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• Home equity loan rates in St. Louis are influenced by the prime rate and each borrower’s financial metrics.
• Home equity loans tend to have fixed rates, which means monthly payments are predictable.
• Borrowers with a good credit score and low debt-to-income ratio can secure better rates.
• The interest paid on a home equity loan could be tax-deductible if funds are used to make significant home improvements.
• It’s recommended to compare offers from multiple lenders to ensure a good deal.
Introduction to Home Equity Loan Rates
This guide to home equity loan rates will provide you with the information you need to understand the current home equity loan rates in St. Louis, Missouri, and what factors influence them. We’ll cover the benefits and potential risks of home equity loans, as well as alternative options for how to get equity out of your home. Armed with this information, you’ll be better prepared to get the best available loan option and rates for you.
How Do Home Equity Loans Work?
Before you think about applying for a home equity loan, it’s important to understand what a home equity loan is in the first place. A home equity loan is a second mortgage that uses your home as collateral (assume you are still paying off your original home loan).
If approved, you get a lump sum to use however you wish, and you immediately begin repaying the loan, with interest, in equal monthly payments over five to 30 years. Because your home secures the loan, interest rates are typically lower than unsecured personal loans. To qualify for a home equity loan, you typically need at least 20% equity in your primary residence. A home equity loan calculator can help you figure out what you might qualify for.
Where Do Home Equity Loan Interest Rates Originate?
A key driver of the cost of a home equity loan is its interest rate. The Federal Reserve sets the stage for lending rates because its decisions drive the prime rate, which is the rate lenders typically follow. But lenders adjust the rate they offer consumers based on each applicant’s financial characteristics. So your credit score and debt-to-income (DTI) ratio will play a role in the rate you’re offered. The amount you borrow and the term you choose will also affect your rate. Each lender makes its adjustments independently and has different fees, so it’s important to get quotes from different lenders before committing to a home equity loan.
How Interest Rates Impact Home Equity Loan Affordability
Getting rate quotes and comparing them takes some time and effort. But it pays off if you can secure the lowest available rate for your home equity loan. Even a fraction of a percentage point can make a big difference in how affordable that loan is over time, as you can see from this example of a $75,000 home equity loan repaid over 20 years.
Interest Rate
Monthly Payment
Total Interest Paid
8.00%
$627
$75,559
7.50%
$604
$70,007
7.00%
$581
$64,554
Home Equity Loan Rate Trends
Some borrowers keep close tabs on the prime rate for insight into where home equity loan rates might be going. Predicting interest rate movements is no easy feat, given the multitude of factors at play. The chart and graphic will provide some perspective on rates in recent years, which hit a low of 3.25% in 2020. You may not be able to time your application to snag a more favorable rate. But you can improve your own qualifications and shop around to find rates from multiple lenders.
To secure the most competitive home equity loan rates, you’ll want to tidy up your financial life before trying to borrow money. Take these steps before you file your first application:
Maintain Sufficient Home Equity
As noted above, you’ll want to have at least 20% equity in your home. Crunch the numbers by subtracting your outstanding mortgage balance from your home’s estimated value. (Find the latter on an online real estate site.) Let’s say your mortgage balance is $300,000 and your home’s value is $550,000. That leaves you with $250,000 in home equity. Divide your equity number by the home value to arrive at a percentage — in this case, 45%.
Build a Strong Credit Score
Lenders usually look for a credit score of 680 or higher when considering home equity loans, and many prefer a score of 700 or above. A strong credit score demonstrates financial responsibility and can lead to more favorable rates. To build a strong score, focus on making timely payments, keeping credit card balances low, and avoiding new debt. Regularly check your credit report for errors and dispute any inaccuracies.
Manage Debt-to-Income Ratio
Your DTI ratio is a critical piece of the home equity loan puzzle. To determine yours, divide your monthly debts (car loan, student loan, credit card debt, etc.) by your gross monthly income. Lenders typically look for a ratio under 50%, but the sweet spot is 36% or less. The lower your DTI, the better your chances of securing a more competitive rate. To enhance your DTI, consider paying down existing debts and exploring opportunities to boost your income.
Obtain Adequate Property Insurance
Property insurance is often a must-have for home equity loans. Lenders want to be sure that your property, which is the collateral for the loan, is protected. Before you apply, make sure to check with your insurance provider to ensure that your coverage is up to date.
Compare current home equity loan interest rates by state and find a home equity loan rate that suits your financial goals.
Select a state to view current rates:
Useful Tools & Calculators
Using an online calculator can help you make smart decisions about home equity loans and other types of borrowing. Before you apply, a calculator can help you make sure you’re financially prepared and that the loan fits your budget.
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.
Closing Costs and Fees
Closing costs for home equity loans typically range from 2% to 5% of the loan amount. These costs cover everything from appraisals and credit reports to the paperwork and notary services. It’s worth shopping around to compare costs and to factor them in when looking at different interest rate offers.
Tax Deductibility of Home Equity Loan Interest
If you’re using your home equity loan to fund significant improvements, or to buy or build a home, the interest you pay could be tax-deductible. In 2024, married couples filing jointly can deduct interest on up to $750,000 of qualified home equity loans, while single filers can deduct interest on loans up to $375,000. To claim this perk, you must itemize your deductions on your tax return rather than taking the standard deduction. It’s a bit of a dance, but a tax advisor can help.
Alternatives to Home Equity Loans
Home equity loans are a solid choice, but it’s always good to know your options. A home equity line of credit (HELOC) and a cash-out refinances are two other ways to borrow against your home equity. Let’s take a closer look at each:
Home Equity Line of Credit (HELOC)
A HELOC is a bit like a credit card. You can borrow in increments, as needed, up to a certain limit (which is based on your home equity). During the draw phase of the HELOC, usually 10 years, you’ll only pay interest on the amount that you draw. A HELOC interest-only calculator can give you a sense of what these payments might look like.
After the draw phase ends, the repayment phase begins and you’ll repay all that you owe with interest, in monthly payments. When thinking about a HELOC vs. a home equity loan remember that HELOC interest rates are variable, so they can increase over time, potentially raising your costs. You can use a HELOC repayment calculator to see how changing interest rates would affect payments.
To qualify for a HELOC, you’ll generally need a credit score of 680 or higher (700 is even better) and a debt-to-income ratio of no more than 50% (36% is ideal). HELOCs are best for those who need to borrow money over time, in increments, and for those who aren’t sure exactly how much they might need to cover a project such as a renovation.
Cash-Out Refinance
A cash-out refinance is a special kind of mortgage refinance that allows you to borrow more than you owe on your existing mortgage, pocketing the difference to use as you wish. Lenders typically allow borrowing up to 80% of your equity for this. You’ll want to aim for a credit score of at least 620 and a debt-to-income ratio under 43%. The cherry on top? Because it’s a totally new loan, you get to choose between fixed or variable rates. Another bonus: A refi leaves you with just one monthly payment to keep track of.
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)
The Takeaway
When you’re considering a home equity loan in St. Louis, it’s essential to grasp the factors that drive interest rates. Building a robust credit score, managing your DTI ratio, and ensuring you have the right property insurance are key steps. What’s more, using tools and calculators to estimate costs and shopping around with different lenders can help you secure the best rates and terms. By giving these aspects the careful consideration they deserve, you’ll be equipped to make a savvy decision about borrowing and seek out the best rates.
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Your payment on any HELOC will be based on the amount you have borrowed and the variable interest rate — as well as whether you are in the draw period (paying interest only) or the repayment phase (paying principal plus interest). Your best move is to use a HELOC interest-only calculator (during the draw period) or a HELOC repayment calculator to precisely compute what you owe.
What is the payment on a $25,000 home equity loan?
The monthly payment on a $25,000 home equity loan is determined by the interest rate and the loan term. Let’s say you’re looking at a fixed interest rate of 8.00% over a 15-year term. That would make your monthly payment around $239. Having a consistent payment like this can be a great way to keep your finances in check. But remember, the total interest paid over the term could be quite significant.
What could stop you from getting a home equity loan?
There are a few key factors that could stand in your way of securing a home equity loan. Lenders often look for a credit score of 680 or above, a minimum of 20% equity in your primary residence, and a debt-to-income (DTI) ratio no greater than 50%. If your credit score is low, your home equity is lacking, or your DTI ratio is too high, you may find yourself disqualified.
What are the advantages of a home equity loan?
Home equity loans are a good way to borrow a large sum of money at one time. They often come with lower interest rates than unsecured loans because your home is used as collateral. This makes them a smart choice for significant expenses like home improvements, education, or consolidating debt. Home equity loans’ fixed interest rates make for predictable monthly payments. Plus, if you use the funds for home upgrades, the interest you pay could be tax-deductible.
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