Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the prime rate, your credit score, and your debt-to-income (DTI) ratio, among other factors.
• If you have a strong credit score (700+) and a low DTI (below 36%), you could be looking at lower rates.
• Compare offers from multiple lenders to find the best deal.
• Home equity loans usually have fixed rates, which means stable, predictable monthly payments.
• Good property insurance coverage is a must and can affect your loan rates.
Home equity loans are a powerful financial resource for homeowners who want to leverage the equity they’ve built in their home. This guide will walk you through the current home equity loan rate environment in Orange County, California, and shed light on the factors that influence these rates. We’ll make sure you know exactly what getting a home equity loan means and equip you with strategies to secure the most favorable rates. Whether you’re planning a remodel, aiming to streamline your debt, or considering a significant purchase, you’ll be ready to make the most of your borrowing power while minimizing your costs.
So what is a home equity loan, anyway? Technically, it’s a second mortgage (assuming you are still making payments on your first home loan). It uses your home as collateral, providing a lump sum of money for a variety of purposes. You then immediately begin paying back the loan in equal monthly installments over a fixed term of five to 30 years. Because these loans are secured by your home, they typically have lower rates than unsecured personal loans. But this also means that if you don’t make your payments, the lender could foreclose on your house.
Interest rates on home equity loans are usually fixed, which can provide peace of mind if you prefer consistent payments. To qualify, homeowners generally need at least 20% equity in their home. A home equity loan calculator can show you what size loan you might qualify for.
Recommended: What Is a Home Equity Line of Credit?
Home equity loan rates are influenced by a variety of factors, including the overall economic climate and your personal financial situation. Federal Reserve policies have an impact on lending rates, and you’ll often see home equity loan rates move in the same direction as the prime rate. Your credit score and debt-to-income (DTI) ratio will also play a big role in the rate you’re offered, as will the amount and term of your loan.
The interest rates on different types of home equity loans play a big role in how affordable borrowing can be over time. Even a tiny percentage change can add up to a lot of extra interest. As an example, let’s look at a $100,000 home equity loan with a 15-year repayment term. At 8.50% interest, your monthly payment would be $985, with a total interest payment of $77,253. But at 9.50%, the monthly payment jumps to $1,044, and the total interest paid increases to $87,960. That’s a $10,700 difference in interest over the life of the loan. It’s clear that nabbing the lowest possible rate is a smart move.
The loan term also has an impact on your costs, as you can see from these examples:
| 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 the future of interest rates isn’t an exact science. The prime rate, which is the starting point for many home equity loans in Orange County, has seen its fair share of ups and downs. In 2020, it hit a low of 3.25%, and by 2023, it had climbed to 8.50%. These fluctuations are reflected in the rates you’re offered. Keeping an eye on the economy and lender policies can help you time your application to get the best deal. But even if you can’t wait out the market, there are things you can do to maximize your chance of getting the lowest available rate.
| 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 lowest home equity loan rates in Orange County, you’ll want to focus on two key areas: your credit score and your debt-to-income ratio. Take all four of these steps before you file your first loan application.
As noted above, you’ll need at least 20% equity in your home to qualify for a home equity loan. To figure out if you’ve crossed this threshold, subtract your mortgage balance from your home’s current value then divide the result by your home’s current value to arrive at a percentage of equity. If you’re close to 20% but not quite there, you could consider making an extra payment toward your mortgage principal.
A robust credit score is a testament to your financial prudence. Lenders are often looking for a credit score of 680 or higher for home equity loans, and many are even more inclined to offer favorable terms with a score of 700 or above. To bolster your standing, ensure your bills are paid promptly, keep credit card balances in check, and resist the urge to open new accounts in the months leading up to your loan application. Regularly reviewing your credit report for inaccuracies and disputing any errors is another wise move.
Your DTI ratio will be scrutinized by prospective lenders. It’s a simple formula: Add up your monthly debts and divide by your gross monthly income. Lenders like a DTI ratio of less than 50%, and the lower the better — ideally, below 36%. A lower DTI ratio shows that you have more room in your budget to manage monthly payments, which can lead to better loan terms.
Property insurance is often a must-have from a lender’s perspective, particularly in flood-prone areas. Insurance safeguards the lender’s investment in the face of damage. The cost of insurance can fluctuate based on location and the extent of coverage required. Some lenders might even stipulate additional insurance, like fire or earthquake coverage, based on the property’s risk profile.
Home equity loan calculators can help you understand the financial implications of borrowing against your home. These are three of our favorite online tools — you may find yourself using them again and again during your borrowing journey.
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.
The closing costs for home equity loans typically range from 2% to 5% of the loan amount. These may include fees for services such as appraisal, credit report, document preparation, origination, notary, title search, and insurance. Some lenders advertise a “no-closing-cost” loan, but you’ll want to look at the total cost of the loan and compare multiple lenders’ offers, because often costs on these deals are reflected in higher interest rates.
Here’s a tip: The interest on your home equity loan may be tax deductible if you’re using the borrowed funds to significantly improve your home. If you’re married and filing jointly, you can deduct interest on loans of up to $750,000; for single filers, it’s up to $375,000. Remember, you’ll need to itemize to claim this deduction — it’s not available with the standard deduction.
There are other ways besides a home equity loan to get equity out of your home. Consider these alternatives before you commit:
A HELOC works like a credit card, but when you use it, you’re borrowing against your home equity. A HELOC typically has two periods. During the draw period, often 10 years, you can borrow up to a certain limit and pay interest only on the amount you borrow (this is when a HELOC interest-only calculator comes in handy).
Then when the repayment period begins, you’ll begin to repay what you borrowed, plus interest. Using a HELOC repayment calculator can help you understand what that might mean for monthly payments. Interest rates on HELOCs usually fluctuate with the market, meaning costs can be somewhat unpredictable. Lenders typically look for a 680 credit score (700 is even better) and a debt-to-income ratio below 50% (aim for 36% or lower).
Here’s a quick look at a HELOC vs. a home equity loan:
| 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 |
A cash-out refinance is a special type of mortgage refinance that lets you replace your current mortgage with a new one, and in the process, obtain a lump sum that you can use for any purpose. Most lenders are willing to let you borrow up to 80% of your equity. Typically, a 620+ credit score and a DTI ratio under 43% are needed.
As you think about a cash-out refinance vs. a home equity line of credit, consider this: A cash-out refinance streamlines your payments into one, making it a simpler financial arrangement. However, it is also an entirely new mortgage, so you’ll want to compare today’s interest rates against the rate you have with your current mortgage to make sure a new loan makes sense.
As you mull over the prospect of a home equity loan in Orange County, remember to keep your credit score robust, your DTI ratio in check, and your property insurance up to par. These factors are pivotal in determining the rates you’ll be offered. Utilize online calculators to gauge monthly payment amounts and compare offers from a range of lenders. With a little time and research, you can secure a deal that aligns with your budget and financial strategy.
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.
The monthly payment for a $50,000 home equity loan varies based on the loan term and interest rate. For example, a 15-year fixed-rate loan at 7.50% would mean a monthly payment of approximately $464. Opting for a 30-year term at the same rate would lower the monthly payment to roughly $350. It’s important to note that the total interest paid is usually higher with a longer term.
The beauty of a $100,000 HELOC is how flexible it is, which also means the monthly payment can vary. During the draw period, which is often the first 10 years, you might only need to pay interest. At an 8.00% interest rate, that could be $667 per month. Once the draw period ends, the repayment period begins. You’ll start paying both principal and interest, and costs will likely be higher. The exact amount will depend on the remaining balance and the interest rate at that time.
There are a few red flags that might stop you from getting a home equity loan. Most lenders require that you have at least 20% equity in your home. A low credit score, typically below 620, can also be a barrier, as it might signal to the lender that you’re a riskier borrower. A high debt-to-income (DTI) ratio, generally above 50%, could disqualify you as well.
Home equity loans are a great option for a few reasons. They provide a lump sum of money with fixed monthly payments, making it easy to budget. The interest rates are usually lower than those of unsecured loans, because your home is used as collateral. This can be a big plus if you’re looking to cover a large expense, home renovations, or consolidate debt. Plus, the interest on a home equity loan may be tax-deductible if used for home improvements.
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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.
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