Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loan rates are influenced by the prime rate, your credit score, and your debt level, among other factors.
• If you’re looking to snag lower rates, focus on taking good care of your credit score and managing your debts.
• Fixed interest rates offer the peace of mind of knowing what your monthly payments will be.
• Alternative financing options based on home equity include a home equity line of credit or a cash-out refinance.
• Tools and calculators can help you estimate monthly payments and compare offers.
Home equity loans are a powerful financial resource for homeowners, granting you the ability to get equity out of your home without selling the property. This article will take you through the current home equity loan rates in Wichita, Kansas, and explain how these rates are affected by a variety of factors. We’ll also compare home equity loans with other financial products, discuss the potential risks and benefits, and offer practical guidance on how to secure the most favorable rates. Gaining a clear understanding of home equity loan rates can empower you to maximize the value of your home.
First things first: understanding what a home equity loan is and how this type of borrowing works. Technically, a home equity loan is a second mortgage on your home that allows you to borrow money to use for any purpose. The loan is disbursed in one lump sum and you begin paying it back immediately, in equal monthly installments over a fixed term — and usually at a fixed interest rate. Because the loan is secured by your home, interest rates are typically lower than those for unsecured personal loans.
To qualify for a home equity loan, you typically need at least 20% equity in your home. For example, if your home is worth $500,000 and you have a $350,000 mortgage, you have $150,000 in equity. Divide $150,000 by the home’s value of $500,000 and you can see that in this example, you have 30% equity. Many lenders will let you borrow up to 85% of your equity ($127,500 in this example).
Like the rate on your original home loan, home equity loan interest rates are influenced by a variety of economic and personal factors. The Federal Reserve’s policy on the federal funds rate plays a significant role. Lenders typically peg their rates to the prime rate. But from there, they also adjust the rate they offer individual borrowers based on the person’s credit score and debt-to-income (DTI) ratio. Generally, higher credit scores and lower DTIs lead to more favorable rates.
It’s worth spending time to understand the factors that govern interest rates, because the rate you secure can make a big difference in the cost of a home equity loan over time. Even a slight variation in rates can lead to significant differences in the total interest you pay. Take a look at how different interest rates would affect the cost of a $75,000 loan over 20 years, below. (A home equity loan calculator can help you determine your home equity and maximum loan amount.)
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.00% | $627 | $75,559 |
| 7.50% | $604 | $70,007 |
| 7.00% | $581 | $64,554 |
Predicting interest rate movements is no easy task, given the multitude of factors at play. However, looking at recent trends can give you perspective when it comes to current rates. The prime rate, a pivotal player in the home equity loan rate arena, dropped to 3.25% in 2020 and then rose to 8.50% in 2023. To the extent possible, borrowers can time their loan application to coincide with the most favorable economic conditions.
| 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% |
There are a few things you can do even before you apply for a home equity loan that will help you snag the most attractive rates. Put these on your to-do list:
You need to keep at least 20% equity in your home to qualify for a home equity loan. To determine your equity percentage, subtract your mortgage balance from your estimated home value (find the latter on a real estate site). Then divide the sum by your estimated home value to arrive at a percentage. The more equity you have, the better your chances of scoring a loan with favorable terms, and the easier it is to handle your financial commitments.
Lenders typically favor a credit score of 680 or above for home equity loans, with many leaning toward 700 or higher. A robust credit score is a testament to your financial acumen and can translate to more favorable home equity loan terms. To enhance your credit score, concentrate on being punctual with payments, maintaining low credit card balances, and steering clear of new debt. It’s also wise to review your credit report for any inaccuracies and challenge them if necessary. A higher credit score can make it simpler to secure the capital you need for significant purchases, home improvements, or consolidating debt.
Your debt-to-income (DTI) ratio is a key number that lenders look at when you apply for a home equity loan. It’s simply your total monthly debt obligations divided by your gross monthly income. Most lenders prefer a DTI below 50%, but the lower the better. A lower DTI ratio shows that you have a better handle on your monthly payments, which can lead to more favorable rates. To improve your DTI, consider paying down your existing debts, increasing your income, or both. This can make you a more attractive borrower and could potentially lower your interest rate.
Property insurance is usually a must-have if you want to qualify for a home equity loan. This insurance safeguards the lender’s investment but also covers your home in the event of damage. Having the right coverage can also sway the terms of your loan, including the rates you’re eligible for. If you’re in a high-risk area, mull over extra coverage to meet lender demands and to keep your investment safe.
Recommended: What Is a Home Equity Line of Credit?
Utilizing online calculators can help you assess whether you might meet the qualification criteria for a home loan and shed light on the financial costs. Check out these simple tools:
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 closing costs for different types of home equity loans, you’re typically looking at 2% to 5% of the loan amount. These costs can include appraisal, credit report, document preparation, origination, notary, title search, and insurance fees.
Here’s a tip: The interest you pay on home equity loans could be tax-deductible, so long as you use the funds to purchase, build, or improve your home. Those filing jointly can deduct interest on loans up to $750,000; for single filers, it’s loans up to $375,000. Just remember, you need to itemize deductions instead of taking the standard deduction to use this benefit. The tax rules around home equity loans are set to change at the end of 2025, so connect with a tax advisor if you’re thinking about this deduction.
There are other financing methods that allow you to tap into the equity you’ve built in your home, but they come with their own unique features and eligibility criteria. It’s worth comparing the rates and terms of each to see what aligns best with your needs.
A HELOC works like a credit card, but when you use it, you’re borrowing against your home’s equity. You can borrow up to a certain limit and pay interest only on the amount you borrow. A HELOC typically has two periods. During the draw period, often 10 years, you’ll only pay interest (this is when a HELOC interest-only calculator comes in handy). Then when the repayment period begins, you’ll begin to repay what you borrowed, plus interest. Using a ELOC repayment calculator can help you understand what that might mean for monthly payments. Interest rates on HELOCs usually fluctuate with the market, meaning costs can be somewhat unpredictable. Lenders typically look for a 680 credit score (700 is even better) and a debt-to-income ratio below 50% (aim for 36% or lower).
Here’s a quick look at a HELOC vs. a home equity loan:
| 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 plus interest; 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 |
A cash-out refinance is a special type of mortgage refinance that lets you replace your current mortgage with a new one, and in the process, receive a lump sum of cash that you can use for any purpose. Most lenders are willing to let you borrow up to 80% of your equity. Typically, a 620+ credit score and a DTI ratio under 43% are needed.
As you think about a cash-out refinance vs. a home equity line of credit, consider this: A cash-out refinance streamlines your payments into one, making it a simpler financial arrangement. However, it is also an entirely new mortgage, so you’ll want to compare today’s interest rates against the rate you have with your current mortgage to make sure a new loan makes sense.
When you’re ready to take the leap with a home equity loan, it pays to be proactive. Start by checking your credit score and DTI ratio, and ensuring you’ve got the right property insurance. Shop around for the best rate and terms and explore all your options, including a HELOC and cash-out refinance, to see what aligns best with your financial goals.
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.
A home equity loan can be used for a variety of purposes, from financing home improvements to covering higher-interest debt. The loan is distributed as a lump sum, which you pay back with interest over a fixed period of time. Before borrowing, it’s important to consider your financial goals and the potential risks, including the chance of foreclosure if you fail to make payments.
The monthly payment on a $100,000 HELOC will depend on how much of the line of credit you have used. During the draw period, which is typically 10 years, you’re only paying interest on the amount you’ve borrowed. For example, if you take out the full $100,000 at an interest rate of 5.50%, your monthly interest payment would be around $458. Once the draw period ends, you enter the repayment period, which is usually 20 years, and you’ll be paying back both the principal and interest. At that point, if the interest rate is still 5.50%, the monthly payment would be $688.
The monthly payment on a $25,000 home equity loan varies with the interest rate and term length. For instance, at an 8.00% interest rate over a 15-year term, the monthly payment would be approximately $239. Extending the term to 20 years would lower the payment to about $209. This makes it more affordable, but keep in mind that it would also increase the total interest paid over the life of the loan.
There are several factors that can disqualify you from getting a home equity loan. Lenders typically require at least 20% equity in your home, a strong credit history, and a low debt-to-income ratio. A credit score below 620 or a DTI ratio above 50% might make it difficult to qualify.
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*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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