Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• The rates for home equity loans in Wilmington are tied to the Federal Reserve’s policies, your credit standing, and the competitive market.
• Comparing rates from a few different lenders can help you get the best deal and terms.
• The best rates are typically reserved for those with a strong credit score (680+) and a debt-to-income ratio below 36%.
• Even a small variance in rates can translate to substantial savings or expenses over the loan’s lifetime.
• Home equity loans often come with fixed interest rates, which can provide you with a sense of stability and predictability.
The rates you secure for a home equity loan are crucially important to your finances. This guide will walk you through what is a home equity loan and explain current home equity loan rates in Wilmington, North Carolina, and the factors that influence them. We’ll also cover the application process, the importance of maintaining a healthy amount of home equity, and the many ways you can use a home equity loan. Whether you’re planning a major home renovation or need funds for other expenses, understanding home equity loan rates can help you make a more informed financial decision.
A home equity loan is technically a second mortgage (assuming you are still paying off your original home loan). It allows homeowners to get equity out of their home without selling the property. The loan is typically issued in a lump sum, which you can use however you wish. You begin repaying it immediately, in fixed monthly installments, over a period that can range from five to 30 years. Since the loan is secured by your home, the interest rate is often lower than that of unsecured loans. To qualify, you generally need to have at least 20% equity in your home; some lenders may allow you to borrow up to 85% of your home’s value.
Interest rates for different types of home equity loans are the result of a complex interplay between economic conditions and your personal financial situation. The Federal Reserve’s decisions regarding 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. The loan amount and repayment term can also affect rates.
It’s worth doing everything in your power to qualify for the lowest possible rate, because even a tiny change in the rate can mean saving money or incurring extra costs. 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 |
The trends in home equity loan rates can be a bit like the weather — unpredictable. The prime rate, a key benchmark for home equity loan rates, has seen some significant ups and downs. For example, it was as low as 3.25% in 2020 and as high as 8.50% in 2023. These changes have a direct impact on the rate you qualify for. If you have the flexibility to wait for a lower rate, keeping an eye on economic conditions and the prime rate can help you time your application to the rate that feels right for you.
| 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% |
To secure the most attractive home equity loan rates, you’ll want to put your best financial foot forward. That means taking the following steps before you file your first application.
To be eligible for a home equity loan, homeowners are required to have at least 20% equity in their homes. Calculating your home equity is simple: Find your home’s estimated value on a real estate site. Subtract your mortgage balance from it, then divide the product by the estimated value to get a percentage. For instance, if your mortgage balance is $400,000 and your home is valued at $550,000, your home equity would be $150,000 and your percentage equity would be 27%. This equity serves as collateral, and a higher percentage of equity can lead to more favorable loan terms.
Lenders often look for a solid 680 credit score or higher, with many preferring 700. A higher score paints a picture of financial prudence and can open doors to more favorable terms and lower interest rates. Improving your credit score is within reach. Focus on timely payments, keeping credit card balances in check, and sidestepping new debt. Regularly check your credit report to catch and correct any errors, and you’ll be on your way to rates that make you smile.
Your debt-to-income (DTI) ratio plays a significant role in your eligibility for a home equity loan. Most lenders look for a DTI ratio under 50%, with an ideal target of 36% or lower. To determine your ratio, add up your monthly debts and divide by your gross monthly income. To keep your DTI in check, you might consider paying down current debts, finding ways to increase your income, or a combination of both. Additionally, it’s wise to avoid taking on new debt while you’re in the process of applying for a home equity loan.
Property insurance is a must-have for home equity lenders. They need to know that the property securing the loan is adequately protected. Having the right insurance can save you from unexpected costs and headaches. Make sure your insurance meets the lender’s requirements to prevent any hiccups in the loan process.
Online financial tools can help you get a handle on home equity loan rates. It’s like having a personal assistant who can break down all the numbers for you. Many of these tools are available online for free. These are a few of our favorites:
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 home equity loans, you’re looking at a typical range of 2% to 5% of the loan amount. These costs encompass a variety of fees, from appraisal to title insurance. Also included in your costs: a title search, document preparation, and attorneys’ fees.
Keep in mind that “no-closing-cost” loans may have higher interest rates. It’s a good idea to compare costs across lenders to find the most cost-effective option.
The interest you pay on a home equity loan used to buy, build, or improve your home may be tax deductible. Those filing jointly can deduct interest on loans up to $750,000; for single filers, it’s loans of up to $375,000. Just remember, in order to take advantage of this deduction, you would need to itemize deductions instead of taking the standard deduction. The tax rules around home equity loans are set to change at the end of 2025, so consult a tax advisor if you’re thinking about this deduction.
In addition to home equity loans, you might want to consider home equity lines of credit (HELOCs) or a special kind of mortgage refinance that gives you cash back. A HELOC works like a credit card, allowing you to borrow up to a certain limit for the term of the loan. During the draw period, you only pay interest on the amount you borrow. Cash-out refinances replace your current mortgage with a new one that’s larger than what you owe. You can take the difference in cash. HELOCs and cash-out refinances have different requirements and benefits.
A home equity loan is often confused with a home equity line of credit (HELOC), but they are different. A HELOC is a bit like having a credit card with your home equity as the spending limit. It’s more flexible than a lump-sum loan, as you only pay interest on the part of the credit line that you use. You have an initial “draw” period (often 10 years) in which you only pay interest. A HELOC interest-only calculator can show you what payments might look like during that time.
Only after the draw period ends do you start to repay the principal. (That’s when a HELOC repayment calculator comes in handy.) HELOCS tend to have a variable interest rate, which means your costs can go up if rates go up. To qualify, you’re generally looking at a credit score of 680 or higher (though 700 is the sweet spot) and a debt-to-income ratio below 50% (aim for less than 36%). 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 way to replace your current mortgage with a new, larger one, and take the difference in cash. You can typically borrow up to 80% of your home’s value, although the exact limit will depend on your lender. You’ll need a minimum credit score of 620 and a debt-to-income ratio of 43% or less. When you consider a cash-out refinance vs. a home equity line of credit or home equity loan, an important distinction is that a refinance will leave you with one monthly payment, not two. Cash-out refinance loans can have either fixed or variable rates. They can also be easier to qualify for than home equity loans or HELOCs.
If you’re considering a home equity loan in Wilmington, it’s important to understand the factors that can influence interest rates. A high credit score, a low debt-to-income ratio, and solid property insurance coverage can all help you secure better rates. Online financial tools can help you estimate your costs and make more informed decisions. HELOCs and cash-out refinances also let you tap into home equity, so it’s important to compare your options to find the best fit for your finances. Getting rate estimates from multiple lenders is a smart way to shop.
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 large purchases, home renovations, and consolidating higher-interest debt. The flexibility of these loans makes them a popular choice for homeowners. However, it’s important to use the funds responsibly and consider the long-term financial effects. Always compare home equity loan rates and terms from multiple lenders to ensure you’re getting the best deal for your needs.
The monthly payment for a $50,000 home equity loan varies with the interest rate and the term of the loan. At an 8.00% interest rate, for instance, a 10-year loan would have a $607 monthly payment. Choose a 20-year term, and that monthly amount drops to about $418. Consider your budget and goals to pick the term that suits you best.
There are a few things that might disqualify you from securing a home equity loan, such as not having adequate equity in your home, or having a less-than-ideal credit score or a high debt-to-income ratio. Lenders typically look for at least 20% equity in your home and a credit score of 680 or higher. A debt-to-income ratio over 50% is certainly a red flag, and the closer your DTI ratio is to 36%, the better. A history of late payments or a recent foreclosure could also work against you.
Home equity loans have several advantages, like a fixed interest rate and monthly payments you can count on. They’re perfect for big-ticket items such as home improvements, debt consolidation, or a major purchase. With your home as collateral, you’ll often obtain a lower interest rate than you would with an unsecured loan, and this can translate to significant savings over time. Plus, if you’re using the loan for qualifying home improvements, you might be able to deduct the interest on your taxes.
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.
SOHL-Q324-272
