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 in their homes for large expenses like home renovations or debt consolidation.
• Home equity loan interest rates are influenced by the prime rate, prevailing economic conditions, the borrower’s credit score, loan-to-value ratio, lender policies, and the property location.
• Fixed interest rates on home equity loans provide stability and predictability in monthly payments, making it easier to budget and plan.
• Closing costs and fees associated with home equity loans can range between 2% and 5% of the loan amount and may include an appraisal, credit report, origination fee, title and insurance.
• Interest on home equity loans is generally tax-deductible if the loan proceeds are used for home purchase, construction, or improvements.
If you’re a homeowner in North Dakota, this guide will help you understand home equity loans and the interest rate you can expect to be offered. We’ll walk you through determining your equity level, and how to qualify for the best available rate. By the end, you’ll be well-equipped to decide if a home equity loan is the right financial move for you.
To begin, let’s look at what is a home equity loan.
A home equity loan is an installment loan that’s repaid over 5 to 30 years, much like your mortgage — in fact, a home equity loan is considered a second mortgage. It’s a smart way to get equity out of your home at a lower interest rate than you’d get with a personal loan. And the interest rate is typically fixed, which makes budgeting easier.
To qualify, you’ll need at least 20% equity in your primary residence. And you can use the loan for pretty much anything: home improvements, college tuition, medical expenses, or debt consolidation.
If your biggest question is, what’s the difference between a HELOC vs a home equity loan, we’ll get into that in detail below. For now, just remember this: A home equity loan gives you a lump sum, while a HELOC offers a revolving line of credit, much like a credit card.
Home equity loan interest rates are 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 to anticipate rate fluctuations and make informed decisions about when to take out a home equity loan.
The interest rate you secure can have a significant impact on your ability to afford your loan over the long term. For instance, over 20 years, a 1% difference in the interest rate can translate to an additional $11,000 in interest over the duration of the loan, as illustrated in the table below:
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
The prime interest rate’s ups and downs are a crystal ball of sorts for North Dakota’s home equity loan rates. By keeping an eye on changes, you’ll be in the know about when to pounce on a great rate. Don’t let the fluctuations stress you out — instead, use them to your advantage. When the time is right, you’ll be ready to lock in the best rate and terms for your home equity loan.
Since 2018, the U.S. prime rate has fluctuated significantly, with a low of 3.25% in 2020 and a high of 8.50% in 2023. These changes have had a major impact on borrowing costs and investment decisions. For homeowners, changes in the prime rate impact the interest rates and terms available for home equity loans.
| 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% |
The homeowner’s financial profile can also influence their home equity loan rate. These factors are weighed differently depending on the lender, so it’s important to shop around and compare loan offers. Because of this, home equity loan rates in North Dakota can vary.
Borrowers who have a history of making payments on time are more likely to be offered a lower interest rate. Most lenders require a minimum credit score of 680 for a home equity loan, but the best rates are usually given to those with scores of 700 or above. A higher credit score shows that you have a history of responsible borrowing and are more likely to manage your finances well, which makes you a more attractive candidate.
Lenders often use independent appraisals to determine a home’s market value. These appraisals are also used to determine your equity position, which is the difference between what your home is worth and how much you owe on it. This is important because lenders use this to determine the maximum loan amount they’re willing to approve. Accurate appraisals are important for both lenders and borrowers.
The loan-to-value (LTV) ratio is another factor in determining the maximum amount lenders will permit for a home equity loan. In North Dakota, most lenders will allow a maximum combined LTV (your mortgage balance plus loan amount divided by your home value) of 85%. Let’s say you currently owe $300,000 on your mortgage and you want to borrow $75,000 for a renovation project. Your home is appraised at $450,000:
With a 83% combined LTV, there is a good chance a lender will approve this home equity loan.
The stability of home values can significantly impact the amount of equity homeowners can potentially access and utilize. When home values are on the rise, lenders may be more inclined to approve larger loan amounts, as the increasing value of the property mitigates some of the associated risk. Conversely, when home values decline, the lender’s risk increases, potentially leading to stricter lending criteria and reduced loan amounts.
Depending on what area of North Dakota you live in, you might see higher interest rates. Lenders may see certain regions as riskier because of the potential for natural disasters or extreme weather events like storms, flooding, and wildfires.
When you’re on the hunt for a home equity loan, individual lender policies can affect the interest rates they offer. The key to getting a competitive rate is to shop around, comparing interest rates, fees, and closing costs from several lenders. By doing your homework and considering other options like a HELOC, you could land some sweet terms for your financing deal.
Recommended: What Is a Home Equity Line of Credit (HELOC)?
To qualify for the lowest home loan rates in North Dakota, you’ll want to make sure you have a strong credit score, a low debt-to-income ratio, adequate property insurance, and enough home equity. If you can stick to these financial best practices, you’ll be in a great position to secure the most competitive rates available.
In the world of personal finance, a higher credit score can open doors. By building a robust credit history and demonstrating responsible borrowing habits, you can set yourself up to receive more attractive interest rates on a home equity loan, potentially saving you a significant amount over the loan’s lifetime. Favorable conditions can make a real impact on your financial outlook.
This ratio, which compares your gross monthly income against your monthly debt commitments, is a major factor in whether you’ll qualify. In North Dakota, lenders often look for a DTI ratio below 36%, though some lenders will go as high as 50% for home equity loans. It’s a way to gauge your capacity to handle your current debts and take on the added monthly payments of a home equity loan.
In the world of home equity loans, property insurance is often a requirement, especially in areas that are prone to flooding. This insurance is designed to protect both you and the lender from financial loss in the event of property damage. It’s a win-win: You get peace of mind and the lender knows their investment is secure.
In North Dakota, you must have at least 20% equity in your home to take out a home equity loan. This is an important rule that helps protect you and your lender. It also ensures you’re not borrowing more than you can afford to pay back. A home equity loan calculator can help you determine your equity position.
Home equity loans in North Dakota typically come with fixed interest rates. This means you’ll enjoy the same interest rate and monthly payment for the entire life of your loan. While fixed rates can sometimes start out a little higher than variable rates, many homeowners appreciate the peace of mind that comes with knowing exactly what to expect from month to month.
Many user-friendly tools and calculators are at your disposal, ready to help you estimate your home equity loan payments. These resources are designed to give you a comprehensive understanding of how different interest rates and loan terms can impact your financial obligations, empowering you to make well-informed decisions about your home equity loan. Here, in addition to the home equity loan calculator, you’ll find a HELOC repayment calculator and 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.
When you take out a home equity loan, you can expect to pay closing costs that typically range from 2% to 5% of the loan amount. These costs can include an appraisal, credit report, title search, and insurance.
Loan origination fees can range from 0.5% to 1%. Title insurance can cost between 0.5% and 1% of the loan balance. Appraisals generally cost between $300 and $500. Because these costs can vary, it’s important to shop around and compare offers from multiple lenders.
The interest you pay on home equity loans may be tax-deductible, but only if you use the funds for home improvements. If you’re married and filing jointly, you can deduct interest on loans up to $750,000. Single filers can deduct interest on loans up to $375,000. Just remember, you’ll need to itemize your deductions to claim this benefit. To make sure you’re getting the most out of your home equity loan come tax time, it’s always a good idea to chat with a tax advisor.
Beyond the standard home equity loan, there are different types of home equity loansand lines of credit. These include HELOCs, home equity conversion mortgages (HECMs), and cash-out refinancing. Each of these options has its own features and requirements, so it’s important to carefully consider which one is the best fit for your financial situation and goals.
A HELOC is a versatile option that functions much like a credit card but with lower interest rates. You can access funds up to a predetermined limit and are charged interest only on the amount you use. Keep in mind that the variable interest rate changes with the market, potentially increasing your costs. Because it’s an area of confusion for many homeowners, here’s a comparison of home equity loans and HELOCs.
| 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, you might want to consider an HECM, a government-backed reverse mortgage that allows you to receive payments from the lender based on your home’s value. The proceeds can be received as a lump sum, regular payments, or a line of credit. The beauty of an HECM is that you don’t have to make payments until you leave the home, unlike traditional home equity loans and HELOCs. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
With a cash-out refinance, you take out a new mortgage that’s larger than your existing loan, and you receive the difference in cash. Our guide to Cash-Out Refinance vs Home Equity Line of Credit can give you more details.
Understanding home equity loan rates and the factors that influence them is crucial to making the best financial decision for your situation. By comparing lenders in North Dakota, taking good care of your credit score, and keeping an eye on the market, you can get the best rates and terms for your home equity loan, and improve your financial outlook.
Unlock your home’s value with a home equity loan from SoFi.
If you borrow $50,000 with a home equity loan and pay it back over 10 years, the monthly payments could range from $530 to $607, depending on your interest rate (this range is from 5.00% to 8.00%). The two main factors that govern your payments are the interest rate and the loan term, so changes in either of these will alter your payment.
Remember that the monthly payment on a $100,000 HELOC is impacted by both the current interest rate and the amount you’ve used. If you draw the entire $100,000 and are paying it back over 20 years at a rate of 7.00%, you can expect to pay $775 per month.
Assuming a 10-year term, an interest rate of 8.00% would mean a $303 payment each month. An interest rate of 6.00% would mean a $278 monthly payment. To get an idea of what your payment might be, you can use a home equity loan calculator.
A $30,000 home equity loan with a rate of 8.00% and a 20-year term would cost you $251 each month. Changing the interest rate or the loan term will result in a different monthly payment.
Things like a sketchy credit history, not enough equity in your home, a high debt-to-income ratio, or inadequate property insurance can throw a wrench in your home equity loan application. But with a little foresight and proactive steps, you can often address these issues and get back on the path to loan approval.
HELOCs offer a number of advantages, including flexible borrowing options, lower interest rates compared to credit cards, and the ability to pay interest on only the amount you’ve borrowed. These features make HELOCs an attractive financial tool for homeowners who are looking for a cost-effective and versatile credit solution.
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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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