Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans allow homeowners to borrow against the equity they’ve built up in their homes.
• Home equity loan interest rates are influenced by the borrower’s credit score and loan-to-value ratio, and by lender policies.
• Fixed interest rates can provide stability and predictability in monthly payments.
• Closing costs and fees associated with home equity loans can add 2% to 5% to the overall cost.
• Alternatives to home equity loans include HELOCs, HECMs, and cash-out refinancing.
In this guide to Tennessee home equity loan rates, we’ll cover what a home equity loan is and how your interest rate affects the affordability of your loan. We’ll also provide tips on how to compare rates, understand rate trends, and qualify for the lowest home equity loan rate in your corner of Tennessee. By the end, you’ll feel more confident in your decision to make your home equity work for you.
Home equity loans are like a second mortgage, secured by your home. They typically offer lower, fixed interest rates compared to unsecured financing (think personal loans).
Lenders determine the maximum loan amount based on your combined loan-to-value ratio (CLTV). You can estimate your CLTV easily: Add your current mortgage balance to your proposed home equity loan. Divide the total by your appraised home value. If the CLTV is below 85%, you’re in a good position to obtain your desired loan. A home equity loan calculator can help you do the math.
To qualify, you should have at least 20% equity in your primary residence. Once you’re approved, the funds can be used for a variety of expenses, such as home improvements, education, medical bills, or debt consolidation.
Home equity loan interest rates are tied to a variety of economic indicators, starting with the prime rate. This is the rate that banks charge their most creditworthy clients. Federal Reserve policy decisions on interest rates can also have an impact on home equity loan rates.
By paying attention to news on interest rates and understanding the factors that influence rates, you can be better prepared to anticipate rate changes and make informed decisions about home equity loans in Tennessee.
The interest rate you lock in can affect how comfortably you manage your home loan payments. You probably know that a 1% difference in the interest rate can translate to a higher monthly payment. But that 1% makes a much bigger difference in the total interest you pay over the life of the loan.
You can see below how a 1% or 2% difference in interest rate affects the monthly payment and total interest paid on a $60,000 home equity loan that is repaid over 15 years.
• At 6.00% interest: Your monthly payment is $506; total interest paid is $31,137.
• At 7.00% interest: Your monthly payment is $539; total interest paid is $37,073.
• At 8.00% interest: Your monthly payment is $573; total interest paid is $43,210.
Now you see why it’s so important to shop around for the best home equity loan rates in Tennessee.
We mentioned the prime rate above. The prime rate is a key benchmark in the world of interest rates, influencing what you pay on your mortgage, auto loans, and credit cards. The prime rate fluctuates over time, which in turn causes home equity loan rates to climb or fall. Following trends in the prime rate will give you an indication of what’s to come in home equity loan rates.
Since 2018, the prime rate has fluctuated quite a bit, hitting a low of 3.25% in 2020 and a high of 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% |
Other influences on interest rates have to do with the borrower’s financial profile and the Tennessee housing market. Your credit score, loan-to-value ratio, home value, home value stability, and property location all go into the lender’s calculation of your interest rate whether you’re shopping for a home equity loan or a HELOC.
If you’re the kind of person who’s diligent about making timely payments, you’re in for a treat. Lenders often favor those with a credit score of 680 or higher, but many are really looking for scores of 700 and above.
In Tennessee, as in most states, lenders require an independent appraisal to determine a home’s value and set a loan limit. This appraisal is used to calculate the equity position of a homeowner and to determine the maximum loan amount that a lender will approve. The valuation process is a critical step in the loan process and ensures that a homeowner is not over-leveraged and that the lender is not over-exposed.
Most lenders will allow you to borrow up to 85% of your available equity, although it’s important to remember that the lower your percentage, the better your interest rate and loan terms will be. You can estimate your LTV by adding your mortgage balance to your hoped-for home equity loan amount and dividing the total by your appraised home value.
For example, if you have a home valued at $400,000, owe $250,000 on your mortgage, and are looking for a home equity loan of $50,000, your LTV is 75%: $250,000 + $50,000 / $400,000 = .75. That’s well within the acceptable range.
The stability of home values in your area of Tennessee is a big deal. It can significantly impact the amount of equity you can access and use. When home values are on the rise, lenders are more likely to approve larger loan amounts. That’s because the increasing value of the property helps offset some of the risk for the lender. But when home values are falling, lenders may get more cautious. They might tighten up their lending criteria and offer smaller loan amounts.
Living in a part of Tennessee that’s considered high-risk can mean you’ll pay more for insurance. That’s because insurance companies see these areas as more likely to file claims due to natural disasters and extreme weather. These areas can include those prone to hurricanes, floods, earthquakes, and wildfires.
Interest rates can vary a bit from lender to lender. Borrowers should compare interest rates, fees, and closing costs from a handful of lenders while shopping around for a home equity loan.
If you’re looking for the best home equity loan rates in Tennessee, you’ll want to make sure you have a good credit score, a low debt-to-income ratio, adequate property insurance, and a good amount of home equity. These factors will help you qualify for the most competitive loan terms. When you’re exploring how to get equity out of your home, your To Do list will typically look like this:
When it comes to your personal finances, a strong credit score can be a game changer. People with higher credit scores often qualify for lower interest rates, which can add up to significant savings over the life of the loan.
Your debt-to-income (DTI) ratio is a critical number for lenders. It’s calculated by taking your monthly debt obligations (mortgage, car loan, student loans) and dividing them by your monthly gross income. For a home equity loan, you generally need a DTI below 36% — though some lenders will approve a DTI up to 50%.
It’s standard practice for lenders to require you to have adequate property insurance, especially if you live in a flood-prone area. These insurance policies are designed to protect you and your lender from potential losses to your property in the event of an emergency.
You need to have at least 20% equity in your home to get a home equity loan. This is a good thing — it means you’re not borrowing more than you can afford to pay back.
Home equity loans in Tennessee often come with fixed interest rates. This means you can plan for the same monthly payment over the life of the loan. While fixed rates offer predictability, they can also start off higher than variable rates. Variable rates fluctuate over time, but they often start lower than fixed rates. A home equity loan can be a great option if you need a set amount of money for a specific purpose, like a home improvement project or consolidating debt.
Online tools and calculators can help you estimate home equity loan payments, compare interest rates, and understand the impact of different loan repayment terms. These tools can provide valuable insights and help you make informed decisions regarding your home equity loan options. Below you’ll also find a HELOC monthly payment calculator as well as a HELOC interest only calculator.
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 home equity loan closing costs, you’re typically looking at 2%-5% of the loan amount. These fees can include charges for an appraisal, credit report, document preparation, origination, notary, title search, and title insurance.
Origination fees can be around 0.5%-1% of the loan amount or a flat fee. Title insurance might run you 0.5%-1% of the loan balance, with title search fees typically ranging from $100 to $250. Appraisals can cost anywhere from $300 to $500, and credit report fees usually fall between $50 and $100. Document preparation and attorney fees can vary.
The interest on your home equity loan is deductible if you’re using the funds for home improvements. For joint filers, you can deduct the interest on up to $750,000, and for single filers, it’s $375,000. To get this benefit, you’ll need to itemize your deductions. It’s a smart move to chat with a tax advisor to ensure you’re making the most of these potential tax savings.
There are different types of home equity loans and lines of credit. Home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances all have their own special benefits and eligibility requirements. It’s important to consider your financial situation and goals before choosing the one that’s right for you.
What is a home equity line of credit? It works much like a credit card. You can borrow up to a certain limit and make monthly payments to pay down your balance. With a HELOC, you only pay interest on the amount you borrow, although you may be required to pay down a portion of the principal over time.
Recommended: HELOC vs Home Equity Loans
An HECM, a government-insured reverse mortgage, is a fantastic option for those 62 and older. It allows you to receive payments from the lender based on your home’s value. You can receive the funds as a lump sum, regular payments, or a line of credit. The best part? You don’t need to repay the loan until you leave the home. This is quite different from home equity loans and HELOCs, which require regular payments.
A cash-out refinance, a type of mortgage refinance, is a bit like hitting the reset button on your mortgage. You take out a new loan, pay off the existing one, and pocket the difference. Lenders typically allow you to borrow up to 85% of your home’s value.
Recommended: Cash-Out Refinance vs Home Equity Line of Credit
Understanding current home equity rates and the many factors that influence them can help Tennessee homeowners make more informed borrowing decisions. By comparing lenders, maintaining a good credit score, and managing debt, homeowners can increase their chances of getting the best rates available.
Unlock your home’s value with a home equity loan from SoFi.
When you’re considering a $50,000 home equity loan, you need to think about the interest rate and loan term, because they’ll impact how much you’ll pay each month. At 8.50% interest repaid over 10 years, your monthly payment would be about $620. Over a 20 year term, your payment would be just $434 — but you’d pay a lot more in interest over time. To get a good idea of what your monthly payments might be, use a home equity loan calculator.
With a home equity line of credit (HELOC), your monthly payment varies based on the interest rate and how much of the credit line you’ve used. Assuming you draw the full amount and make interest-only payments during the draw period, at 8.50% interest and a 20-year term, the payment would be $868.
When you’re considering a $25,000 home equity loan, it’s important to think about how the interest rate and loan term will impact your payment. For a loan with an 8.00% interest rate and 10-year term, the monthly payment would be $303. To get a better idea of what your monthly payments might look like, use a home equity loan calculator. This can help you plan your budget and decide if a home equity loan is the right choice for you.
When you’re contemplating a $30,000 home equity loan, it’s important to consider how the interest rate and loan term will affect your monthly payments. For example, a $30,000 loan at 8.00% repaid over 7 years gives you a monthly payment of $468. The same loan amount and interest rate repaid over 15 years lowers the monthly payment to $287 but increases the total interest paid.
There are several key factors that could lead to disqualification for a home equity loan. These include having a poor credit history, insufficient home equity, a high debt-to-income ratio, and inadequate property insurance coverage.
HELOCs are a type of revolving credit, which means you have a lot of flexibility when it comes to borrowing and repaying. They typically have lower interest rates than credit cards, which can make them an attractive option for homeowners who want to complete home improvement projects, consolidate debt, or cover unexpected expenses.
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