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 have built in their homes.
• Home equity loan rates are influenced by the prime rate, home value stability, and lender policies.
• To qualify for the lowest rates, borrowers should maintain a high credit score, manage their debt-to-income ratio, obtain adequate property insurance, and maintain sufficient home equity.
• Fixed-rate home equity loans offer stability in monthly payments, while variable-rate loans may offer lower initial payments but come with the risk of future interest rate increases.
• Alternatives to home equity loans include a home equity line of credit, a home equity conversion mortgage, or a cash-out refinance.
Ready to become an expert in how to get equity out of your home? This guide will help you understand what is a home equity loan and learn what determines the all-important interest rate you might be offered if you apply for a home equity loan in Washington. We’ll also walk you through loan alternatives such as the home equity line of credit, and offer advice on choosing a lender. Let’s get right to the basics.
Like a home loan, a home equity loan is secured by your home. But if you already have a mortgage, a home equity loan is a second mortgage. It typically offers a lower interest rate than an unsecured personal loan. The interest rate on a home equity loan is usually fixed, which can make it easier to budget for your payments.
To qualify for a home equity loan, you’ll generally need at least 20% equity in your home. Home equity loans can be used for a variety of expenses, including home improvements, college tuition, medical bills, or debt consolidation. Keep in mind that home equity loan rates in Washington can vary, so it’s important to shop around and compare offers from multiple lenders.
Home equity loan interest rates are not arbitrary. They are influenced by a variety of economic factors, including the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers. Federal Reserve policy decisions regarding interest rates influence bank decisions about rates, and consequently have an impact on the home equity loan rate you might be offered. Understanding the factors that influence home equity rates can enable borrowers to make informed decisions about home equity loans.
Your interest rate is a major factor in the affordability of your loan over time. In everyday life, a 1% difference might not seem like a lot, but if you’re borrowing a large sum of money, a 1% increase in your rate can add to your monthly payments and add significantly to the total amount of interest you pay over the life of the loan. The chart below shows how different rates and terms affect the monthly payment amount.
| 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 |
Keeping an eye on news of the prime rate can help you decide if the time is right to apply for a home equity loan. The chart below shows how the prime rate has changed in recent years, from a low of 3.25% in 2020 to a high of 8.50% in 2023. The graphic shows the rate over a much longer period of time, 50-plus years.
| 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% |
The prime rate is important, but it’s not the only factor that will affect what interest rate you’re offered. Lenders adjust their rate up or down for individual borrowers, and a medley of elements — your credit score, loan-to-value ratio, and the like — play a part in determining your personal home equity loan interest rate. We’ll look at these individually as they are so important.
If you’re the kind of person who’s been diligent with your finances and has a history of on-time payments, you’re in luck. Lenders look favorably on credit scores of 680 and above, with many preferring a score of 700 or higher. So keep up the good work — it should pay off in the form of a more attractive interest rate.
Lenders determine the value of your home by getting an appraisal from a licensed professional. The appraiser will look at the home’s condition and compare it to similar homes in your neighborhood that have recently sold. The process is thorough and will help determine how much equity you have in your home and how much you can borrow.
The loan-to-value (LTV) ratio is the amount of money you owe on the home compared to the home’s value. Most home equity loan lenders require your combined loan-to-value ratio (CLTV) to be 85% — that’s the combination of any first mortgage balance plus the amount you want to borrow, divided by the appraised value of your home.
Home value stability is a big deal. It can determine how much equity you can tap into. When home values are on the rise, lenders are often more willing to approve larger loan amounts. Why? Because the increased value of your property can help reduce the risk for them. But when home values are dropping, lenders might tighten their criteria and offer smaller loans.
Living in a region that’s been flagged as high-risk can sometimes mean higher interest rates, reflecting the perceived lending risks associated with that area. These areas are often more prone to extreme weather events or natural disasters, like storms, flooding, wildfires, and the like.
When you’re looking for Washington home equity loans, it’s important to understand how a lender’s policies can affect the interest rate you’re offered. To make sure you’re getting a good deal, you should shop around and compare interest rates, fees, and closing costs from several different lenders. By doing your homework and comparing different offers, you can potentially get better terms and save money in the long run.
To get the best home equity loan rates in Washington, you’ll want to have a great credit score, a low debt-to-income ratio, and enough home equity. By taking the steps on the list below, you’ll be more likely to qualify for the best home equity loan rates on the market.
As noted above, you’ll want a credit score of at least 680 when on the hunt for a home equity loan in Washington. Check your score periodically and correct any errors in your credit report. Try to avoid using all your available lines of credit to their maximum. And pay your bills on time, naturally.
When mulling over a home equity loan, it’s crucial to grasp the debt-to-income (DTI) ratio, which is the total of your monthly debt commitments divided by your gross monthly income. Generally, lenders look for a DTI ratio below 36%, though some will accept a ratio up to 50%. Should your monthly debt payments surpass 50% of your monthly income, you might encounter challenges in obtaining a home equity loan in Washington.
Adequate property insurance is important, and your mortgage lender probably required it when you bought your home. But you’ll want to doublecheck that you are well insured before you apply for a home equity loan, especially if you live in a part of Washington that is prone to natural disasters or wildfires.
Remember that you’ll need to have at least 20% equity in your property. This is a key factor in determining whether you’re eligible for this kind of loan. Before you submit an application for a home equity loan, make sure you know the current value of your home (it’s fine to use an online estimate for this purpose) versus the amount you owe on your current mortgage. If you haven’t paid off 20% of your home value, you might want to wait on the loan.
In Washington, as elsewhere in the U.S., home equity loans typically have fixed interest rates. This means you can expect to make the same monthly payment for the life of the loan. While fixed rates offer stability, they can sometimes start out higher than variable rates, which have the potential to start lower. A home equity line of credit (HELOC) usually has a variable rate. (We’ll get to what is a home equity line of credit in detail below.)
Don’t be afraid to use the tools and calculators available to you to help you get a better idea of what your home equity loan payments might look like. These are our favorite tools for home equity borrowing, whether via a home equity loan or a HELOC.
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.
You can expect to pay anywhere from 2% to 5% of your home equity loan amount in closing costs. These typically include fees for an appraisal, credit report, document preparation, origination, notary, title search, and title insurance. Because fees can vary widely, it’s important to shop around and compare offers from multiple lenders.
The interest on your home equity loan could be tax-deductible if you’re using it to significantly improve your home. Couples filing together can deduct the interest on the first $750,000 in home equity loans; for singles, the limit is $375,000. You’ll have to itemize your deductions to claim the interest. It’s a good idea to chat with a tax advisor to make sure you’re getting the most out of this benefit.
In addition to Washington home equity loans, other borrowing options include a HELOC, a home equity conversion mortgage (HECM), and a cash-out refinance. Each of these different types of home equity loans has its own unique features and eligibility requirements, so it pays to become familiar with them.
A HELOC is like a credit card with a lower interest rate. With your home as collateral, you can borrow up to a certain ceiling. Because the interest rate is variable, your monthly payments can change, and it’s important to consider how that might fit into your budget.
Here’s a quick look at HELOCs vs. home equity loans.
| 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; 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. |
An HECM is a government-insured reverse mortgage, available to homeowners aged 62 and beyond. You receive payments based on your home’s value as a lump sum, regular disbursements, or a line of credit. The beauty of the HECM? No payments are due until you leave your home. This is a stark contrast to home equity loans and HELOCs, which demand regular payments. The trade-off? HECMs typically have higher closing costs and longer processing times than the best home equity loans in Washington. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is a mortgage refinance with an extra feature: You get a new mortgage that pays off the old one but also more money to use as you wish. As you’re thinking about a cash-out refinance vs. a home equity line of credit or a home equity loan, one important consideration is that a refi will result in a new interest rate. So if current rates aren’t as favorable as the rate you already have, this might not be the best solution for you. But it pays to run the numbers and compare the interest costs to be sure.
If you’re a homeowner in Washington, you have a lot of options for borrowing against your home equity. By fully preparing for your loan application — understanding how interest rates are determined, taking good care of your credit score, and using online calculators to understand potential monthly payments — you can secure the best rate for your personal financial situation.
Unlock your home’s value with a home equity loan from SoFi.
If you took out a $50,000 home equity loan with a 10-year term, you could expect to pay $620 per month at an interest rate of 8.50%. At a rate of 8.00%, the payment would be $607. And at a rate of 7.50% the payment would be $594. Changing the term or interest rate of the loan would change the payment amount as well.
When it comes to a $100,000 home equity line of credit (HELOC), the interest rate and the amount of money you withdraw will play a big part in determining your monthly payment. Your best bet is to use a HELOC calculator to get a handle on what your payments might look like based on how much of the $100,000 you owe, right down to the dollar.
The monthly payment for a $25,000 home equity loan is determined by your interest rate and loan term. If you paid back the loan over a decade, at an interest rate of 6.50%, you would pay $284 per month.
The interest rate and loan term are the key ingredients that will determine your monthly payment. A $30,000 home equity loan with a 20-year term at a rate of 7.50% would cost you $242 per month, but changing the interest rate or term will also change the payment number.
It’s wise to be in the know about what might hinder your chances of securing a home equity loan. Factors such as a less-than-ideal credit history, limited home equity, or a high debt-to-income ratio can pose challenges. Lacking adequate insurance on your property can also be a red flag for potential lenders.
A home equity line of credit (HELOC) often has a lower interest rate than a credit card. It also gives you more flexibility in borrowing than a home equity loan, because you don’t have to take the money as a lump sum. You can use the money for anything you want, which provides you with financial freedom.
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.
