Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Rates for home equity loans in Sacramento are affected by the prime rate and by each borrower’s credit standing.
• If you’re aiming for the lowest possible interest rate, a credit score of 700 or more and a debt-to-income ratio below 36% will help.
• You’ll need at least 20% equity in your home to qualify for a home equity loan.
• The interest you pay on a home equity loan may be tax deductible if the loan is used for home improvements.
• Borrowers might also consider a home equity line of credit (HELOC) or a cash-out refinance.
Welcome to our guide to home equity loan rates in Sacramento, California. In this article, we will dive into the current landscape 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 significant expenses, understanding home equity loan rates can help you make an informed financial decision. We’ll also discuss the risks and benefits associated with these loans, providing you with the tools you need to navigate the process effectively.
As you’re thinking about what is a home equity loan, it’s important to understand that it is a second mortgage, allowing you to borrow against your home equity in one lump sum. You then repay the loan in fixed monthly installments over a period of five to 30 years. The perk? Because your home is the collateral, interest rates are typically lower than those of unsecured loans, and they’re usually fixed.
To qualify, you generally need at least 20% equity in your home. These loans are versatile, covering a range of expenses from home improvements to education, medical bills, and debt consolidation. Many lenders will allow loans of up to 85% of your equity. A home equity loan calculator can help you understand how much you might be eligible to borrow.
Much like the rate on your original home loan, home equity loan interest rates are determined by a variety of economic and personal factors. The Federal Reserve’s policies influence the lending market, which in turn affects lenders’ base interest rates. Next, your credit score and debt-to-income (DTI) ratio come into play, with higher scores and a lower proportion of debt to income typically resulting in better rates. Loan amounts and repayment terms also have an impact on the rate you are offered.
The interest rate your snag on different types of home equity loans can make a world of difference in how much you’ll be shelling out over time. Even a fraction of a percentage point can add up to a hefty sum in extra interest. Here’s a look at how different loan terms and interest rates can affect the monthly payments on a few different loan amounts. Generally speaking, the longer the loan term, the lower your monthly payment will be — but the more interest you’ll pay over the life of the 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 |
While it’s impossible to say with absolute certainty what interest rates will do, we can look at the recent history of the prime rate to get a sense of broader trends. This rate, which is a key benchmark for home equity loan rates, has been all over the place in recent years. In 2020, it was as low as 3.25%, but by 2023, it had climbed to 8.50%. By keeping an eye on the prime rate, you may be able to time your application to coincide with more favorable interest rates.
Since 2018, the prime rate has seen its share of ups and downs, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023. Take a look at the history of the prime rate to get a sense of how high or low it may go this year.
Source: TradingView.comSince 2018, the prime rate has seen its share of ups and downs, ranging from a low of 3.25% in 2020 to a high of 8.50% in 2023. Take a look at the history of the prime rate to get a sense of how high or low it may go this year.
| 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% |
You can increase your chance of securing a more competitive home equity loan rate by taking these steps before you begin the application process.
To be eligible for a home equity loan, you need to have at least 20% equity in your home. Estimating your equity is simple — just subtract your mortgage balance from your home’s current value, then divide the result by your home value to get a percentage of equity. (Find your home’s estimated value on an online real estate site.) This equity can be a powerful financial tool, but it’s essential to have enough to meet the lender’s criteria.
To secure the most favorable home equity loan rates in Sacramento, a robust credit score is your best ally. Lenders often look for minimum scores in the range of 680 to 700. An even higher score is a testament to your financial acumen and can lead to more attractive terms. So pay your bills on time, reduce credit card balances to the extent possible, and be cautious about taking on new debt. Regularly reviewing your credit report for inaccuracies is also a smart practice.
Your DTI ratio is a key player when it comes to qualifying for a home equity loan. It’s a simple calculation: the total of your monthly debts divided by your gross monthly income. Lenders generally like to see it below 50%, but the ideal range is 36% or less. To keep your DTI in check, think about chipping away at your existing debts, finding ways to boost your income — or even better, doing both. A lower DTI ratio doesn’t just make it more likely you’ll get the green light from a lender, but it can also open the door to better interest rates.
Property insurance is a must-have for homeowners, especially in areas susceptible to extreme weather and natural disasters. And lenders like to see that the property you’re using as collateral is adequately protected. Don’t hesitate to reach out to a potential lender to clarify its insurance requirements before filing an application.
When you’re looking for home equity loan rates in Sacramento, the right tools and calculators can help you make the best decisions and understand the financial implications of borrowing against the equity in your home. Here are three of our favorites:
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.
The closing costs for home equity loans typically range from 2% to 5% of the loan amount. These fees encompass services, such as the appraisal, credit report, document preparation fee, loan origination fee, notary fee, and title search. While some lenders may offer no-closing-cost loans, they often come with higher interest rates.
Here’s a tip: The interest on your home equity loan may be tax-deductible if you use it to buy, build, or improve your home. If you’re filing jointly, you can deduct interest on loans up to $750,000; for single filers, the deductible interest extends to loans of up to $375,000. Remember, you’ll need to itemize to claim this, not take the standard deduction, so you may want to consult a tax advisor.
Recommended: HELOC Repayment Calculator
Home equity loans are just one way to get equity out of your home, but there are other options. You may want to compare these alternatives to home equity loans to see which one could be right for you.
Let’s take a quick look at a home equity line of credit: A HELOC is a flexible line of credit that’s guaranteed by your home equity. You can borrow what you need, up to your personal credit limit, and during the initial “draw” period, you only pay interest. (This is when a HELOC interest-only calculator might come in handy.) After the draw period ends, often at the 10-year point, you begin to repay all that you have borrowed, plus interest.
As you think about a HELOC vs. a home equity loan, consider that the rates on a HELOC are usually variable, so they can change over time. To qualify for a HELOC, you’ll generally need a credit score of 680 or higher (though 700 is preferred) and a debt-to-income ratio of less than 50% (but under 36% is ideal).
A cash-out refinance is a special kind of mortgage refinance that lets you borrow a lump sum on top of what you already owe on your home. Your equity serves as collateral. Most lenders will let you borrow up to 80% of your equity, and you’ll need to have a credit score of 620 or higher and a debt-to-income ratio of no more than 43%. You can choose between a fixed or variable interest rate because you’re getting an entirely new loan.
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, 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’re thinking about a home equity loan in Sacramento, remember to keep your credit score strong, your DTI ratio in check, and your property insurance up to date. Use online tools and calculators to get a good sense of the financial impact of the loan. And, of course, consider alternatives like a HELOC or cash-out refinances to see what might work best for you.
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.
You can use the funds from a home equity loan for any purpose. Some borrowers fund major home improvements or pay for a child’s college education. Others consolidate higher-interest debts. Before signing on to a home equity loan, make sure how you’re using the money supports your long-term financial plan and run the numbers to ensure that you’re able to make the monthly payments.
The monthly payment for a $50,000 home equity loan varies with the interest rate and term. For instance, a 20-year fixed-rate loan at 8.00% interest would mean approximately $418 per month. At a 7.00% rate, payments would be $388.
A $100,000 HELOC 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.
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 home improvements (consult your tax advisor).
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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.
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.
