI) ratio — usually above 50% — might also impede your loan eligibility. And having less than 20% equity in your home could be a red flag for lenders, too. Potential lenders will also look at how stable your home’s value is and how comprehensive a property insurance policy you carry. Qualifications vary lender-by-lender, but these are common disqualifiers.
Home equity loans often carry fixed interest rates. They therefore have predictable monthly payments, and that can make budgeting easier and rule out surprises. They usually have lower rates than unsecured personal loans, and that makes them a cost-effective option for significant one-time expenses, such as home improvements or debt consolidation. Be sure to balance benefits with potential risks, including the threat of foreclosure on your home if you fall behind on payments.
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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.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.
