Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are shaped by the Federal Reserve’s monetary policy, as well as the borrower’s creditworthiness.
• A smart borrower will make efforts to compare rates from multiple lenders. Doing this will help you find the best deal and terms.
• By working to boost your credit score and to reduce your debt-to-income (DTI) ratio, you could see the rates you’re offered drop.
• You will need to have built at least 20% equity in your home in order to qualify for a home equity loan.
• Choose fixed rates for predictable monthly payments, or adjustable rates for flexibility.
• Interest on home equity loans might be tax-deductible if you use the funds to pay for home-related expenses.
What is a home equity loan? First — and most important — it’s a way for homeowners to access the value they’ve built in their homes. It’s also an option many people who’ve built home equity use to relieve pressure when they’re in need of cash.
In this article, we’ll cover all you should know about home equity loans. We will discuss factors that affect loan rates and give you tips for getting the best rate possible on your loan. We’ll explain different types of home equity loans, including home equity lines of credit (HELOCs) and cash-out refinances, so you can be aware of available alternatives, and know the pros and cons of each.
Whether you are envisioning a home renovation, working to consolidate high-interest debt, or preparing to make a major purchase, understanding home equity loan rates in Riverside can help you make the smartest financial decisions for your own economic situation.
A home equity loan is a second mortgage — assuming you are still paying off your original mortgage. It allows you to tap into your home’s equity and receive a lump sum of cash, which you’ll need to immediately begin repaying, usually in fixed monthly installments, over the next five to 30 years. The loan is secured by your home, and that means you’ll have access to lower interest rates than you could negotiate with an unsecured personal loan.
One important thing to keep in mind: In order to draw on the equity in your home, you have to actually have equity in your home. You can still be working on paying off your mortgage, but the money you owe now shouldn’t exceed what the house is worth. Typically, lenders will want you to have 20% equity in your home at a minimum in order to qualify.
A HELOC vs. a home equity loan is where many homeowners begin their comparisons. These two types of loans are similar in that you use them to pull equity from your home. A home equity loan’s interest rate is often fixed, giving you the peace of mind that comes with predictable payments, while a HELOC’s rate will often be adjustable.
| 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 |
If you’ve been seriously paying down your mortgage and are wondering how to get equity out of your home, a home equity loan could be the right option for you.
The rates you may be offered when you shop for a home equity loan are a product of many different influences, from the broad economic landscape to your personal financial standing.
Federal Reserve policy — including changes to the federal funds rate — can send ripples through the lending market, causing changes that impact the prime rate. When the prime rate moves up or down, so do home equity loan rates. If you keep an eye on these factors, you’ll be better prepared to anticipate rate shifts and make confident decisions about when to pursue a home equity loan.
On a personal level, your credit score and DTI ratio are key drivers in the rates you’ll be quoted, too, when you shop around as a potential borrower. You’ll actually have more control over these things, so try to be prepared. You’ll have a better outcome applying for a home equity loan if you’ve spent time and effort working to improve them.
The interest rate on your home equity loan can make a world of difference in how affordable it will be over time, as you pay it down. What should you know? Even a seemingly small reduction in the rate — even a half of a percentage point matters — can lead to significant savings, or extra costs if we are talking about a rate increase.
To demonstrate just how much an interest rate can impact your loan costs, the chart below shows both monthly payment amounts and total interest on a $75,000 home equity loan with a 20-year repayment term. We’ve calculated both the monthly payment and the total interest you would pay at several rates.
With an 8.00% interest rate, your monthly payment would be approximately $627 and the total interest over the loan’s term would add up to $75,559. If the interest rate was one percentage point lower, at 7.00%, the monthly payment would be about $581, and interest would total $64,554. That means, the lower rate could save you $11,005 in interest.
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Home equity loans tend to come with fixed interest rates. But some Riverside lenders may offer adjustable rates, too, and different home equity financing like home equity lines of credit (HELOCs) and cash-out refinances, also offer adjustable rates. That’s why it’s a good idea to consider which you prefer.
A fixed rate never changes through the loan’s life, giving you the assurance of consistent monthly payments as you pay it off. Such predictability is a great tool for budgeting and financial planning.
Adjustable rates often start off slightly lower than fixed rates, but after an initial period, they tend to change in accordance with market rates. This can lead to higher payments and create uncertainty about what to expect over the loan term.
When you think about home equity loan rates, it’s smart to consider the merits of fixed versus adjustable rates. The type of rate you choose should take into account your financial standing and your comfort with risk.
Predicting interest rate movement is like a day at the races – it’s all but impossible to know what will happen with certainty. But looking at trends in recent history can give you a better sense of movement that may be coming.
Let’s look at the prime rate, a pivotal driver of home equity loan rates. Its recent timeline shows just how changeable it is. As you can see in the chart below, it dropped to 3.25% in 2020, then steadily rose to 8.50% in 2023.
| 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 we’ve mentioned, fluctuations of this sort impact the rates you might encounter in Riverside. But staying in the know about financial trends and working on your financial standing can help you time your application to sync with favorable economic conditions, despite some unpredictability. With luck, you can score competitive rates.
To grab the most competitive home equity loan rates offered by lenders in Riverside, you’ll want to keep in mind a few factors. Take the following steps before you begin the application process, and you’ll position yourself to land an interest rate and term that are favorable and manageable.
To qualify for a home equity loan, you’ll need to have at least 20% equity in your home. You can figure out your equity, like this: Subtract the outstanding balance on your mortgage from the estimated value of your home, then divide the answer by your home’s estimated value to arrive at a percentage of equity. The higher that percentage is, the better off you are.
To land the best home equity loan rates, you also need a robust credit score. Lenders often look for a score of 680 or higher — and many require a score over 700. A higher score is viewed by lenders as a sign of financial competence, and can open the door to favorable loan terms. If you make timely payments, reduce credit card balances, and steer clear of new debt, you may boost both your credit score and your chance of qualifying for a home equity loan with a lower interest rate.
Your DTI ratio is important when it comes to qualifying for a home equity loan and getting a great rate. Lenders typically would like to see a DTI ratio of 50% or less. If yours is 36% or lower, you might qualify for lower interest rates. How can you manage your DTI effectively in Riverside? Make efforts to pay down your debt, increase your income, or achieve some combination of the two.
Property insurance is a must-have if you want to qualify for a home equity loan. Insurance is a safety net for both you and the lender should your home suffer any kind of damages, so make sure your coverage is top-notch.
Online tools and calculators can be a giant help when you’re looking for the best home equity loan rates. You can choose among multiple tools, like a home equity loan calculator, which letsyou input a few details and get a calculation of the maximum home equity loan amount you might be able to qualify for.
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.
If you are curious about the closing costs you’d have to pay on a home equity loan, you’re looking at paying 2% to 5% of the loan amount. This table will show you how loan closing costs tend to break down.
| Service | Typical Fees |
|---|---|
| Appraisal | $300-$500 |
| Credit report | $30-$50 or more |
| Document preparation | $100-$500 (may be billed on an hourly basis if attorney involvement is required, or built into the loan origination fee) |
| Loan origination | 0.5%-1.0% of the loan amount |
| Notary | $20-$100 |
| Title insurance | 0.5%-1.0% of the loan amount |
| Title search | $75-$250 or more |
Some lenders may offer a product called a no-closing-cost loan, but look closely at the details. These are known to frequently come with higher interest rates.
Yes, the interest on your home equity loan may be tax-deductible. This is generally the case if you use the funds to make improvements on your home. Single filers can take deductions on the interest they pay on the first $375,000 of loan debt. Married couples filing jointly can deduct the interest on up to $750,000 of debt. You’ll need to itemize if you want to take advantage of these deductions, though, so be prepared. A tax advisor can help you figure out what will make sense for you.
If you’re not sure that a home equity loan is what you’re looking for, you could also consider a cash-out refinance or a home equity line of credit (HELOC). A cash-out refinance lets you take out a new mortgage for a larger sum than what you owe on your existing home loan, and receive the difference as a lump sum to use as you wish. A HELOC lets you apply for a credit limit, secured by your home, that you can borrow against as you need to. You’ll only pay interest on the cash you draw out, once you’re received it.
You may want to learn more about cash-out refinance vs. home equity line of credit similarities and differences. A strong understanding of your options will help you make the best choice.
This option could also be called a strategic mortgage refinance. When you do it, you swap your original mortgage for a larger one and receive the difference in a lump sum. Rates on cash-out refis may be fixed or adjustable. It may be easier to qualify for a cash-out refi than it is for a home equity loan or a HELOC. Lenders’ standards always vary, but often, cash-out refis require a 620 minimum credit score and a DTI ratio of 43% or lower.
What is a home equity line of credit? A HELOC is a lot like a credit card secured by your home. It can offer you the freedom to borrow up to a set limit, and then pay interest on the money only when you use it. You pull out funds during an initial “draw” period, followed by a repayment period when you need to pay back both the principal and the interest.
Rates on HELOCs are usually adjustable, and HELOCs are all about flexibility. But keep in mind that adjustable interest rates mean your rate and payments could change and potentially impact your costs in the future. Qualifying for a HELOC often requires a credit score of 680 or higher (700-plus is even better) and a DTI ratio below 50% (come in under 36% for the best rates). With a HELOC, you may be able to borrow up to 90% of your home equity.
Want to know how much your monthly payment would be on HELOC? Experiment with figures using a HELOC monthly payment calculator. Play around with different interest rates and terms to find out how they’ll affect your payments, and ultimately how much of a loan you can afford. If you just want to calculate how much interest you’d pay during a HELOC’s draw period, try a HELOC interest-only calculator.
Before you apply for a home equity loan in Riverside, make sure you understand how interest rates work — that will help you negotiate the best rate and term. Your credit score, DTI ratio, and equity level all play a role in the rate you’ll score, and shopping around to compare lenders’ offerings goes a long way.
A home equity loan isn’t a fit for you? A HELOC or a cash-out refinance could be a better option. Both have unique benefits that make them appealing.
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.
There are lots of reasons why people apply for home equity loans. They include wanting to pay for home improvements and consolidating high-interest debt. If you decide you’re going to apply for a home equity loan, remember to use the funds wisely.
Your monthly payment on a $50,000 home equity loan could vary depending on your interest rate and the loan term. If you got your loan at 7.00% interest over 15 years, for example, your monthly payment would be around $449. At a 9.00% interest rate over 15 years, the payment would be around $507. Check out the loan calculators in this article for help figuring out what monthly payments would be required of you, depending on the variables.
Several issues could get in the way when you apply for a home equity loan. First, lenders typically require a minimum credit score of around 680 or better; if your score is lower, it could disqualify you. A DTI ratio that’s above 50% is likely too high for a lender’s criteria, and might push your loan out of reach, too. Have less than 20% equity in your home? That could be a red flag for lenders, too. Lenders also look at your home value and its stability, along with how comprehensive your property insurance is. Qualifications vary, but these are common disqualifiers.
Home equity loans frequently carry fixed interest rates — and therefore have predictable monthly payments, making budgeting easier. They tend to have lower rates than unsecured personal loans, which makes them cost-effective for significant one-time expenses, including home improvements or debt consolidation. Be sure you balance these benefits with potential risks — including the threat of foreclosure on your home if you get behind on payments.
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.
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.
SOHL-Q225-334
