Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• In Tucson, the rates for home equity loans are typically influenced by the prime rate, your credit score, and your debt-to-income ratio.
• Shopping around and comparing offers from multiple lenders can help you get the best rate.
• If you have a credit score of 700+ and a DTI under 36%, you’re likely to have access to more competitive rates and terms.
• The interest on home equity loans may be tax-deductible.
• Home equity loans usually come with fixed interest rates, ensuring that payments will be predictable.
If you own your home, a home equity loan can be a powerful financial resource. In this article, we’ll explore how. First things first: What is a home equity loan? It’s a way you can leverage the equity you’ve built up in your home to access a lump sum, usually at a fixed interest rate.
This is your comprehensive guide to home equity loan rates in Tucson, AZ. We’ll delve into how these rates are determined by a mix of economic and personal financial factors. We’ll also explore the potential benefits and pitfalls of different types of home equity loans, including home equity lines of credit (HELOCs) and cash-out refinances, and provide you with practical tips to secure the most favorable rates. Whether you’re planning a major home makeover, trying to streamline your debt, or have your sights set on a significant purchase, understanding home equity loan rates will empower you to make the right financial choice for you.
A home equity loan is essentially a second home mortgage. It draws on the value you already own in your home and allows you to borrow a lump sum of money, which you can use for a variety of purposes.
After you’ve received your funds, you pay back your home equity loan in monthly installments over a period of five to 30 years, depending on the term of your loan. Your home secures the loan, so the interest rate is generally lower than you’d find with an unsecured personal loan. Most home equity loan interest rates are fixed, meaning that your monthly payments will stay the same throughout the life of the loan.
If you’re wondering how to get equity out of your home, home equity loans can be a great option. To qualify for a home equity loan, you’ll typically need to have at least 20% equity in your home. In other words, your mortgage balance should be no more than 80% of your home’s market value.
The interest rate on your home equity loan is determined by a variety of factors, including economic conditions and your personal financial situation. The Federal Reserve’s changes to the federal funds rate affect the prime rate, which affects home equity loan rates. For instance, if the prime rate increases, you can expect rates for home equity loans to rise as well.
Your personal credit score and debt-to-income ratio are also key factors in determining the interest rate you will be offered. Additionally, the amount of the loan and the repayment term can influence the rate, with larger loans and longer terms sometimes resulting in a higher rate due to increased risk to the lender.
Your interest rate is a pivotal factor in the overall affordability of a home equity loan. Even a seemingly small difference in rates can have a significant impact on your finances. Let’s say you’re considering a $100,000 home equity loan with a 15-year repayment term. At an 8.50% interest rate, your monthly payment would be approximately $986, with total interest over the loan’s life amounting to $77,253.
But if that rate were just one percentage point higher, at 9.50%, your monthly payment would increase to around $1,044, and the total interest paid would rise to about $87,960. That’s more than $10,700 over the loan’s life if you get the higher rate.
The chart below illustrates how changes in your loan amount, interest rate, and term interact to result in different monthly payments.
| 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 |
Home equity loans most often come with fixed interest rates. A chief benefit of this is that your monthly payments will remain the same throughout the entire duration of your loan.
Other kinds of loans, including HELOCs, typically have adjustable rates, which start out with a fixed rate for a set period and then adjust in accordance with the market. Fixed rates might be a touch higher than adjustable ones at the start, but they provide a predictability that can be reassuring as you plan your monthly and yearly budget. On the other hand, adjustable rates do often kick off at a lower rate, but during their adjustable stage, they are subject to market shifts, which could end up costing you more in the long run.
As you’re comparing home equity loan rates, think about how important stability is to you versus the potential for lower initial costs with adjustable rates.
Predicting future trends in interest rates is tricky at best — there are an enormous number of factors at play. Let’s look at the prime rate, a major factor in home equity loan interest rates. Its recent history demonstrates just how variable it is. As you can see in the chart below, it plummeted to 3.25% in March of 2020 and soared to 8.50% in July, 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% |
Fluctuations like these have an immediate impact on home equity loan rates in Tucson, making it crucial to stay on top of current market conditions. While nobody can predict the future with absolute certainty, understanding past patterns may help you time your application to get a more favorable rate.
To secure the most favorable home equity loan rates, your financial game plan needs to be solid. Here’s what lenders are looking for: a credit score of 700 or higher, and a debt-to-income (DTI) ratio no more than 50% (or better yet, 36% or less).
Even if you haven’t decided yet on a HELOC vs. a home equity loan, the tactics are the same to get yourself in shape to secure the most competitive interest rates and loan terms.
To be eligible for a home equity loan, you need to maintain at least 20% equity in your home. Calculating your equity is easy: Simply subtract your current mortgage balance from your home’s appraised value. For example, if your mortgage balance is $400,000 and your home is valued at $550,000, your equity is $150,000.
The amount of equity you have is important, since it determines the maximum loan amount you can get and the rate you can secure. Most lenders let you borrow as much as 85%, or sometimes 90%, of your available equity. In the example above, that translates to a loan of up to $135,000. A home equity loan calculator can help you evaluate exactly how large a loan you may be able to access.
To help you get the most favorable home equity loan rates, you’ll want a credit score of 680 or higher, with many lenders favoring a robust 700+. A solid credit score bears witness to your past financial prudence and can open doors to more attractive loan terms.
Looking at your credit report, lenders typically take into account your payment history, credit usage, and the length of your credit history when assessing your creditworthiness. By consistently paying your bills on time and keeping your credit card balances in check, you can maintain or even increase your score’s health. Regularly reviewing your credit report for any inaccuracies and disputing them if necessary can also be prudent.
Your debt-to-income (DTI) ratio is a critical factor in qualifying for a home equity loan. This ratio compares your monthly income to your monthly debt obligations, including the proposed home equity loan payment. Lenders generally require a DTI ratio below 50%, and ideally below 36%.
Improving your DTI involves paying down your existing debts, increasing your income, or both.
A lower DTI ratio demonstrates that you have managed debt well and that you can afford the loan you’re asking for. It can help your chances of securing a home equity loan and may also help you qualify for better home equity loan rates.
Property insurance is a must-have for home equity loans, especially if you’re in an area that’s at risk for natural disasters, like floods. Lenders need to know that the property securing the loan is well-protected. Having the right insurance can also save you from extra costs and worries if the unexpected occurs.
When you’re ready to apply for a home equity loan, make sure you have all the necessary documentation to show that your house is fully insured. Not only does this protect your investment, but it also keeps you in good standing with your lender, which could help you secure more attractive home equity loan rates.
Online tools and calculators can help you estimate loan amounts and monthly payments based on your home’s equity, your credit score, and other financial factors. They can also help you see how different interest rates and loan terms can impact your monthly payments. By inputting your specific details, you can make more informed decisions and choose the home equity loan that best fits your needs.
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.
Home equity loan closing costs usually cost between 2% and 5% of the loan amount, so it’s smart to remember them as you plan your loan.
These costs can include a variety of expenses, such as appraisals, credit reports, document preparation, loan origination fees, notary fees, and the costs associated with title searches and insurance. Here are some typical prices:
• Appraisal fee: $300-$500
• Credit report fee: $30-$50 or more
• Document preparation: $100-$500 (may also be billed on an hourly basis if an attorney is involved or be built into the loan origination fee)
• Loan origination fee: 0.5%-1.0% of the loan amount
• Notary fee: $20-$100
• Title insurance fee: 0.5%-1.0% of the loan amount
• Title search fee: $75-$250 or more
While no-closing-cost home equity loans are sometimes an option, they often come with higher interest rates.
There’s another benefit of home equity loans to consider.
If you’re taking out the loan in order to improve your home, the interest on your home equity loan may be tax deductible. For single filers, interest is deductible on the first $375,000 of loan debt. Spouses filing together can deduct the interest on up to $750,000 of debt. But remember that you’ll need to itemize if you want to claim this deduction.
Currently, this tax break runs through 2025. It may be extended beyond that, though, so consult your tax advisor to get the most up-to-date information and advice.
Although home equity loans are a popular choice, there are other options to consider if you’re in a position to draw on your home equity. A home equity line of credit (HELOC) is a flexible solution that offers a revolving line of credit with variable interest rates. Another alternative is a cash-out refinance. It’s a kind of mortgage refinance that allows you to replace your current mortgage with a new one that has a higher balance.
What is a home equity line of credit? A HELOC is like a credit card, but with the substantial backing of your home equity. It offers a flexible way to borrow funds up to a set limit, with interest charged only on the amount you use. HELOCs do typically come with variable interest rates, which can be challenging to work into your budget.
Lenders generally look for a credit score of 680 or higher (700+ is even better) and a debt-to-income ratio below 50% (though less than 36% is the sweet spot). If you’re comfortable with the ebb and flow of variable rates, a HELOC could be a good choice, allowing you to borrow up to 90% of your home equity.
To figure out how much monthly payments for a HELOC would be, consider using a HELOC monthly payment calculator. And to calculate how much interest you pay during the “draw” period of a HELOC, try a HELOC interest-only calcuclator.
A cash-out refinance can also be a strategic way to access a chunk of your home’s equity. You replace your existing mortgage with a new home loan that’s larger than what you owe, and pocket the difference as a lump sum.
If you’re considering the benefits of a cash-out refinance vs. a home equity line of credit, take into account the fact that requirements for borrowing tend to be different. It’s usually easier to qualify for a cash-out refi than for a home equity loan or a HELOC. Cash-out refinances typically require a minimum credit score of 620 and a DTI ratio of 43% or less. They may have either fixed or variable interest rates, with variable rates sometimes offering more equity access. One more plus: a cash-out refi results in a single monthly payment, which can make it easier to manage.
When you’re ready to explore home equity loans in Tucson, it’s important to have a strong credit score, a manageable debt-to-income ratio, and adequate property insurance, as these factors can affect the rates you’re offered. Online tools and calculators can help you estimate your payments and loan amounts. Be sure to consider the closing costs and fees, so you can budget for the total cost of the loan. And don’t forget to weigh the pros and cons of other options, like HELOCs and cash-out refinances, to find the right option 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.
Home equity loans can be a great way to finance big expenses, like home renovations, medical bills, or college tuition. You might also use a home equity loan to consolidate high-interest debt. The loan is disbursed as a lump sum, which you can repay with fixed monthly payments over a set term. Before you apply for a home equity loan, it’s wise to consider your financial goals and the potential risks of borrowing against your home.
The monthly payment you can expect for a $30,000 home equity loan will vary depending on the interest rate and term you choose. For example, a 7.00% interest rate over a 15-year term would mean a payment of about $270 per month. If you get an 8.00% interest rate and a 20-year term, the monthly payment would be around $251. A home equity loan calculator can give you more results for different loan terms and rates.
Several factors could stand in the way of your securing a home equity loan. For starters, lenders generally look for a minimum credit score of 700 for the most competitive rates, so a low credit score could be a problem. A high debt-to-income ratio, typically more than 50%, could also be a red flag. And of course, you’ll need to have a healthy amount of home equity, usually at least 20%. If you can, it’s a good idea to take some time to evaluate your financial picture, work on your credit score, and manage your debts before applying.
Home equity loans offer a number of benefits, including a lump sum of cash and payments that usually come with a fixed interest rate, which means that your monthly payments always stay the same. These loans can work well for large, one-time expenses such as home renovations or high-interest debt consolidation. Additionally, home equity loan rates are generally lower than those of unsecured loans, making them a cost-effective option when you need money. However, it’s important to remember that these loans come with the possibility of foreclosure if you don’t make your payments.
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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
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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.
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