Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Phoenix’s home equity loan rates tend to follow the prime rate.
• If you’re aiming for the best rates, keep your credit score at 680 or above, and your debt-to-income ratio close to 36%.
• Home equity loans offer fixed monthly payments over a term of 5 to 30 years, typically with lower interest rates than unsecured loans.
• The risk of foreclosure is a significant consideration when taking out a home equity loan.
• Interest on home equity loans may be tax-deductible if funds are used for home improvements.
Welcome to our guide to home equity loan rates in Phoenix. We’re going to dive into the current pool of home equity loans, explaining how they work, what factors influence their interest rates, and how you can qualify for the best rates. Whether you’re looking to fund home improvements, consolidate debt, or cover other major expenses, understanding home equity loan rates can help you make an informed financial decision.
Before you apply, it’s important to know the basics about what a home equity loan is, exactly. A home equity loan is a second mortgage that uses your home as collateral and provides a lump sum of money you can use for any purpose. You’ll begin repaying it immediately in equal monthly installments over a fixed term of five to 30 years. Because your home is the collateral for the loan, you’ll generally get a lower interest rate than you would with an unsecured personal loan. (This also means your home is at risk if you miss payments.) Most home equity loans have a fixed interest rate, so your payments will be predictable.
To qualify, you’ll need to have at least 20% equity in your home. Some lenders may allow you to borrow up to 85% of your equity. A home equity loan calculator can help you determine your home equity and how much you might borrow against it.
Interest rates on different types of home equity loans are influenced by a variety of factors, including the economic environment and your financial situation. The Federal Reserve’s monetary policy has a significant impact on the lending market. Lenders typically tie home equity loan rates to the prime rate, which is influenced by the Fed’s policies. Changes in the prime rate often lead to corresponding adjustments in home equity loan rates. As with your original home loan, your credit score and debt-to-income (DTI) ratio also play a role in the rates you are offered. Additionally, the loan amount and repayment term can affect the interest rate. Competitive pressures among lenders can also lead to rate reductions. Understanding these factors can help you make informed decisions about your home equity loan.
Your interest rate is a game-changer when it comes to making your loan affordable. Let’s look at an example of a $100,000 home equity loan with a 15-year repayment term. At an 8.50% interest rate, you would have a $984 monthly payment and $77,253 in total interest. Bump the interest up to 9.50% and suddenly you’re looking at a $1,044 monthly payment and $87,961 in total interest. That’s a $10,700 difference! Here are more examples of how your loan term and rate could affect payments.
| 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 you’re thinking about how to get equity out of your home, you’ll probably consider trying to time your loan application to achieve the lowest possible rate. But predicting the prime rate is a bit like trying to forecast the weather, and not every borrower has time to wait for a low spot. The rate has seen its fair share of ups and downs, as you can see from the graphic and chart. Don’t beat yourself up if you can’t hold off on applying until rates are at their lowest. If you need a loan, focus on comparing offers from different lenders to get the best possible rate for you.
| 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 in Phoenix, there are a few factors you should keep in mind. By taking the following steps before you begin the application process, you’ll be better positioned to land a home equity loan with rates and terms that are not just favorable, but a smart and manageable choice.
It’s a simple equation: you need at least 20% equity in your home to qualify for a home equity loan. To figure out your equity, simply subtract your outstanding mortgage balance from your estimated home value. Then divide the answer by the estimated home value to arrive at a percentage of equity. The higher it is, the better off you’ll be.
To land the best available home equity loan rate, a robust credit score is needed. Lenders are often looking for a score of 680 or higher, with many requiring a score over 700. A higher credit score is a sign of financial savvy and can open the door to more favorable loan terms. By focusing on timely payments, reducing credit card balances, and steering clear of new debt, you can boost 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, and 36% or lower will help you qualify for the lowest interest rates. To manage your DTI effectively, you can pay down your existing debt, increase your income, or do a combination of both.
Property insurance is a must-have for home equity loans. This insurance is a safety net for both you and the lender should any damage occur. Make sure your coverage is up to snuff.
Before you take the leap and borrow against your home, it pays to do a little math to understand what your borrowing power will be and how much you can expect to spend for loan payments. Fortunately, online calculators can do that math for you. Here are three useful ones.
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, borrowers will usually pay between 2% and 5% of the loan amount. These costs cover things like an appraisal, credit reports, and origination fees. Title insurance and a title search are also on the fee list.
If you use a home equity loan to buy, build, or significantly improve your home, the interest you pay may be tax deductible. This tax benefit is currently valid through 2025, and there’s a possibility it could be extended beyond that year. Married couples filing joint tax returns can deduct interest paid on up to $750,000 of qualified home equity loans, while single filers can deduct interest on loans up to $375,000. To claim the deduction, taxpayers must itemize deductions on their tax returns. Consulting a tax advisor can provide personalized advice based on your specific financial situation.
Recommended: HELOC vs. Home Equity Loan
While home equity loans are a go-to for many, there are other ways to borrow against your equity that you might want to mull over. Let’s take a look at them, starting with a home equity line of credit.
A HELOC is like a credit card for homeowners, with the ability to borrow up to a certain limit and — during the initial “draw” period of the HELOC — only pay interest on the amount you’ve borrowed. During this time (usually 10 years) a HELOC interest-only calculator is useful.
HELOC interest rates are typically variable, so be prepared for potential fluctuations. You can always use a HELOC monthly payment calculator to compute payments as rates change. To qualify, a credit score of 680 or higher (ideally 700 or more) and a debt-to-income ratio of less than 50% (ideally 36% or lower) are generally required. HELOCs are great if you aren’t sure exactly how much you might need to borrow or when costs are spread out over time.
A cash-out refinance is a special mortgage refinance that lets you replace your existing mortgage with a new, larger one and pocket the difference to use as you wish. The amount you can cash out is determined by your home equity, with most lenders allowing you to borrow up to 80%. Typically, you’ll need a credit score of 620 or higher and a debt-to-income ratio under 43% to qualify. The beauty of a cash-out refi is that you can choose between fixed or variable rates. Below, a quick guide to a home equity loan vs. a cash-out refinance vs. a home equity line of credit:
| 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, followed by 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 HELOC 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 thinking about a home equity loan in Phoenix, it’s wise to grasp the key factors that sway loan rates. Your credit score, DTI ratio, and equity level all play a part. But shopping around can also help you get the best available rate for you. And if a home equity loan isn’t quite the right fit, remember that HELOCs and cash-out refinances are there, each with their own unique benefits to consider.
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.
Home equity loans are versatile, serving as a funding source for major expenses, home improvements, or the consolidation of high-interest debt. The adaptability of these loans makes them a valuable resource for homeowners who need a substantial sum but who don’t want to part with their property. When contemplating a home equity loan, it’s crucial to be smart about how you use the funds and to have a plan to pay the lender back.
The monthly payment for a $50,000 home equity loan depends on the loan term and interest rate. For instance, a 15-year fixed-rate loan at 7.50% would mean a monthly payment of about $464. Opting for a 30-year term at the same rate would lower the monthly payment to roughly $350. The amount of interest paid over the life of the loan is usually higher with a longer term.
A $100,000 home equity line of credit often comes with a variable interest rate. During the draw period, you might only need to pay interest on the funds you use. Once the draw period concludes, you’ll pay both the principal and interest. If you were repaying the full $100,000 over a period of 20 years and the interest rate held steady at 8.00%, your monthly payment would be $836. But remember, the variable rate makes it hard to predict payments precisely.
Home equity loans offer a fixed interest rate, which means the monthly payment amount is predictable. And because a home equity loan is secured by your home, it will typically have a lower interest rate than a personal loan, which is unsecured. Plus, the interest you pay may be tax-deductible if the funds you borrow are used for major home improvements (consult a tax advisor).
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
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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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