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 creditworthiness, and your debt-to-income ratio, among other factors.
• Compare multiple lenders to find the best interest rates and terms.
• Home equity loans have a fixed rate, which means predictable monthly payments.
• The interest on home equity loans could be tax-deductible.
• Other options include a home equity line of credit (HELOC) or a cash-out refinance, each with their own unique features.
Welcome to our guide on home equity loan rates in Puxico, Missouri. We’re here to help you understand the factors that influence these rates and how to secure the best deal. We’ll walk you through the current market conditions, the significance of your credit score and debt-to-income ratio when you are applying for a loan, and the different types of home equity loans available. By the end, you’ll be equipped to make informed decisions about whether a home equity loan is right for you and how to navigate the application process effectively.
First things first: understanding what a home equity loan is, anyway. It’s a second mortgage (assuming you are still paying off your first home loan) that uses your home as collateral. You’ll begin repaying the lump sum you have borrowed immediately, in equal monthly installments over a term of five to 30 years. Because the loan is secured by your home, interest rates are typically lower than they would be with unsecured personal loans. Plus, the rate is usually fixed, which means your payments will stay the same each month. To qualify, homeowners typically need to have at least 20% equity in their home.
A home equity loan calculator can help you figure out how much you might be able to borrow, and at what cost.
As you think about how to get equity out of your home, the top consideration will be the interest rate on your loan. Scoring even a fraction of a percentage point lower rate can lead to considerable savings over the loan’s lifetime. Let’s take a look at how this would play out for a borrower who gets a home equity loan of $75,000 and repays it over 20 years. (Note that a longer repayment term would mean smaller monthly payments, but more interest paid over the life of the loan.)
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
You’re probably wondering if it is possible to time your loan application to a period of low rates. Unfortunately, predicting the ebb and flow of interest rates is a bit like reading tea leaves. But you can get a general sense of where rates are headed by following the prime rate, a major player in the affordability of different types of home equity loans. Lenders typically peg their rates to the prime rate. But from there, they also adjust the rate they offer individual borrowers based on the person’s credit score and debt-to-income (DTI) ratio. So keep an eye on the prime rate, but don’t let it be the only consideration. Below you can see the prime rate’s ups and downs. In 2020, it was a mere 3.25%, but fast forward to 2023, and it had ballooned to 8.50%.
| 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% |
Not everyone can wait for a dip in the prime rate. But there are things all borrowers can do to qualify for the lowest available home equity loan rates. Take these steps before you file your first application:
Here’s a quick calculation to check if you meet the 20% equity requirement: Subtract your current mortgage balance from your home’s estimated value. (Find the latter on a real estate site.) Then divide the sum by the home’s estimated value to arrive at a percentage. For instance, if your home is valued at $350,000 and you owe $225,000 on your mortgage, your equity is $125,000. Dividing $125,000 by $350,000 shows you have 36% equity. This figure is key, as it not only confirms your eligibility for a home equity loan but also determines the maximum amount you can borrow. Most lenders permit borrowing up to 85% of your available equity.
Lenders typically prefer to see a credit score of 680 or higher for home equity loans, with many looking for 700 or more. If you can demonstrate financial responsibility through a history of on-time payments, you’re more likely to secure a loan with better rates. A robust credit score does more than just increase your chances of approval; it also empowers you to negotiate more favorable terms, such as lower interest rates and higher loan amounts.
To boost your credit score, make sure to pay your bills on time, keep credit card balances in check, and avoid opening multiple new credit accounts simultaneously. Regularly reviewing your credit report for any inaccuracies and disputing them can also give your score a lift, making you a more appealing candidate for a home equity loan.
Your debt-to-income (DTI) ratio, which compares your monthly income to your monthly debt obligations, is a critical factor in determining your loan eligibility. The DTI requirement for a home equity loan is typically below 50%, and ideally below 36%. A lower DTI ratio shows lenders that you have a manageable debt load relative to your income, which reduces the risk of default. To lower your DTI, consider paying down existing debts, increasing your income, or both. Lenders will review your DTI ratio along with other financial metrics to ensure you can handle the additional monthly payments without financial strain.
Property insurance is a must-have for home loans in general. In this case, it’s a safety net, protecting the lender’s investment. Make sure your insurance coverage is up to par, covering the full value of your home and any planned improvements. Some lenders may require additional coverage, such as flood insurance, if your property is in a high-risk area.
Recommended: What Is a Home Equity Line of Credit?
A home equity loan calculator can help you figure out how much you can borrow and what your monthly payments will be. But there are many calculators that can be helpful as you plan your borrowing strategy. Here are three we like:
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. Amo payments shown depend on the accuracy of the information provided.
In addition to paying interest on your home equity loan, you can expect to see closing costs. They typically range from 2% to 5% of the loan amount. Common fees include appraisal, credit report, document preparation, origination, notary, title search, and title insurance. “No-closing-cost” loans exist, but often have higher rates. Compare lenders for the best terms.
The interest you pay on a home equity loan could be tax-deductible, so long as you use the funds to purchase, build, or significantly improve your home. Those filing jointly can deduct interest on loans up to $750,000; for single filers, it’s loans up to $375,000. Just remember, you need to itemize deductions instead of taking the standard deduction to use this benefit. The tax rules around home equity loans are set to change at the end of 2025, so for personalized advice based on your financial situation, consult a tax advisor.
There are a few other ways to tap into your home’s equity, including a home equity line of credit (HELOC) and a special kind of mortgage refinance called a cash-out refinance. Each option has its own set of requirements and benefits.
A home equity line of credit is a flexible option that allows you to borrow funds as you need them, up to a certain limit. You only pay interest on the amount you draw, and in fact during the loan’s initial “draw” period, often as long as 10 years, you typically don’t have to repay the principal at all. (During this time you can use a HELOC interest-only calculator to estimate payments.)
After the draw period, you repay the principal, plus interest. (This is when a HELOC repayment calculator comes in handy.) Because the interest rate on a HELOC is variable, your costs could go up (or down) over time. To qualify for a HELOC, you’ll typically need a credit score of 680 (700 is better) and a debt-to-income ratio of no more than 50% (but ideally less than 36%). HELOCs are a good option if you’re not sure how much you need to borrow or if you’ll need the money distributed over time.
A cash-out refinance replaces your existing mortgage with a new, larger one, providing you with a lump sum to use as needed for renovations, education expenses, or other big budget items. Most lenders allow you to borrow up to 80% of your home’s value. To qualify, a credit score of at least 620 and a debt-to-income ratio of 43% or less are typically required. As with any refinance, you have the flexibility to choose between fixed or variable rates and to choose a repayment term. As you weigh a cash-out refinance a home equity line of credit or home equity loan, one important consideration is that a cash-out refi leaves you with one monthly payment instead of two.
Here’s a quick look at HELOC vs. a home equity loan vs. a cash-out refinance.
| 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 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) |
As you mull over the prospect of a home equity loan, it’s crucial to grasp the elements that sway home equity loan rates in Puxico. Cultivating a robust credit score, balancing your debt-to-income ratio, and securing adequate property insurance are pivotal in your quest for favorable terms. This will be true whether you choose a home equity loan, a HELOC, or a cash-out refinance. Getting estimates from multiple lenders is a great place to start.
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The monthly payment on a $100,000 HELOC will depend on how much of the line of credit you have used. During the draw period, which is typically 10 years, you’re only paying interest on the amount you’ve borrowed. For example, if you take out the full $100,000 at an interest rate of 8.50%, your monthly interest payment would be around $708. Once the draw period ends, you enter the repayment period, which is usually 20 years, and you’ll be paying back both the principal and interest. At that point, if the interest rate is still 8.50%, the monthly payment would be $868.
The monthly payment on a $25,000 home equity loan varies with the interest rate and term length. For instance, at an 8.00% interest rate over a 15-year term, the monthly payment would be approximately $239. Extending the term to 20 years would lower the payment to about $209. This makes it more affordable, but keep in mind that it would also increase the total interest paid over the life of the loan.
A few things can keep you from getting a home equity loan. You need a significant amount of equity in your home (at least 20%) and a decent credit score. You also need to have a reasonable debt-to-income (DTI) ratio. If you don’t have a stable income, enough property insurance, or if there are any liens on your property, you may not be approved. It’s important to address these issues before you apply to improve your chances of getting the loan you want.
Home equity loans offer a number of advantages, including a fixed interest rate, which means consistent monthly payments over the loan term. They’re a great choice for substantial, one-time expenses like home improvement costs, education costs, or medical bills. The interest rates are often more favorable than those of an unsecured loan. Moreover, the interest on home equity loans can be tax-deductible if funds are used for home improvements. However, you should carefully consider your ability to repay the loan before borrowing, as missing payments can mean facing foreclosure.
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