Compare HELOC rates in New York.

Introduction to HELOC Rates

A HELOCis a versatile financial tool that allows homeowners to tap into the equity they’ve built up in their home. But before you sign on to a home equity line of credit, it’s important to understand exactly how a HELOC works, and how its all-important interest rate will be determined. That way you can put your financial house in order before you apply and garner the best available HELOC rate in New York.

What Is a HELOC?

A HELOC is a revolving credit line with a ceiling based on your home equity. You don’t have to borrow the entire amount of the credit line all at once; you can borrow as you need to, and (one advantage of a HELOC) you’ll only pay interest on the amount of the credit line that you actually use. You may be able to borrow up to 90% of your home’s value, minus your mortgage.

HELOC interest rates are usually variable, and so the monthly cost of a HELOC can go up or down based on the amount of the credit line that you are using and your variable rate. But initial rates on a HELOC are often lower than those for credit cards or personal loans, since your home serves as collateral.

A HELOC has two phases: the draw period and the repayment period.

The Draw Period

During the HELOC’s draw period (usually 10 years), you can access funds up to your credit limit, make payments to pay down your balance, and borrow the money again. The borrower is usually required to make interest payments during the draw period, but payments toward the principal may be optional.

The Repayment Period

During the 10- to 20-year repayment period, you’ll pay back the principal with interest. Interest rate fluctuations mean that monthly payment amounts may be somewhat unpredictable. Foreclosure is the main risk if you default. Using a HELOC repayment calculator can help you manage payments or estimate how they will change if your variable interest rate shifts.

Where Do HELOC Interest Rates Come From?

Lenders base HELOC rates on their prime rate, which is the interest rate offered to customers deemed to be at least risk of default. They then adjust that rate according to an individual borrower’s financial profile. The prime rate, in turn, is influenced by Federal Reserve rates. Understanding these factors may help would-be borrowers anticipate rate changes and make an informed decision about when to apply for a HELOC.

How Interest Rates Impact HELOC Affordability

As you may have noticed when you bought your home and took out a home loan, your interest rate can make a big difference in the affordability of a loan. The same is true for a HELOC. Over the course of a HELOC with a 10-year draw and a 20-year repayment term, a 1% difference in interest rate can result in thousands — or even tens of thousands — of additional interest over the life of the loan. By looking at this example of a $50,000 HELOC repaid over 20 years at three different interest rates, you can better understand the importance of interest rates:

•   At 6.00%: monthly payment $358, total interest paid $35,972

•   At 7.00%: monthly payment $388, total interest paid $43,036

•   At 8.00%: monthly payment $418, total interest paid $50,373

HELOC Interest Rate Trends

Fluctuations in the prime interest rate are especially relevant to borrowers with a HELOC, due to the HELOC’s variable rates. It’s impossible to predict exactly where the rate will go, but looking at average prime rates in recent years will give you a sense of how widely they tend to swing. The average prime rate reached a low of 3.25% in 2020 and a high of 8.50% in 2023, as you can see in the chart below. And over the last half-century, rates as low as 2020’s have been rare.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate is important, but it’s not the only factor that will determine what rate you are offered for a HELOC in New York. Rates offered to individual applicants are significantly influenced by several key factors, including the borrower’s home equity, credit score, income stability, and combined loan-to-value (CLTV) ratio. These are things you have some control over (unlike the movements of the Federal Reserve), so it’s worth examining them closely.

Home Equity

Having substantial equity in your home makes you appear less risky to lenders, which can lead to lower interest rates. Homeowners typically need at least 15% equity in their property to qualify for a HELOC.

Credit Score

Maintaining a credit score of 680 or higher is of paramount importance when you’re applying for a HELOC. Some lenders prefer a credit score of 700 or above. A higher credit score is a reliable indicator of lower risk, improving your likelihood of qualifying for the best available terms on your home equity line of credit.

Stable Income

Lenders will assess your income to make an informed judgment regarding your ability to repay the HELOC. A consistent and stable income equals a lower risk of default where a lender is concerned.

Loan-to-Value Ratio

Lenders often require a combined loan-to-value ratio of 90% or less. This ratio is key in determining your credit limit. For example, if your home is worth $500,000, your mortgage balance is $300,000, and your HELOC balance is $100,000, your CLTV ratio is 80% (300,000 + 100,000 / 500,000 = .80).

Variable vs Fixed Interest Rates

As noted above, HELOCs are characterized by variable interest rates that are subject to change over the course of the loan period. Initially, these rates are typically lower than traditional fixed rates, but they can fluctuate in either direction based on prevailing market conditions. This is one way that HELOCs differ from home equity loans. The latter are usually fixed-rate loans.

Tools & Calculators

Online tools can help you estimate your payments, understand interest rates, and compare borrowing methods. Take advantage of these resources to make informed decisions regarding your home equity financing options.

How to Qualify for a Competitive HELOC Rate

There are a few steps you’ll want to take before applying for a HELOC to better your chances of getting a favorable rate.

Care for Your Credit Score

By consistently making timely payments and diligently reducing credit card balances, you can significantly improve your credit score if it isn’t already comfortably above 700. A higher credit score makes you a more attractive candidate for favorable terms on your HELOC and could lead to substantial savings. One more to-do: Check your credit report for inaccuracies and clear up any you find.

Assess Your Home Equity

Regular mortgage payments have helped you build equity — but how much? Subtract what you owe on your mortgage from your home’s estimated value (use a real estate site to find that estimate) then divide the answer by your home’s estimated value to arrive at a percentage of equity. Ideally, it’s greater than 20%.

Calculate Your Debt-to-Income Ratio (DTI)

Your DTI ratio is how much you owe in monthly debt payments divided by your gross monthly income. Home equity may allow a DTI below 50%, but the lower your DTI, the better and some lenders prefer 36% or below. A lower DTI can help you secure better terms on your HELOC.

Application Process for a HELOC in New York

The application process for a HELOC in New York, as anywhere, will involve divulging lots of financial details, so it’s best to approach it in an organized fashion. Follow this guide.

Step 1. Run the Numbers

Before applying for a HELOC, make sure your stats will work in your favor. Check your credit scores. Are you at 680 or above? Calculate your DTI ratio. Are your monthly debts no more than half your gross monthly income? Finally, estimate your home equity to see that it’s at least 15%. Some lenders allow you to prequalify online, which may speed your process.

Step 2. Compare Lenders

When searching for the best New York HELOC rates, compare offers from multiple lenders. Consider their posted interest rates. Look at qualification requirements, loan limits, fees, and the length of draw and repayment periods. Try to zero in on the lenders that have the best scenario for your needs.

Step 3: Gather Your Documents

Make certain that you have all the necessary documents prepared and ready for your HELOC application. These typically include proof of income including recent pay stubs and your most recent W-2. Keep your employment history handy, along with home insurance documents, bank statements, and your most recent tax filing.

Step 4: Submit Your Application

Check all the information twice and make sure you’ve filled in every blank, because errors and omissions will slow your application process. Then submit your application. This can generally be accomplished online, although some lenders work over the phone or in person.

Step 5: Get an Appraisal

A home appraisal is usually a must for securing a HELOC. The lender will let you know what is necessary. Schedule the visit promptly (if one is required) because delays will cause the application process to grind to a halt. The appraisal serves the purpose of determining the maximum amount you can borrow, which is based on your home’s value and the equity you have in it.

Step 6: Prepare for Closing

Wait for the HELOC approval. Then, before you can access the funds, you will need to sign documents and pay any required fees. Some lenders make funds available in as little as three days following the finalizing of the HELOC agreement.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the funds are used to buy, build, or significantly improve their primary residence. The deduction is limited to interest on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consult a tax advisor to navigate this process, as you will have to itemize on your return in order to take advantage of this deduction.

Closing Costs and Fees

HELOC closing costs are lower than home-buying or refinancing costs. The appraisal fee, usually the highest expense, ranges from $300 to $600. Other charges may include application, loan origination, and administrative fees. Some lenders also have annual maintenance, transaction, inactivity, or early termination fees. Lenders who waive costs often charge a higher interest rate — do the math to make sure waiving costs will actually help you come out ahead.

Alternatives to HELOCs

In addition to home equity lines of credit, there are different types of home equity loans — or rather, ways to get equity out of your home — to consider, as well as borrowing options that don’t involve your home equity. Check them out:

Home Equity Loan

HELOCs and home equity loans are often confused, but they are not the same thing. It’s worth looking at what is a home equity loan, exactly. Unlike HELOCs, home equity loans provide a lump sum amount and are paid back at a fixed interest rate, so your monthly payments will be consistent from Day One.

Do a HELOC vs. home equity loan comparison when making your borrowing decision. Borrowers can usually access up to 85% of the equity built in their home through a home equity loan (as opposed to 90% with a HELOC). Both HELOCs and home equity loans use your home as collateral. And both offer a tax deduction for interest paid if the funds are used to buy, build, or significantly improve your residence.

Do you need a large sum all at one time? A home equity loan may be the way to go. Are you unsure how much money you will need to borrow and when? A HELOC might suit you better. Are you comfortable with the idea of a HELOC’s varying interest rates? Or will that stress you out, in which case you might be more of a home equity loan type.

Cash-Out Refinance

This particular type of mortgage refinance lets homeowners borrow against their home equity, but it results in an entirely new mortgage. Let’s compare a cash-out refinance vs. a home equity line of credit: With a cash-out refi, you’ll get a new mortgage for more than you owe on your current mortgage. You’ll pay off your old mortgage and use the extra funds for whatever you like. You’ll have one monthly payment to make (as opposed to two if you set up a HELOC or home equity loan). Most importantly, a refi will result in a new interest rate. So you’ll want to carefully compute interest charges for your existing mortgage vs. the current rate available for a new mortgage to make sure you don’t lose money.

Personal Loan

A personal loan is an unsecured loan that you repay in regular, fixed payments over a set term, usually ranging from 2 to 7 years. In addition to its shorter repayment period, a personal loan will likely have a higher interest rate than a HELOC or home equity loan. However it does not require you to put your home up as collateral.

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, and carrying a large balance on a credit card from month to month can be pricey.

The Takeaway

HELOCs offer a flexible way to access the equity in your home. A home equity line of credit can be used for various purposes, such as home improvements, debt consolidation, and education expenses. You borrow against it as you need the funds, so you only pay interest on the portion of the credit line that you actually use. To find the best HELOC rates in New York, it’s crucial to compare rates and terms from multiple lenders.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

A HELOC monthly payment calculator will tell you your monthly payment amount based on your interest rate and loan term. But as an example, if you had a 20-year term and a 6.00% interest rate, your monthly payment would be $358. At a 7.00% interest rate, your monthly payment would rise by $30 to $388. A HELOC monthly payment calculator will tell you your monthly payment amount based on your interest rate and loan term. But as an example, if you had a 20-year term and a 6.00% interest rate, your monthly payment would be $358. At a 7.00% interest rate, your monthly payment would rise by $30 to $388.

Is a HELOC a good idea right now?

Whether or not a HELOC is a good idea depends on your goals. A home equity line of credit can be useful for home improvements, debt consolidation, and other expenses. Some borrowers find it reassuring to have the line of credit open even if they aren’t using it. However, it’s important to consider the current interest rates, your monthly budget, and the potential impact on your financial stability.

What is the monthly payment on a $100,000 HELOC?

The monthly payment on a $100,000 HELOC depends on how much of the credit line you are using. But if you have drawn the maximum and are paying it off over a 20-year repayment term, your monthly payment would range from $700 to $900 if your interest rate was between 6.00% and 8.50%.

What are the benefits of a HELOC?

A home equity line of credit (HELOC) offers several benefits, including flexible access to funds, lower interest rates than a credit card, and maybe even a tax deduction if you use the funds for remodeling. One big benefit of a HELOC is that you only pay interest on the amount you borrow.

Do you need an appraisal for a HELOC?

You will probably need an appraisal for a home equity line of credit. The appraisal helps determine the value of your home and how much you can borrow.

What disqualifies you from getting a home equity loan?

Several things can cause a lender to decline to give you a home equity loan. These include a low credit score, home equity below 20%, a high debt-to-income ratio, and unstable income.

How difficult is it to get a HELOC?

How hard it is to get approved for a home equity line of credit depends on your financial status. Lenders consider factors such as your credit score, home equity, debt-to-income ratio, and income stability. If one or more of these is a weak point, you could have trouble.

Does HELOC affect credit score?

Applying for a HELOC may result in a hard inquiry, which can temporarily lower your score. Additionally, using a significant portion of your credit line can increase your credit utilization, potentially impacting your score. However, paying what you owe on your HELOC on time each month can positively impact your credit score over time.

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.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL-Q424-042

Compare HELOC rates in Illinois.

Introduction to HELOC Rates

When looking for the best home equity line of credit (HELOC) rates in Illinois, it’s important to understand what factors go into determining the rate you are offered. After all, if you’ve been diligently paying off your home loan and building equity in your home, you’ll want to get the best interest rate possible when you borrow against it.

This article will help you master the ins and outs of HELOC rates in Illinois. You’ll learn what to do before applying for a HELOC so that you put your best financial foot forward. We’ll guide you through the steps of the application, and even help you consider all the different types of home equity loans available to you. We’re going to start by reviewing the basics:

What Is a HELOC?

A HELOC is like a credit card with a spending limit that’s based on your home’s value (minus whatever you still owe on your mortgage). HELOCs allow you to get equity out of your home that you can use for various purposes, including home improvements and debt consolidation. You can take the money in increments, and you only pay interest on what you have drawn at any given time.

A HELOC has draw and repayment phases. Here’s how they differ.

The Draw Period

During the HELOC’s draw period, which is usually a decade, you can access funds up to your credit limit. While interest payments are typically mandatory, principal payments may be optional. But if you pay down the principal during the draw period, you can borrow money again, up to the credit line.

HELOCs tend to have a variable interest rate. The initial rate may be lower than you would get with a home equity loan or a personal loan, but over time it will change with market rates, so it’s important to know that before you dive in. To better understand what your financial obligations might look like at different interest rates, you can use a HELOC repayment calculator.

The Repayment Period

During the repayment period (typically 10 to 20 years), borrowing ends, and the principal is paid back with interest. Here again, the interest rate may change from time to time according to the prearranged rules of your loan, so your monthly payments may be unpredictable.

Where Do HELOC Interest Rates Come From?

Federal Reserve interest rate decisions influence prime rates, which are lenders’ interest rates for their most creditworthy customers. The prime rate, in turn, affects what rate you might be offered for a HELOC. Lenders adjust their prime rate for individual borrowers based on an applicant’s personal financial profile.

How Interest Rates Impact HELOC Affordability

It’s worth spending a little time keeping tabs on the Fed’s movements and average prime rates, because fluctuations in interest rates can have a significant impact on the affordability of a HELOC. Over the course of a 20-year term, even a seemingly small 1% difference in interest rate can result in a noticeable increase in the monthly payment and a substantial difference in total interest paid.

HELOC Interest Rate Trends

To quickly gain perspective about what might be a “good” interest rate for a HELOC, you can examine the movement of the average prime rate in recent years, as shown in the chart below. The average prime rate reached a low of 3.25% in 2020 and a high of 8.50% in 2023. The graphic below shows the rate over more than half a century. As you can see, there have been ups and downs but very low rates, below 4.00%, haven’t come often.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate isn’t the only thing that will affect the HELOC interest rate you might be offered. There are several key factors that are specific to each individual borrower, and you’ll want to pay close attention to these.

Home Equity

Possessing substantial home equity lessens your risk profile in the eyes of lenders, and that could mean a favorable interest rate. Customarily, homeowners need a minimum of 15% to 20% in order to qualify a HELOC. But having more equity is better.

Credit Score

Having a credit score of 680 or higher is a necessity when it comes to home equity borrowing. Some lenders even require a score exceeding 700. Again, higher is better because it is a reliable indicator of lower risk for the lender.

Stable Income

Lenders not only look at how much you are earning, but at how consistent your income is when evaluating you for a HELOC. They equate a steady income with a reduced likelihood of default, and that can mean more favorable HELOC rates.

Loan-to-Value Ratio

Most lenders require your combined loan-to-value ratio to be 90% or less. To figure out your CLTV ratio, add what you owe on your mortgage to the amount of credit line you’d like to have with a HELOC. Then divide by your home’s value.

Variable vs Fixed Interest Rates

As noted above, HELOCs feature variable interest rates, which are subject to change over the life of the loan. While variable interest rates typically start lower than fixed rates, they can fluctuate up or down in accordance with market conditions.

Tools & Calculators

Online calculators can help you understand what your monthly payments might look like at varying interest rates, so they are especially helpful if you’re considering a HELOC. Here are three useful ones:

How to Qualify for a Competitive HELOC Rate

There are several steps you can take to better your chances of qualifying for a favorable HELOC rate in Illinois. Study this list before you file your first application.

Strengthen to Your Credit Score

Making timely payments and reducing your credit card balances can help your credit score, so pay extra attention to your credit usage in the months leading up to your HELOC application. Regularly reviewing your credit report to ensure accuracy is another crucial step to take.

Assess Your Home Equity

Your mortgage payments have helped you build equity, but do you have enough equity (at least 15%)? Verify that before you file a HELOC application. You can use a real estate web site to get an estimate of your property value. Subtract from it what you owe on your mortgage and then divide by the property value to learn your equity percentage.

Calculate Your Debt-to-Income Ratio (DTI)

Your debt-to-income (DTI) ratio is determined by dividing your total monthly debt payments (such as your car payment and student loan payment) by your gross monthly income. Some lenders allow a DTI below 50%, while others like it to be still lower — under 36%. A lower DTI can increase your chances of securing favorable terms and rates for a HELOC.

Application Process for a HELOC in Illinois

Step 1. Run the Numbers

Check your credit score, determine your DTI ratio, and figure out roughly how much home equity you have before submitting your first HELOC application. Sometimes you can prequalify for a HELOC online, which speeds the application process.

Step 2. Compare Lenders

Look at lender web sites to see what interest rates they have posted. But don’t just examine interest rates — compare fees, qualification requirements, and other factors. Do they have a minimum and maximum loan amount posted, for example?

Step 3: Gather Your Documents

To apply for a HELOC, you will need personal identification, income verification (pay stubs, W-2 forms) and at least one tax return. If you’re self-employed, lenders may ask for two years’ tax returns. You may also be asked to provide a homeowners insurance declaration page indicating you have adequate coverage.

Step 4: Submit Your Application

Submitting your HELOC application can take place online, by phone, or in person, depending on the lender. Carefully confirm that all of the information provided is accurate and complete, as any mistakes could slow the processing of your application.

Step 5: Get an Appraisal

After submitting your application, a home appraisal will be conducted to determine the current market value of your property. If an in-person visit is required, scheduling it quickly will help move along the application process.

Step 6: Prepare for Closing

Before using your HELOC, you’ll need to sign loan documents and pay fees. Some lenders make funds available within three days following this closing process. Be sure that you completely understand all terms and conditions before you finalize the agreement.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the borrowed funds are used for buying, building, or significantly improving their primary residence. Deductions are limited to interest on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consult a tax advisor to confirm eligibility for deductions related to a HELOC.

Closing Costs and Fees

HELOC closing costs are usually lower than typical home-buying or refinancing costs. An appraisal fee of $300 to $600 is often the highest expense. Other costs may include an application fee, loan origination fee, and administrative fees. Some lenders charge annual maintenance fees, transaction fees, inactivity fees, or early termination fees.

Alternatives to HELOCs

Other financing options besides HELOCs can allow you to take advantage of the equity you’ve built in your home. Don’t sign on to a HELOC unless you have carefully considered all your options.

Home Equity Loan

You may be wondering about what is a home equity loan and how it’s different from a HELOC. Home equity loans offer a fixed lump sum (vs. a line of credit like a HELOC) and are repaid at a fixed interest rate (in contrast to a HELOC’s variable rate). In the HELOC vs. home equity loan comparison, it’s worth noting that homeowners can typically access up to 85% of their equity with a home equity loan. With a HELOC, some lenders allow up to 90%.

Cash-Out Refinance

Homeowners can use this special type of mortgage refinance to access home equity by refinancing for more than they owe, paying off their first mortgage, and taking the difference in cash. As you consider a cash-out refinance vs. a home equity line of credit, one major difference is that a refinance gets you a whole new loan, with a new interest rate. If your interest rate on your original mortgage is lower than current rates, you’ll want to look carefully at whether it makes sense to refinance. Another difference? With a refi you have one monthly payment, while with a HELOC or home equity loan, you’ll have two.

Personal Loan

A personal loan is repaid in regular, fixed payments over a set term that can range anywhere from two to seven years. It usually has a higher interest rate than a HELOC because it is unsecured, but some borrowers prefer not using their home as collateral.

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, which can mean it’s quite expensive to carry a large balance from month to month. While credit cards offer flexibility for smaller purchases, a HELOC is often more suitable for larger expenses such as home improvements or debt consolidation.

The Takeaway

A home equity line of credit can provide a versatile source of funding for home projects, debt consolidation, and other big expenses. But you’ll want to thoroughly examine not only the interest rates, but also the fees and repayment terms lenders offer before choosing your path. Taking a few smart steps before and during the application process can help ensure you get the best available interest rate in Illinois.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

If you owed $50,000 on a HELOC and had a 20-year repayment term at a 7.00% interest rate, your monthly payment would be $388. If you had a 6.00% interest rate, your monthly payment would fall to $358. As you can see, the interest rate is an important factor, as is the term.

Is a HELOC a good idea right now?

Whether a home equity line of credit (HELOC) is a sound financial decision hinges on your specific financial circumstances and long-term goals. You can use a HELOC repayment calculator and plug in low and high interest rates. A HELOC has a variable interest rate. So if you feel you can handle the payments at the low end as well as if they rise to a high level, and if you want a flexible borrowing strategy (as opposed to a lump sum loan), then a HELOC may be the right idea for you.

What is the monthly payment on a $100,000 HELOC?

The monthly payment on a $100,000 HELOC depends on how much of the credit line you have actually used, as well as on your interest rate and repayment term. But if you used the entire $100,000 and needed to pay it back at 7.50% interest over 20 years, your monthly payment would be $806.

What are the benefits of a HELOC?

HELOCs present multiple advantages. An important one: You only need to pay interest on the portion of the credit line that you actually use. Another: You may be able to deduct some or all of the interest you pay on your HELOC. And if you borrow against your HELOC and repay the principal during the draw period, you can borrow the money again should you need another large sum.

Do you need an appraisal for a HELOC?

Yes, you will likely need an appraisal for a home equity line of credit. It helps establish how much equity you have in your home and sets the maximum loan amount you can secure.

What disqualifies you from getting a home equity loan?

Several factors can disqualify you from securing a home equity loan, including an unfavorable credit history, inadequate home equity, and a high debt-to-income ratio.

How difficult is it to get a HELOC?

How hard it is to get a HELOC is based upon your financial standing. Do you have a credit score of at least 680? Are your monthly debts less than 50% of your gross monthly income? Do you own at least 20% of your home’s value outright? These are some of the criteria you’ll need to meet in order to obtain approval for a home equity line of credit.

Does HELOC affect credit score?

Yes, having a HELOC can have an impact on your credit score. Applying for a HELOC may result in a hard inquiry on your credit report, which can cause a temporary decrease in your score. And whether or not you make your payments punctually can influence your credit score positively or negatively over the long term.

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.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q424-023

Compare HELOC rates in Tennessee.

Introduction to HELOC Rates

If you’re thinking about how to get equity out of your home in Tennessee, a home equity line of credit (HELOC) is probably at the top of your list of options. This flexible form of financing uses your home as collateral. But HELOC rates and terms in Tennessee can vary significantly, so it pays to educate yourself before you wade into the market.

This guide to HELOCs will help you understand the factors that influence what rate you might be offered, and guide you as you get your financial life in order prior to the application process. You’ll emerge equipped to make a well-informed decision about how to use your home equity to meet diverse financial requirements. Let’s start at the beginning, with what is a home equity line of credit.

What Is a HELOC?

A HELOC is like a credit card based on your home’s value minus whatever you still owe on your home loan. You can borrow up to 90% of your home’s value. Because a HELOC is secured by your home, its interest rate will be lower than the rate you would get with a personal loan or credit card. HELOCs have variable rates, however, so the rate can adjust up (or down) over time.

A HELOC has two phases, draw and repayment, and it’s important to understand how they differ.

The Draw Period

During the draw period of a home equity line of credit, which typically spans a decade, you are granted access to funds up to the limit of your credit line. You’ll probably have to make interest payments, but you likely won’t have to pay down the principal (although if you do, then you can borrow again up to the credit line). This flexibility is helpful if, say, you need to borrow money for a renovation but you don’t need it all at once, or perhaps you don’t know exactly how much you need.

The Repayment Period

The HELOC repayment period, usually 10 to 20 years, involves paying back the principal plus interest. A HELOC repayment calculator can help you estimate your payments as the variable interest rate changes.

Where Do HELOC Interest Rates Come From?

HELOC interest rates are tied to the prime rate, which in turn is tied to the Federal Reserve’s rate decisions. Lenders use their prime rate for their most creditworthy customers. But the prime rate isn’t for everyone, and lenders adjust the rate they offer each individual customer based on the applicant’s personal financial metrics (more on that below).

How Interest Rates Impact HELOC Affordability

It’s worth spending time to understand interest rates and to seek out a good starting rate on your HELOC because the rate has a significant impact on overall affordability. Let’s say you have a $50,000 HELOC, and you enter the repayment period owing the entire amount. The table below shows how the interest rate for a $50,000 HELOC affects the monthly payment and total interest paid over a 20-year term. Of course the HELOC’s variable rate means your exact number may differ, but this should give you an idea of the impact interest rates can have:

HELOC Interest Rate Trends

HELOC rates in Tennessee tend to follow fluctuations in the average prime rate, so having a sense of the history of the average prime rate, both in recent years and in a long span of time, is helpful to would-be borrowers. In the last few years, the rate has ranged from a low of 3.25% in 2020 to a high of 8.50% in 2023. You can see in the graphic below that rates as low as 3.25% don’t come around very often.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

As noted above, the prime rate isn’t the only factor that will influence what a lender will offer you. Several other key factors come into play, and unlike the prime rate, these are things you have some control over.

Home Equity

Typically, homeowners need at least 15% to 20% equity for a HELOC. But having a more substantial home equity position can make you appear less risky to lenders, potentially leading to more favorable interest rates.

Credit Score

A credit score of 680 is the entry point for a HELOC, but again, higher is better and some lenders insist on a score of 700 or better. A higher credit score signals financial responsibility to lenders, potentially unlocking more advantageous terms for you.

Stable Income

Lenders like to see a stable income from HELOC applicants, which is a strong indicator of a lower risk of default.

Loan-to-Value Ratio

Lenders often require a combined loan-to-value ratio of 90% or less. If your home value is $500,000, your mortgage is $300,000, and you want a HELOC of $100,000, your LTV ratio is 80%. (Add your mortgage and your desired HELOC, then divide by your estimated home value to compute your combined LTV ratio.)

Variable vs Fixed Interest Rates

As we’ve seen, HELOCs are characterized by variable interest rates that are subject to fluctuations throughout the loan’s duration. Initially, a HELOC’s rate will likely be set lower than, say, the rate on a home equity loan or a personal loan. But after a fixed period, the HELOC’s variable rate will adjust in accordance with prevailing market conditions. It’s important to grasp this when considering a home equity line of credit.

Tools & Calculators

An online calculator can be especially useful if you’re thinking about borrowing money with a variable interest rate, because you can plug in different rates to get a sense of what monthly payments might be if your rate adjusts up or down. Here are three useful calculators that can help you comprehend the financial repercussions of a HELOC or home equity loan.

How to Qualify for a Competitive HELOC Rate

Now that you understand what goes into the HELOC rate you may be offered in Tennessee, let’s get into the tactics you can use to obtain the most favorable rate possible. This is your to-do list:

Strengthen to Your Credit Score

Making regular, on-time payments and chipping away at any credit card balances can help you cultivate the kind of credit score lenders like. Also take the time to check your credit report, and request a correction should you find any inaccuracies.

Assess Your Home Equity

Increased home equity can lead to better terms and higher amounts when applying for a HELOC. Make sure you have at least 20% equity in your home, and the more the better, before you file an application. Your equity is the value of your home minus whatever you still owe on your mortgage. Divide that result by your home’s value to get a percentage of equity. (You can check a real estate web site for a rough idea of your home’s value.)

Calculate Your Debt-to-Income Ratio (DTI)

Your DTI ratio is how much you spend to cover monthly debt payments divided by your gross monthly income. Home equity lenders generally look for a DTI ratio that’s under 50%, though many prefer a ratio below 36%. This is one case where a lower number is better.

Application Process for a HELOC in Tennessee

The application process for a HELOC in Tennessee involves reviewing your financial health, comparing rates, preparing documentation, submitting an application, undergoing a home appraisal, and waiting for approval and closing. Each step is important so we’ll look at these one by one.

Step 1. Run the Numbers

Before applying for a home equity line of credit, it’s essential to understand your financial standing. Make sure your credit score, DTI ratio, and home equity level meet the minimum numbers. As a reminder, that’s 680, a DTI of 50% at most, and at least 15% home equity.

Step 2. Compare Lenders

Look at published offers from multiple lenders. Consider interest rates, but also qualification requirements, loan limits, fees, and the length of draw and repayment periods.

Step 3: Gather Your Documents

To expedite the process of your home equity line of credit application, have the necessary documents at hand. Gather your most recent pay stubs, your employment history (a resume is handy), your last W-2 and tax return, and your home insurance documents. Being organized and having these ready can expedite the application process.

Step 4: Submit Your Application

Double-check everything for accuracy and don’t leave any questions unanswered. This will help ensure a smooth path through the lender’s evaluation process.

Step 5: Get an Appraisal

A home appraisal will determine an accurate valuation of your property. If the lender requests an in-person appraisal, schedule it promptly.

Step 6: Prepare for Closing

Before you can access your HELOC funds, it is imperative that you sign an agreement and remit any fees that may be required. Some lenders make funds available within three days of the signing of your paperwork.

Tax Benefits and Considerations

Homeowners can deduct the interest paid on a HELOC if the funds are used for buying, building, or significantly improving their primary residence (so keep your receipts). Interest deductions are limited to the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). It’s a good idea to consult a tax advisor to confirm eligibility for deductions related to a HELOC.

Closing Costs and Fees

HELOC closing costs are typically lower than home-buying or refinancing costs. The appraisal fee, ranging from $300 to over $600, is usually the highest expense. Other fees may include application, loan origination, and administrative fees. Some lenders charge annual maintenance, transaction, inactivity, or early termination fees. Many lenders offer to reduce or waive closing costs but may charge a higher interest rate.

Alternatives to HELOCs

There are different types of home equity loans — or, more broadly, ways to borrow the money you might borrow with a HELOC. Each has its pros and cons, so consider these before you sign on with any lender.

Home Equity Loan

Unlike HELOCs with their variable rates, home equity loans provide a lump sum amount and are paid back at a fixed interest rate. More on what is a home equity loan: Like a HELOC, a home equity loan uses your home as collateral. But with a home equity loan, borrowers can usually access up to 85% of their home value. Home equity loans are repaid over a term that can range from 5 to 30 years. Understanding HELOC vs. home equity loan differences can help you choose the right option for your needs.

Cash-Out Refinance

A special type of mortgage refinance, a cash-out refinance lets homeowners tap into home equity by refinancing for more than they owe on their mortgage. They then take the difference as cash which can be used for any purpose. A cash-out refi is useful for those needing a large lump sum, but if your current mortgage has a very favorable rate, you’ll want to carefully compute the added costs a new interest rate might bring.

If you’re thinking about a cash-out refinance vs. a home equity line of credit, another important difference is that a refi will leave you with one monthly payment, while a HELOC would leave you with two (assuming you’re still paying off your home loan).

Personal Loan

A personal loan is a flexible, typically unsecured loan that you pay back in regular, fixed payments over a set term of 2 to 7 years. Personal loans can be used for any purpose and do not require collateral, unlike HELOCs and home equity loans. Although their interest rates are usually higher than the rate for a secured loan, they may be an appealing alternative for those who prefer not to put their home on the line.

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, which can make them much more expensive if you carry a large balance from month to month. While credit cards offer flexibility for smaller purchases, HELOCs and home equity loans are better suited to larger expenses such as home renovations. Because money can be withdrawn from a HELOC in increments, it’s a good middle point between a home equity loan and a credit card.

The Takeaway

HELOCs offer a flexible way to access your home’s equity for many purposes. By understanding the application process and comparing offers from different lenders, you can secure a competitive home equity line of credit rate and terms that meet your financial needs. Improving your credit score and assessing your home equity are key steps to qualifying for the best rates.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

What is the monthly payment on a $50,000 HELOC?

A HELOC repayment calculator can be a useful tool for determining the monthly payment on a $50,000 HELOC. But as an example, if you owe the full $50,000 on your HELOC and you have an interest rate of 8.00% and a 20-year term, your monthly payment will be $418.

Is a HELOC a good idea right now?

Whether a HELOC is a good idea right now depends on your financial situation and goals. HELOCs can be useful for funding home renovations and other large expenses. However, it’s important to consider the current interest rates and your ability to repay the loan.

What is the monthly payment on a $100,000 HELOC?

The monthly payment on $100,000 HELOC will depend on your answers to these questions: How much of the credit line have you used? What’s your current interest rate? And are you in the HELOC’s “draw” or “repayment” period? In the draw period the payment may be interest-only. In the repayment period, you’ll pay interest plus principal. Once you have these answers, use a HELOC repayment calculator to determine your number.

What are the benefits of a HELOC?

Many borrowers consider a HELOC’s greatest benefit to be its flexibility. If you have a $50,000 credit line but you need only $10,000 at the moment, you can pull $10,000 and pay interest only on that amount, versus taking a lump sum as you would with a home equity loan. Managed responsibly, a HELOC can have a positive impact on your credit score. And HELOCs often have lower interest rates than either credit cards or personal loans.

Do you need an appraisal for a HELOC?

Yes, you typically need an appraisal for a HELOC. Your lender will tell you when and if an in-person appraisal is required. Some lenders use software to provide an estimate of a home’s value. The cost of an in-person appraisal will be $300 to $600 and you’ll likely be expected to pay it. The appraisal helps determine the current value of your home, which is crucial for calculating your home equity.

What disqualifies you from getting a home equity loan?

Several factors can disqualify you from getting a home equity loan. These include a low credit score, high debt-to-income ratio, insufficient home equity, and a history of late payments.

How difficult is it to get a HELOC?

The difficulty of getting a HELOC depends on your financial situation. Lenders consider factors such as your credit score, debt-to-income ratio, and home equity level. Improving these aspects can increase your chances of qualifying for a HELOC.

Does HELOC affect credit score?

Yes, a HELOC can affect your credit score in a few ways. Applying for a HELOC may result in a hard inquiry on your credit report, which can lower your score, but this effect is temporary. And how you manage your home equity line of credit can impact your credit score, either positively or negatively.

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