Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans provide a lump sum with fixed monthly payments, perfect for significant, one-time expenses.
• Interest rates are affected by your credit score, debt-to-income ratio, and the prime rate.
• Lenders often allow borrowing up to 85% of your equity.
• It’s crucial to compare offers from multiple lenders to find the best terms and rates.
• You’ll need at least 20% equity in your home to be eligible for these loans.
Home equity loan rates are a key consideration when you’re thinking about how to get equity out of your home in Orlando. We’ll help you understand what they are, how they can affect your finances, and how to find the best rate and loan type for your personal situation as a homeowner. First step? Make sure you understand what a home equity loan is and how it differs from other ways of borrowing against your equity. By the time you’re through, you’ll be better prepared to determine if a home equity loan is the right financial move for you.
A home equit loan is a second mortgage — assuming you’re still paying off your first home loan. It uses your home as collateral for a lump-sum loan, which you would begin to repay soon after you receive it. You’ll repay it in equal monthly installments over a term that typically ranges from five to 30 years. Because the loan is secured by your home, you can expect a lower interest rate than you would get with an unsecured loan. To qualify, you’ll generally need to have at least 20% equity in your home.
Recommended: HELOC vs. a Home Equity Loan
The interest rates for different types of home equity loans are influenced by economic factors but also by each borrower’s personal profile. The Federal Reserve’s monetary policies have a ripple effect on lending rates. Lenders often adjust their rates according to the prime rate, which is a reflection of the Fed’s stance. Your credit score, debt-to-income (DTI) ratio, and credit history play a significant role, with higher scores typically translating to lower rates. Additionally, larger loan amounts and longer repayment terms may lead to higher rates due to the increased risk for the lender.
Your home equity loan interest rate can make a noticeable difference in how affordable borrowing is over time. Even a seemingly small variation in the rate can mean significant savings or added costs. As an example, take a look at the chart below, which shows you how different loan terms and rates affect monthly payments for a $75,000 loan being repaid over 20 years.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
The prime rate is a variable one, and looking at the graphic below, you can see it’s had a few ups and downs. In 2020, it hit a low of 3.25%, only to climb to 8.50% by 2023. These fluctuations can have a big impact on the rates you’re offered for home equity loans. If you have the flexibility to do so, you can try to time your application to one of the lower periods and potentially snag a more favorable 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 secure the most competitive home equity loan rates, you’ll want to put your best financial foot forward. Take these steps before you file your first application:
As noted above, you’ll want to maintain at least 20% equity in your home. Crunch the numbers by subtracting your outstanding mortgage balance from your home’s estimated value. (Find the latter on an online real estate site.) Let’s say your mortgage balance is $300,000 and your home’s value is $550,000. That leaves you with $250,000 in home equity. Divide your equity number by the home value to arrive at a percentage — in this case, 45%. You can also use a home equity loan calculator to assess your borrowing power.
Lenders usually look for a credit score of 680 or higher when considering home equity loans, and many prefer a score of 700 or above. A strong credit score demonstrates financial responsibility and can lead to more favorable rates. To improve your credit score, focus on making timely payments, keeping credit card balances low, and avoiding new debt. Regularly check your credit report for errors and dispute any inaccuracies.
Your debt-to-income (DTI) ratio is a critical piece of the home equity loan puzzle. To determine yours, divide your monthly debts (car loan, student loan, credit card debt, etc.) by your gross monthly income. Lenders typically look for a ratio under 50%, but the sweet spot is 36% or less. The lower your DTI, the better your chances of securing a more competitive rate. To enhance your DTI, consider paying down existing debts and exploring opportunities to boost your income.
Property insurance is often a must-have for home equity loans. Lenders want to be sure that your property, which is the collateral for the loan, is protected. Before you apply, make sure to check with your insurance provider to ensure that your coverage is up to date.
Online calculators can help you make savvy decisions about borrowing. For example, a home equity loan calculator can give you a pretty clear picture of how much you might be able to borrow. Here are three of our favorite calculators.
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 looking at a range of 2% to 5% of the loan amount. This typically covers appraisal, credit report, document preparation, origination, notary, title search, and title insurance fees. Remember, those “no-closing-cost” loans often come with higher rates. It’s all about finding the right balance.
Recommended: HELOC Monthly Payment Calculator
Good news: The interest on your home equity loan may be tax deductible if you’ve used it to buy, build, or significantly improve your home. A tax advisor can provide personalized advice, and you may need professional help anyway in order to claim this deduction, because you’ll have to itemize your deductions on your tax return. For single filers, interest is deductible on the first $375,000 of loan debt. Spouses filing together can deduct the interest on up to $750,000 of debt.
A home equity line of credit (HELOC) and a cash-out refinance are two other common ways to tap into your home’s equity. A HELOC is a revolving line of credit that lets you borrow money as you need it, up to a certain amount. A cash-out refinance is a special mortgage refinance that replaces your existing mortgage with a new one that’s larger than what you owe. You pocket the difference to use as you wish.
HELOCs often have variable interest rates, while cash-out refinances can have either fixed or variable rates. It’s a good idea to compare these options and their rates to see which one might be the best fit for your financial situation and goals. One thing to consider as you think about a cash-out refinance vs. a home equity line of credit or a home equity loan: The cash-out refi is a completely new loan. It will leave you with one payment instead of two. But if the interest rate on your current mortgage is a really favorable one, a refinance may not make sense.
Get more on what is a home equity line of credit vs. a home equity loan and a cash-out refi in the chart below.
Here’s how a cash-out refinance vs. home equity line of credit compare:
| 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 (a HELOC interest-only calculator is useful then). Then there is 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) |
When you’re ready to explore a home equity loan in Orlando, remember that a robust credit score, a low debt-to-income ratio, and solid property insurance can all play a part in the rate you’re offered. As you consider those offers, don’t forget to consider the closing costs and fees. Lastly, keep an open mind about alternatives like a HELOC and a cash-out refinance to ensure you find the best solution for your financial goals and situation.
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 instance, 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 around $350. It’s important to note that the total interest paid over the life of the loan is usually higher with a longer term.
The beauty of a $100,000 HELOC is its flexibility, 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, and you’ll start paying both principal and interest. The exact amount will depend on the remaining balance and the interest rate at that time.
There are a few things that might prevent 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.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*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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