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, typically for large expenses like home renovations, education, or debt consolidation.
• Home equity loan interest rates are influenced by the prime rate, current economic conditions, and overall market trends.
• Factors that impact exactly what rate a borrower will be offered include credit score, loan-to-value ratio, home value stability, lender policies, and property location.
• To qualify for the lowest rates, it’s important to build a strong credit score, manage debt-to-income ratio, obtain adequate property insurance, and maintain sufficient home equity.
• Alternatives to home equity loans include HELOCs, HECMs, and cash-out refinances, each with unique features and eligibility criteria.
If you’d like to get equity out of your home in Pennsylvania, you’ve come to the right place. This article will explain current home equity loan rates, trends in rates, and the factors that can impact the rate you are offered by a lender. We’ll also provide some tips on how to qualify for the best rates and explore some different types of home equity loans so you feel ready to choose the financing option that meets your goals.
First things first: understanding what is a home equity loan. If you’ve been diligently paying off your home loan, you have built up equity in your property. If you have at least 20% equity, you can use your home as collateral when borrowing money by taking out a home equity loan. This type of loan typically offers a lower interest rate than a personal loan. With a fixed interest rate and a repayment term that can extend from 5 to 30 years, it’s a flexible option. You can use the funds for a variety of needs, such as home improvements, education expenses, medical bills, or debt consolidation.
Wondering what is a home equity line of credit (HELOC) and how it differs from a home equity loan? We’ll dig into that below.
Home equity loan interest rates are a product of larger economic factors. Federal Reserve policy decisions influence the prime rate that banks offer very creditworthy customers. The prime rate is the starting point for the home equity loan rates. Lenders then adjust what rate they offer based on the individual borrower’s characteristics.
The interest rate you secure can make a big difference in the cost of your home equity loan over time. The same is true for a HELOC. Take a look at this chart showing how different rates, terms, and amounts play out for monthly payments on a home equity loan:
| 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 |
As noted above, the prime interest rate is a key indicator of what home equity loan rate a borrower might be offered. Since 2018, the U.S. prime rate has fluctuated significantly, dropping as low as 3.25% in 2020 and reaching a high of 8.50% in 2023. Below you can see the details of those moves and take a look at the trajectory of the rate over half a century. Then you’ll be well equipped to understand where home equity loan rates in Pennsylvania fall on the spectrum.
| 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 a borrower, you have no ability to influence a lender’s prime rate. But you do have control over a number of other factors that could influence what specific rate you will be offered. Here are some things that could affect a lender’s response to your loan application:
The more you show that you’re on top of your finances and make your payments on time, the better the interest rate you’re likely to snag. Lenders want to see a credit score of 680 or above from a home equity loan applicant, and 700 or higher is even better.
When it comes to home equity loans in Pennsylvania, getting a home appraisal will be a crucial step. Lenders request an appraisal to determine the market value of your home, which in turn helps them determine how much equity you have in your home and how much they are comfortable lending to you.
Once you and your prospective lender know your home’s appraised value, you can compute the loan-to-value (LTV) ratio. The maximum LTV ratio most lenders will allow for a home equity loan is typically 85%. The LTV is calculated by dividing the loan amount (whatever you owe on your original mortgage plus the amount you hope to borrow) by the appraised value of the property.
The stability of home values in your corner of Pennsylvania signals a level of risk to a potential lender. When home values seem to be on an upward trend, lenders may be more inclined to approve larger loan amounts. When home values are ebbing, the lender’s risk exposure increases, potentially leading to stricter lending criteria and smaller loan approvals.
If your property is located in an area that is deemed to be at high risk of extreme weather or natural disasters, such as flooding, wildfires, or earthquakes, lenders might charge more to help offset the risk. This might affect the home equity loan rate you’re able to get in Pennsylvania.
Each lender has its own internal policies that have an impact on the interest rates they offer. To make sure you’re getting the best deal, you’ll want to compare rates, fees, and closing costs from a few different lenders.
There are a few steps you can take to get the best Pennsylvania home equity loan rates. Consider this your assignment:
A higher credit score can open doors to more favorable interest rates when you’re applying for a home equity loan. So check your credit report and promptly request a fix for any inaccuracies. Try not to max out all your credit lines — lenders like to see that you can manage your credit responsibly. And of course, pay those bills on time.
As you apply for a home equity loan, lenders will consider your debt-to-income (DTI) ratio, typically looking for a DTI below 36% (though some will extend to 50%). Your DTI ratio is computed by adding up all your monthly debts, such as a car payment or student loan payment, and dividing by your gross monthly income.
You probably already have homeowners insurance but before you apply for a home equity loan it’s a good idea to make sure you’re covered, especially if you live in an area that is prone to flooding or other natural disasters.
To get a Pennsylvania home equity loan, as we’ve seen, you need to have at least 20% equity in your home. This helps protect potential lenders from risk.
Typically, home equity loans have a fixed interest rate, which means your interest rate never changes, and you’ll make the same monthly payment over the life of the loan. While they can offer stability, fixed interest rates might start out at a higher rate than variable rates. A HELOC can provide you with a lower initial interest rate than a home equity loan, and this is one consideration when you are thinking about HELOCs vs. home equity loans.
By using online tools and calculators, you can get a better idea of what size home equity loan you might be eligible for and what size monthly payments you might need to prepare for. These are three helpful calculators for anyone looking to take advantage of the equity they have in their home:
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.
You can expect to pay closing costs that typically range from 2% to 5% of your loan amount, but exactly where each lender falls on this range will depend on their individual policies. Fees and whether a lender charges for things like the appraisal, credit report, or title search, will vary by lender, so it’s important to compare multiple lenders and factor these costs into your comparison of loan offers.
Good news: If you’re using your home equity loan to pay for significant home improvements, some or all of the interest may be tax-deductible. For those married and filing jointly, you can deduct interest on loans up to $750,000; for single filers the limit is $375,000. To claim this benefit, you’ll need to itemize your deductions, which might mean speaking with a tax advisor.
In addition to home equity loans, you have other options to take advantage of your home equity. Each has its own set of features, so it’s important to understand how these options work and how the payments will be structured before you make a decision.
A HELOC uses your home as collateral like a home equity loan does, so applying for one is similar to applying for a home equity loan. But in practice, a HELOC functions a bit like a credit card: Instead of borrowing a lump sum, you would be approved for a line of credit based on your home equity. You use this credit line as you wish and only pay interest on the amount that you borrow. This makes HELOCs useful for people who know they have big expenses on the horizon but who aren’t sure exactly how much money they will need. HELOCs usually have a variable interest rate, which means your monthly payments can fluctuate with interest rates.
An HECM is a government-backed reverse mortgage that allows homeowners aged 62 and older to receive payments from the lender based on their home’s value. You can choose to receive the proceeds from an HECM as a lump sum, regular payments, or a line of credit. Unlike home equity loans and HELOCs, HECMs do not require you to make payments until you leave the home. However, they typically have higher closing costs and longer processing times. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is a special type of mortgage refinance. You’ll take out a new mortgage to pay off your existing one and also receive cash to use for whatever purpose you wish. When you’re weighing a cash-out refinance vs. a home equity line of credit, there are two important considerations. First: Is your current home loan interest rate significantly lower than the prevailing mortgage rates in Pennsylvania? If so, a refi might not make sense. Second: A refinance would leave you with one monthly payment versus two. Some borrowers prefer this streamlined approach.
Understanding Pennsylvania home equity loan rates and the many factors that influence them can help homeowners make informed decisions about their financing options. By shopping around, keeping tabs on your credit score, and considering different types of loan options, you can find the best interest rate and terms for your financial needs.
Unlock your home’s value with a home equity loan from SoFi.
Borrow $50,000 at a 7.50% interest rate with a 10-year term and you’ll need to make a monthly payment of $594. Remember that if you change either the interest rate or the term the payment amount will change as well.
When you’re thinking about a home equity line of credit of $100,000, you’ll need to know the current interest rate and how much you’ll be drawing from your credit line to get an accurate estimate of your monthly payment. To make that process easier and get a reliable estimate, we recommend using a HELOC calculator.
If you borrow $25,000 and have an interest rate of 8.00%, you’re looking at a monthly payment of $507 if you repay the loan over 5 years. Changing the interest rate or term (or both) will cause your payment amount to shift.
The interest rate and term of the loan will dictate the payment amount. For example, if you borrow $30,000 at 8.00% with a 10-year term, the monthly payment would be $364; but snag a 7.00% interest rate and extend the term to 20 years and the payment is $233.
Having poor credit, lacking equity in your home, having a high debt-to-income ratio, and not having enough insurance on your property could disqualify you from getting a home equity loan.
HELOCs allow flexibility in your borrowing (you only borrow and pay interest on what you need at any given time). They also typically have lower interest rates than you would see with a credit card. More good news: You might be able to deduct the interest you pay on your HELOC on your taxes if you use the funds for significant 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.
