Compare home equity loan rates in Tennessee.

Introduction to Home Equity Loan Rates

In this guide to Tennessee home equity loan rates, we’ll cover what a home equity loan is and how your interest rate affects the affordability of your loan. We’ll also provide tips on how to compare rates, understand rate trends, and qualify for the lowest home equity loan rate in your corner of Tennessee. By the end, you’ll feel more confident in your decision to make your home equity work for you.

How Do Home Equity Loans Work?

Home equity loans are like a second mortgage, secured by your home. They typically offer lower, fixed interest rates compared to unsecured financing (think personal loans).

Lenders determine the maximum loan amount based on your combined loan-to-value ratio (CLTV). You can estimate your CLTV easily: Add your current mortgage balance to your proposed home equity loan. Divide the total by your appraised home value. If the CLTV is below 85%, you’re in a good position to obtain your desired loan. A home equity loan calculator can help you do the math.

To qualify, you should have at least 20% equity in your primary residence. Once you’re approved, the funds can be used for a variety of expenses, such as home improvements, education, medical bills, or debt consolidation.

Where Do Home Equity Loan Interest Rates Come From?

Home equity loan interest rates are tied to a variety of economic indicators, starting with the prime rate. This is the rate that banks charge their most creditworthy clients. Federal Reserve policy decisions on interest rates can also have an impact on home equity loan rates.

By paying attention to news on interest rates and understanding the factors that influence rates, you can be better prepared to anticipate rate changes and make informed decisions about home equity loan in Tennessee.

How Interest Rates Impact Home Equity Loan Affordability

The interest rate you lock in can affect how comfortably you manage your home loan payments. You probably know that a 1% difference in the interest rate can translate to a higher monthly payment. But that 1% makes a much bigger difference in the total interest you pay over the life of the loan.

You can see below how a 1% or 2% difference in interest rate affects the monthly payment and total interest paid on a $60,000 home equity loan that is repaid over 15 years.

•  At 6.00% interest: Your monthly payment is $506; total interest paid is $31,137.

•  At 7.00% interest: Your monthly payment is $539; total interest paid is $37,073.

•  At 8.00% interest: Your monthly payment is $573; total interest paid is $43,210.

Now you see why it’s so important to shop around for the best home equity loan rates in Tennessee.

Home Equity Loan Rate Trends

We mentioned the prime rate above. The prime rate is a key benchmark in the world of interest rates, influencing what you pay on your mortgage, auto loans, and credit cards. The prime rate fluctuates over time, which in turn causes home equity loan rates to climb or fall. Following trends in the prime rate will give you an indication of what’s to come in home equity loan rates.

Historical Prime Interest Rates

Since 2018, the prime rate has fluctuated quite a bit, hitting a low of 3.25% in 2020 and a high of 8.50% in 2023.

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

Other influences on interest rates have to do with the borrower’s financial profile and the Tennessee housing market. Your credit score, loan-to-value ratio, home value, home value stability, and property location all go into the lender’s calculation of your interest rate whether you’re shopping for a home equity loan or a HELOC.

Credit Score

If you’re the kind of person who’s diligent about making timely payments, you’re in for a treat. Lenders often favor those with a credit score of 680 or higher, but many are really looking for scores of 700 and above.

Home Value

In Tennessee, as in most states, lenders require an independent appraisal to determine a home’s value and set a loan limit. This appraisal is used to calculate the equity position of a homeowner and to determine the maximum loan amount that a lender will approve. The valuation process is a critical step in the loan process and ensures that a homeowner is not over-leveraged and that the lender is not over-exposed.

Loan-to-Value (LTV) Ratio

Most lenders will allow you to borrow up to 85% of your available equity, although it’s important to remember that the lower your percentage, the better your interest rate and loan terms will be. You can estimate your LTV by adding your mortgage balance to your hoped-for home equity loan amount and dividing the total by your appraised home value.

For example, if you have a home valued at $400,000, owe $250,000 on your mortgage, and are looking for a home equity loan of $50,000, your LTV is 75%: $250,000 + $50,000 / $400,000 = .75. That’s well within the acceptable range.

Home Value Stability

The stability of home values in your area of Tennessee is a big deal. It can significantly impact the amount of equity you can access and use. When home values are on the rise, lenders are more likely to approve larger loan amounts. That’s because the increasing value of the property helps offset some of the risk for the lender. But when home values are falling, lenders may get more cautious. They might tighten up their lending criteria and offer smaller loan amounts.

Property Location

Living in a part of Tennessee that’s considered high-risk can mean you’ll pay more for insurance. That’s because insurance companies see these areas as more likely to file claims due to natural disasters and extreme weather. These areas can include those prone to hurricanes, floods, earthquakes, and wildfires.

Lender Policies

Interest rates can vary a bit from lender to lender. Borrowers should compare interest rates, fees, and closing costs from a handful of lenders while shopping around for a home equity loan.

How to Qualify for the Lowest Rates

If you’re looking for the best home equity loan rates in Tennessee, you’ll want to make sure you have a good credit score, a low debt-to-income ratio, adequate property insurance, and a good amount of home equity. These factors will help you qualify for the most competitive loan terms. When you’re exploring how to get equity out of your home, your To Do list will typically look like this:

Build a Strong Credit Score

When it comes to your personal finances, a strong credit score can be a game changer. People with higher credit scores often qualify for lower interest rates, which can add up to significant savings over the life of the loan.

Manage Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is a critical number for lenders. It’s calculated by taking your monthly debt obligations (mortgage, car loan, student loans) and dividing them by your monthly gross income. For a home equity loan, you generally need a DTI below 36% — though some lenders will approve a DTI up to 50%.

Obtain Adequate Property Insurance

It’s standard practice for lenders to require you to have adequate property insurance, especially if you live in a flood-prone area. These insurance policies are designed to protect you and your lender from potential losses to your property in the event of an emergency.

Maintain Sufficient Home Equity

You need to have at least 20% equity in your home to get a home equity loan. This is a good thing — it means you’re not borrowing more than you can afford to pay back.

Fixed vs. Variable Interest Rates

Home equity loans in Tennessee often come with fixed interest rates. This means you can plan for the same monthly payment over the life of the loan. While fixed rates offer predictability, they can also start off higher than variable rates. Variable rates fluctuate over time, but they often start lower than fixed rates. A home equity loan can be a great option if you need a set amount of money for a specific purpose, like a home improvement project or consolidating debt.

Tools & Calculators

Online tools and calculators can help you estimate home equity loan payments, compare interest rates, and understand the impact of different loan repayment terms. These tools can provide valuable insights and help you make informed decisions regarding your home equity loan options. Below you’ll also find a HELOC monthly payment calculator as well as a HELOC interest only calculator.

Closing Costs and Fees

When it comes to home equity loan closing costs, you’re typically looking at 2%-5% of the loan amount. These fees can include charges for an appraisal, credit report, document preparation, origination, notary, title search, and title insurance.

Origination fees can be around 0.5%-1% of the loan amount or a flat fee. Title insurance might run you 0.5%-1% of the loan balance, with title search fees typically ranging from $100 to $250. Appraisals can cost anywhere from $300 to $500, and credit report fees usually fall between $50 and $100. Document preparation and attorney fees can vary.

Tax Deductibility of Home Equity Loan Interest

The interest on your home equity loan is deductible if you’re using the funds for home improvements. For joint filers, you can deduct the interest on up to $750,000, and for single filers, it’s $375,000. To get this benefit, you’ll need to itemize your deductions. It’s a smart move to chat with a tax advisor to ensure you’re making the most of these potential tax savings.

Alternatives to Home Equity Loans

There are different types of home equity loans and lines of credit. Home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances all have their own special benefits and eligibility requirements. It’s important to consider your financial situation and goals before choosing the one that’s right for you.

Home Equity Line of Credit (HELOC)

What is a home equity line of credit? It works much like a credit card. You can borrow up to a certain limit and make monthly payments to pay down your balance. With a HELOC, you only pay interest on the amount you borrow, although you may be required to pay down a portion of the principal over time.

Recommended: HELOC vs Home Equity Loans

Home Equity Conversion Mortgage (HECM)

An HECM, a government-insured reverse mortgage, is a fantastic option for those 62 and older. It allows you to receive payments from the lender based on your home’s value. You can receive the funds as a lump sum, regular payments, or a line of credit. The best part? You don’t need to repay the loan until you leave the home. This is quite different from home equity loans and HELOCs, which require regular payments.

Cash-Out Refinance

A cash-out refinance, a type of mortgage refinance, is a bit like hitting the reset button on your mortgage. You take out a new loan, pay off the existing one, and pocket the difference. Lenders typically allow you to borrow up to 85% of your home’s value.

Recommended: Cash-Out Refinance vs Home Equity Line of Credit

The Takeaway

Understanding current home equity rates and the many factors that influence them can help Tennessee homeowners make more informed borrowing decisions. By comparing lenders, maintaining a good credit score, and managing debt, homeowners can increase their chances of getting the best rates available.

FAQ

What’s the monthly payment on a $50,000 home equity loan?

When you’re considering a $50,000 home equity loan, you need to think about the interest rate and loan term, because they’ll impact how much you’ll pay each month. At 8.50% interest repaid over 10 years, your monthly payment would be about $620. Over a 20 year term, your payment would be just $434 — but you’d pay a lot more in interest over time. To get a good idea of what your monthly payments might be, use a home equity loan calculator.

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

With a home equity line of credit (HELOC), your monthly payment varies based on the interest rate and how much of the credit line you’ve used. Assuming you draw the full amount and make interest-only payments during the draw period, at 8.50% interest and a 20-year term, the payment would be $868.

How about a $25,000 home equity loan?

When you’re considering a $25,000 home equity loan, it’s important to think about how the interest rate and loan term will impact your payment. For a loan with an 8.00% interest rate and 10-year term, the monthly payment would be $303. To get a better idea of what your monthly payments might look like, use a home equity loan calculator. This can help you plan your budget and decide if a home equity loan is the right choice for you.

How about a $30,000 home equity loan?

When you’re contemplating a $30,000 home equity loan, it’s important to consider how the interest rate and loan term will affect your monthly payments. For example, a $30,000 loan at 8.00% repaid over 7 years gives you a monthly payment of $468. The same loan amount and interest rate repaid over 15 years lowers the monthly payment to $287 but increases the total interest paid.

What could disqualify you from getting a home equity loan?

There are several key factors that could lead to disqualification for a home equity loan. These include having a poor credit history, insufficient home equity, a high debt-to-income ratio, and inadequate property insurance coverage.

What are the benefits of a HELOC?

HELOCs are a type of revolving credit, which means you have a lot of flexibility when it comes to borrowing and repaying. They typically have lower interest rates than credit cards, which can make them an attractive option for homeowners who want to complete home improvement projects, consolidate debt, or cover unexpected expenses.

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-Q424-102

Compare home equity loan rates in Wyoming.

Introduction to Home Equity Loan Rates

If you’ve been considering how to get equity out of your home to fund home improvements or another big project, you may be mulling over a home equity loan. In this guide, you’ll find the most comprehensive information on home equity loan rates in Wyoming. We’ll cover how rates are decided and what you can do to qualify for the best available rate. We’ve also got the lowdown on alternative borrowing options as there are different types of home equity loans.

Let’s dig into the basics, for starters. What is a home equity loan, anyway?

How Home Equity Loans Work

Here’s the scoop: Home equity loans are a smart way to leverage your home’s value for a loan that has a more favorable interest rate than you would get with an unsecured personal loan. Home equity loans are typically repaid in equal monthly installments over a period of 5 to 30 years.

To qualify, homeowners need at least 20% equity in their primary residence. (Home equity is the difference between the outstanding mortgage balance and the market value of the property.) Home equity loans are used by Wyoming homeowners for all sorts of expenses, including renovations, education, medical bills, and debt consolidation.

Where Do Home Equity Loan Interest Rates Originate?

Home equity loan interest rates are a product of various economic factors. Federal Reserve policy decisions on interest rates can have a ripple effect on home equity loan rates because they help determine the prime rate that banks charge their most creditworthy clients. But the prime rate is just the beginning, and lenders adjust the rates they offer based on the borrower’s individual financial profile (more on that later).

How Interest Rates Impact Home Equity Loan Affordability

The interest rate you secure can have a noticeable impact on your ability to afford your home equity loan. For example, a 20-year home equity loan of $50,000 with an interest rate of 5.50% would have a monthly payment of $344. Over 20 years, you would pay $32,546 in interest. But if the interest rate was 1% higher, your monthly payment would be $373, and you’d pay $39,469 in interest over the life of the loan. That means you’d pay an extra $29 a month and an additional $6,923 in interest over the life of the loan.

Home Equity Loan Rate Trends

The prime interest rate is a key indicator of where home equity loan rates are headed. By keeping tabs on the ups and downs of the prime rate, you can get a good idea of whether the time is right for you to apply for a home equity loan. Since 2018, the prime rate has hit a low of 3.25% in 2020 and a high of 8.50% in 2023, as you’ll see in the chart below. The graphic shows rate fluctuations over a longer time — more than 50 years.

Historical Prime Interest Rates

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

In Wyoming, a variety of factors besides the prime rate influence the interest rate you are offered if you apply for a loan. Happily, some of them are within your control. Let’s take a look one at a time:

Credit Score

Just like when you applied for your home loan and purchased your home, the better your credit score, the better your chances of scoring a great interest rate. Lenders in Wyoming typically look for a minimum credit score of 680, but many prefer 700 or higher. A solid credit score shows that you’re a responsible borrower and can be trusted — which earns you favorable loan terms.

Home Value

Lenders generally use independent appraisals to determine how much a property is worth in the current market. This process helps establish how much equity you have and the maximum amount a lender might let you borrow. The appraisal report is an important part of the loan approval process and helps ensure both the borrower and the lender are making a sound investment.

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio is another key factor in determining how much you can borrow. To calculate your LTV, divide your loan amount (the total of your existing mortgage principal plus whatever amount you hope to borrow) by the appraised value of the property. Multiply the result by 100. Most lenders offer an LTV up to 85% for a home equity loan. This ratio helps lenders determine the risk of lending to you and the interest rate and loan term they are willing to offer.

Home Value Stability

The stability of home values can make a big difference in the amount of equity you can access. When home values are on the rise, lenders may be more willing to approve larger loan amounts, as the increasing value of the property mitigates some of the risk. When home values are declining, the lender’s risk exposure increases, which can lead to stricter lending criteria and smaller loan approvals.

Property Location

The part of Wyoming where your property is located can also affect your rate. If your home is in an area that’s at high risk of weather-related disasters or wildfires, you might be offered a higher interest rate.

Lender Policies

Wyoming home equity loans can be affected by the policies of the lender. To get the best deal, you should shop around and compare interest rates, fees, and closing costs among several lenders. This can help you make an informed decision and potentially save a significant amount of money in interest payments over the life of the loan.

How to Qualify for the Lowest Rates

There’s some homework involved if you want to get the best home equity loan rate in Wyoming. If you can tick off all the to-dos on the list below, you’ll be in a nice position to get the best rates in your state.

Build a Strong Credit Score

It’s no secret that a solid credit score can be your golden ticket to snagging the most attractive interest rates. So check your credit report, and correct any inaccuracies you find. Don’t max out every credit card you have. And of course, pay your bills promptly.

Manage Debt-to-Income Ratio

When you’re ready to apply for a Wyoming home equity loan, remember that your debt-to-income (DTI) ratio will be a key player in the process. This ratio weighs your monthly income against your monthly debt responsibilities. To figure out your DTI ratio, add up your monthly debts (think: student loan payment, car payment, etc.) and divide by your gross monthly income. Lenders in Wyoming, as elsewhere, typically look for a DTI ratio below 36% for home equity loans, although some may go as high as 50%.

Obtain Adequate Property Insurance

Having the right amount of property insurance is a must-have for securing a home equity loan, especially if you’re in an area prone to natural disasters.

Maintain Sufficient Home Equity

The rule of thumb is to keep at least 20% equity in your property when considering a home equity loan. This isn’t just a number pulled out of thin air; it’s a smart way to make sure you’re not overleveraging yourself financially.

Fixed vs. Variable Interest Rates

Fixed interest rates are the hallmark of home equity loans. They give you peace of mind because you’ll know your monthly payments won’t change over the life of the loan, whether it’s 5, 10, 20, or 30 years. While fixed rates provide stability, they can also mean that the initial rate is higher than what you might get with a variable-rate loan. Variable rates — which are commonly used for a home equity line of credit — can start off lower than fixed rates, but they have the potential to increase over time.

Tools & Calculators

Take advantage of the many tools and calculators available to help you determine your eligibility and potential borrowing power for home equity options. These resources can help you make more informed decisions about your financial options, and help make your loan application process smoother and more successful.

Closing Costs and Fees

Closing costs for home equity loans typically range from 2% to 5% of the loan amount. There may be charges for an appraisal, credit report, document preparation, origination, notary, title search, and title insurance fees. But every lender is different so compare costs while you are comparing interest rates. While no-closing-cost loans are an option, they often come with higher interest rates.

Tax Deductibility of Home Equity Loan Interest

Here’s the lowdown: The interest on a home equity loan is tax-deductible if it’s used for significant home improvements. Borrowers may deduct interest paid on the first $750,000 of their loan for joint filers or $375,000 for single filers. You might want to sit down with a tax advisor, and you’ll definitely want to keep receipts that show how home-improvement money was spent. A home equity line of credit (HELOC) has similar tax implications.

Alternatives to Home Equity Loans

There are other ways to tap into your home’s equity, such as a HELOC, a home equity conversion mortgage (HECM), and a cash-out refinance. Each of these options has its own features and requirements. You should carefully consider and compare these options to see which one may best serve your financial needs.

Home Equity Line of Credit (HELOC)

A HELOC is a bit like having a credit card (but with a lower interest rate). Like a home equity loan, a HELOC is secured by your house. Once you are approved for the credit line, you can borrow up to your limit and only pay interest on the amount you’ve borrowed. When you compare a HELOC vs. a home equity loan, a key difference is that the interest rate on a HELOC is usually variable, so the rate can go up or down over time.

Home Equity Conversion Mortgage (HECM)

A home equity conversion mortgage (HECM) is a government-backed reverse mortgage option for those 62 and older. It’s a way to receive payments based on your home’s value, whether you prefer a lump sum, regular payments, or a line of credit. The best part? No repayment is due until you leave your home. Just be aware, HECMs come with higher closing costs and longer processing times. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)

Cash-Out Refinance

A cash-out refinance is a special type of mortgage refinance that pays off your old mortgage but also lets you pocket some cash to use as you wish. As you consider a cash-out refinance vs. a home equity line of credit or a home equity loan, the biggest difference is that the cash-out refi gets you a new loan at a new interest rate.

If today’s rates in Wyoming are higher than the rate you currently have on your existing mortgage, it may not make sense to do a refinance. It’s important to compare the total cost of the refi versus a home equity loan or HELOC, including all closing costs and fees, to determine which makes the most financial sense.

The Takeaway

To make the most of your home equity in Wyoming, it’s important to understand current home equity rates in Wyoming and the factors that influence them. By comparing rates (using online tools) and presenting your best possible credit score, debt-to-income ratio and other stats, you can help ensure you get the best deal on a home equity loan or HELOC.

FAQ

What would the monthly payment be on a $50,000 home equity loan?

A home equity loan of $50,000 would require a monthly payment of $587. That’s assuming an interest rate of 7.25% and a 10-year term. Changing either the rate or term would alter the payment amount, as well.

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

If you used your full $100,000 home equity line of credit (HELOC), and your interest rate was 8.00%, you’d pay $836 per month to repay the funds over 20 years. Longer repayment terms might have smaller monthly payments, but you will pay more in interest over the life of the loan.

What is the payment on a $25,000 home equity loan?

The monthly payment on a $25,000 loan is determined by the interest rate and the loan term. To understand what your monthly payment might be at different terms and rates, your best bet is to use an online home equity loan calculator.

What would the payment be on a $30,000 home equity loan?

A $30,000 home equity loan with a 20-year term and a rate of 7.50% would run you
$242 each month. It’s important to realize that a different loan term or interest rate would change the monthly payment amount as well as the total amount of interest paid over the life of the loan.

What could stop you from getting a home equity loan?

A few things can make you ineligible for a home equity loan: poor credit history, not enough equity in your home, a high debt-to-income ratio, and inadequate property insurance are the most significant red flags for lenders. To increase your chances of getting a home equity loan, it’s important to address these factors and show that you’re a good credit risk and financially stable.

What are the benefits of a HELOC?

A HELOC, or home equity line of credit, offers a variety of benefits to homeowners. It is a flexible borrowing option because you only borrow (and pay interest on) the amount you need at any given time. Moreover, HELOCs typically have a lower interest rate than credit cards.

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-Q424-110

Compare home equity loan rates in Rhode Island.

Introduction to Home Equity Loan Rates

Welcome to our comprehensive guide to Rhode Island home equity loans, where we’ll cover the latest interest rates and the key factors that influence them. With this information in hand, you’ll be better equipped to make smart financial decisions that align with your needs and goals.

But first: What is a hone equity loan anyway?

How Do Home Equity Loans Work?

A home equity loan uses your residence as collateral, just like your primary home loan (which makes a home equity loan a second mortgage). The main benefit is that you can get a lower interest rate than you would on a personal loan. The interest rate is usually fixed, which can make it easier to budget for your payments. You’ll also have a consistent repayment schedule.

To qualify for a home equity loan, you’ll need to have at least 20% equity in your home. Lenders determine your maximum loan amount based on the combined loan-to-value ratio (CLTV). You can estimate your CLTV easily: Add your current mortgage balance to your proposed home equity loan. Divide the total by your appraised home value. If the CLTV is below 85%, you’re in a good position to obtain your desired loan. Our home equtiy loan calculator can help you do the math.

Where Do Home Equity Loan Interest Rates Originate?

In Rhode Island as in most places in the U.S., home equity loan interest rates are a product of various economic elements, with the “prime rate” playing a significant role. The prime rate rate is what banks charge their most creditworthy clients.

Federal Reserve policy decisions have a ripple effect on home equity loan rates as well, along with national and local housing market conditions. By understanding these factors, you can be prepared for potential rate fluctuations and make well-informed decisions about when and how to get equity out of your home.

How Interest Rates Impact Home Equity Loan Affordability

The interest rate you secure helps determine your monthly payment — but it has a bigger impact on the interest you pay over the life of the loan. For a 20-year home equity loan, a 1% difference in the interest rate can translate to substantially higher costs: an additional $11,000 in total interest paid.

The chart below gives you a broader perspective on how interest rate, repayment term, and loan amount affect your monthly payment.

Home Equity Loan Rate Trends

The prime interest rate is a key indicator of the future of home equity loan rates. By keeping an eye on this rate, you can gain valuable insights into the direction of home equity loan rates, helping you make informed decisions about your financial strategies and plan for any potential changes in your borrowing costs. This is especially important for those interested in the current home equity rates in Rhode Island.

Historical Prime Interest Rates

Since 2018, the U.S. prime rate has fluctuated significantly, with a low of 3.25% in 2020 and a high of 8.50% in 2023. This movement shows how sensitive the prime rate is to changes in the economy and how it can impact the rates of financial products like home equity loans and HELOC.

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

In Rhode Island, a variety of factors can influence your home equity loan rate. Your credit score, the current market value of your home, the stability of your home’s value, the loan-to-value ratio, the location of your property, and the terms of your lender all play a part in determining the rate you’ll receive.

Credit Score

Those who have a track record of responsible financial management, consistently making timely payments, are often rewarded with lower interest rates. When it comes to home equity loans, lenders typically look for a credit score of 680 or higher, with many favoring scores of 700 and above.

Home Value

Lenders in Rhode Island often use independent appraisals to help them determine the market value of a home, which in turn helps them set appropriate borrowing limits.

Loan-to-Value (LTV) Ratio

As mentioned earlier, this ratio is calculated by dividing the total amount of your home loans by the home’s appraised value. It helps determine the maximum home equity loan lenders will allow, which is usually around 85%.

Home Value Stability

The ups and downs of home values can be a game-changer when it comes to tapping into your home’s equity. Rising values often mean lenders are more willing to approve larger loans, as the reduced risk makes them more comfortable. On the flip side, falling values can make lenders more cautious, which could lead to stricter lending criteria.

Property Location

Living in an area prone to extreme weather or natural disasters can mean higher interest rates. Lenders might see these regions as riskier to invest in. And let’s face it, the last thing you want to worry about is your home equity loan when a storm is brewing.

Lender Policies

When you’re looking for Rhode Island home equity loans, it’s important to think about the impact of lender policies on the interest rates you’re offered. To make sure you’re getting the best deal, shop around and compare interest rates, fees, and closing costs from a few different lenders. By doing your homework and comparing your options, you can get better terms and save money over time.

How to Qualify for the Lowest Rates

To get the best home equity loan rates, you need to have a good credit score, manage your debt-to-income ratio, have property insurance, and have a good amount of equity in your home. Here’s your To Do list:

Build a Strong Credit Score

In Rhode Island, a stellar credit score can be your golden ticket to better interest rates on home equity loans. How do you get there? By being diligent about making timely payments, keeping your debt in check, and maintaining a low credit utilization ratio. These steps can boost your creditworthiness, opening the door to more attractive loan terms that could save you a bundle in interest over the long haul.

Manage Debt-to-Income Ratio

When you’re ready to apply for a home equity loan, keep in mind that your debt-to-income (DTI) ratio is a key metric. Most lenders look for a DTI ratio below 36% (though some will go up to 50%) for home equity loans. This ratio is a measure of your ability to handle your current debt and take on the additional monthly payments a home equity loan brings.

Obtain Adequate Property Insurance

In the Ocean State, it’s standard practice to have sufficient property insurance, especially if you’re in a flood-prone area. These policies are designed to protect your investment and your lender’s interests, ensuring that you’re both covered in the face of the unexpected.

Maintain Sufficient Home Equity

In Rhode Island, lenders want you to have at least 20% equity in your home to take out a home equity loan. This is a good thing, as it helps ensure that you don’t borrow more than you can afford to pay back. It also helps protect both you and the lender from the risks associated with borrowing and lending.

Fixed vs. Variable Interest Rates

Home equity loans typically come with fixed interest rates, which means you’ll have the same predictable monthly payment for the life of the loan. While fixed rates offer stability, they can sometimes start out higher than variable rates, which may have lower initial rates. When you’re comparing HELOCs vs homee equity loans, it’s important to understand that HELOCs typically have variable rates, while home equity loans tend to have fixed rates.

Tools & Calculators

Use our suite of financial tools and calculators to size up your home equity loan. You can compare two different loan scenarios and find out which has the better monthly payment, or how much you’ll save over time by choosing one over the other. You can also see how much you’d save by paying off your loan early, or how much you can afford to borrow. Below you’ll also find a HELOC monthly payment calculator as well as a HELOC interest only calculator.

Closing Costs and Fees

Closing costs for home equity loans typically range from 2% to 5% of the loan amount. These costs can include an appraisal fee, credit report fee, document preparation fee, origination fee, notary fee, title search fee, and title insurance.

Origination fees are usually between 0.5% and 1% of the loan amount. Title insurance typically costs between 0.5% and 1% of the loan balance. Appraisal fees can range from $300 to $500. Be sure to shop around and compare fees from multiple lenders.

Tax Deductibility of Home Equity Loan Interest

Here’s a tip: The interest you pay on a home equity loan is tax-deductible if you use the funds for home improvements. For joint filers, you can deduct the interest on up to $750,000, and for single filers, it’s $375,000. Just be sure to itemize your deductions to claim the benefit. For the best advice, we always recommend consulting a tax advisor.

Alternatives to Home Equity Loans

There are different types of home equity loans and lines of credit. Each option has its own unique characteristics and eligibility requirements, so it’s important to carefully consider which one may be right for you.

Home Equity Line of Credit (HELOC)

What is a home equity line of credit? A HELOC is a bit like a credit card, in that it allows you to borrow up to a certain limit and only pay interest on the amount you actually use. However, the variable interest rates on HELOCs mean that your costs could go up if interest rates rise.

Home Equity Conversion Mortgage (HECM)

An HECM is a government-backed reverse mortgage that offers homeowners aged 62 and older a way to receive payments based on their home’s value. The beauty of an HECM is the flexibility it offers: You can opt for a lump sum, regular payments, or a line of credit. Plus, with an HECM, you won’t have to make payments until you leave your home, unlike home equity loans and HELOCs that require regular payments.

Cash-Out Refinance

Here’s the lowdown: A cash-out refinance means taking out a new mortgage to replace the old, with a little extra cash to pocket. Lenders are usually game for up to 85% of your home’s equity. If you’re comparing a cash-out refinance vs a home equity line of credit, know that the refi leaves you with a single monthly payment while a HELOC gives you two payments (one for your original mortgage).

The Takeaway

Understanding home equity loan rates and the various factors that influence them can greatly assist homeowners in making informed financial decisions. Conducting a thorough comparison of lenders, maintaining a strong credit score, and effectively managing debt are all crucial steps in securing the most favorable rates available. Additionally, homeowners should consider the loan terms, fees, and prepayment penalties associated with each loan option.

FAQ

What would the monthly payment be on a $50,000 loan?

The monthly payment on a $50,000 home equity loan varies depending on the loan term and interest rate. At 8.50% interest repaid over 10 years, your monthly payment would be about $620. Over a 20 year term, your payment would be just $434 — but you’d pay a lot more in interest over time.

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

It’s important to understand that the monthly payment on a $100,000 home equity line of credit (HELOC) can fluctuate. This is due to two things: the current interest rate and how much of the credit line you’ve used. Assuming you draw the full amount and make no payments during the draw period, at 8.50% interest and a 20-year term, the payment would be $868.

What is the payment on a $25,000 home equity loan?

When you’re looking at a $25,000 home equity loan, you’ll want to consider how the interest rate and loan term will impact your monthly payments. For a loan with an 8.00% interest rate and 10-year term, the monthly payment would be $303. To get an accurate estimate of what your payments might be, try using a home equity loan calculator.

What would the payment on a $30,000 home equity loan?

When you’re thinking about a $30,000 home equity loan, it’s important to think about how the interest rate and the loan term will affect your monthly payments. For example, a $30,000 loan at 8.00% repaid over 7 years gives you a monthly payment of $468. The same loan amount and interest rate repaid over 15 years lowers the monthly payment to $287 but increases the total interest paid.

What could disqualify you from getting a home equity loan?

There are a few factors that can make you ineligible for a home equity loan, including a poor credit history, not enough equity in your home, a high debt-to-income ratio, and inadequate insurance coverage on your property. These factors can make it more risky for a lender to work with you, so you’ll want to address these issues before applying for a home equity loan to increase your chances of getting approved.

What are the benefits of a HELOC?

A HELOC has a number of advantages over other borrowing options. These include lower interest rates, flexible borrowing and repayment options, and the ability to only pay interest on the amount of credit you use.

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-Q424-099

Compare home equity loan rates in Kentucky.

Introduction to Home Equity Loan Rates

If you’ve made your home loan payments consistently, you’ve probably chipped away at the principal you owe and built up valuable equity. Now it’s time to learn how to get equity out of your home with a home equity loan — and that means understanding home equity loan rates in Kentucky. In this guide, we’ll explain what goes into these rates and how you can find the most favorable rate for you. By the time you’re done reading, you’ll have a better understanding of different types of home equity loans and how to use them to finance home renovations, consolidate debt, or pay for other big expenses.

First step: get a handle on what is a home equity loan.

How Do Home Equity Loans Work?

A home equity loan is a loan that uses your home as collateral, which typically means a lower interest rate than a personal loan. (It also means getting a second mortgage, assuming you are still paying off your first mortgage.) The interest rate is usually fixed, which can make monthly payments predictable.

To qualify for a home equity loan, you’ll typically need to have at least 20% equity in your primary residence. Home equity loans can be used for a variety of expenses, such as home improvements, education, medical bills, or debt consolidation. If you’re looking for the best home equity loans in Kentucky, it’s important to compare offers from different lenders to find the best loan for your needs, and a big part of that comparison is comparing interest rates.

Where Do Home Equity Loan Interest Rates Originate?

Home equity loan interest rates are not arbitrary numbers; they are influenced by larger 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 can also influence home equity loan rates. But once a lender sets its prime rate, exact interest rates are adjusted based on individual borrower characteristics (we’ll get into that later). Understanding the factors that influence home equity rates can enable borrowers to anticipate rate fluctuations and make informed decisions about home equity loans.

How Interest Rates Impact Home Equity Loan Affordability

It’s important to think about how interest rates will affect your ability to afford your loan over time. Unlike a home equity line of credit (HELOC), which functions as a revolving credit account, a home equity loan provides the borrower with a lump sum of cash up front. Repayment of the principal balance and interest begins immediately, typically with a fixed interest rate.

What’s even more striking is the change in the total interest you’ll pay over the life of the loan. For example, a 1% difference in interest rate on a $100,000 home equity loan repaid over 20 years comes to more than $14,000 in interest!

Home Equity Loan Rate Trends

As noted above, the prime rate can be a key factor in home equity rates in Kentucky. By keeping an eye on the prime rate, you may be able to get a sense of where the lending market is headed and use that information to make smart borrowing decisions.

As the chart below shows, the prime rate has seen its share of ups and downs, with a low of 3.25% in 2020 and a high of 8.50% in 2023. The graphic below shows the rate over a much longer time period: 50-plus years.

Historical Prime Interest Rates

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

Now let’s take a closer look at the factors beyond the prime rate that influence exactly what rate you may be offered. Banks and other lenders use these details to determine your creditworthiness and assess how risky it might be to make you a loan.

Credit Score

If you’ve got a clean record of making payments on time, you’re in a sweet position. Lenders are more likely to offer you a lower interest rate if you’ve shown that you’re a responsible borrower. Kentucky lenders will likely want to see a credit score of at least 680 for a home equity loan, but the higher your score, the better your chances of obtaining a good rate.

Home Value

Lenders typically determine the value of your property by ordering an independent appraisal. This process helps ensure that you have adequate equity in your home to qualify for the loan you want, and that the loan amount you request is below the appraised value of the home.

Loan-to-Value (LTV) Ratio

Once you and a lender know your home’s appraised value, the loan-to-value (LTV) ratio can be determined. Your combined LTV ratio is calculated by dividing the loan amount you’re seeking plus any remaining balance on your first mortgage by the appraised value of the home. The maximum combined LTV lenders typically allow for home equity loans is around 85%. You can calculate your combined loan-to-value ratio (CLTV) this way:

Home Value Stability

Home values have a direct impact on the equity you can tap into. When the market is hot and prices are rising, lenders are more open to green-lighting heftier loans, as increased property values act as a safety net. But when the market slips, lenders might set more stringent requirements and offer smaller loan amounts.

Property Location

Living in areas that have a history of damage from tornados, flooding, or other climate extremes can sometimes mean higher interest rates because lenders are leery of these risks. If you live in an area like this, you might have to meet additional requirements to get a home equity loan in Kentucky, and you could have a higher interest rate.

Lender Policies

Each lender has its own policies, and these can have an impact on the interest rate you’re offered or the fees you’ll pay. To make sure you’re getting the best deal, it’s a good idea to shop around and compare interest rates and fees from several lenders.

How to Qualify for the Lowest Rates

To get the best Kentucky home equity loan rate, you need a good credit score, a low debt-to-income ratio, and enough property insurance. You also need to have adequate home equity. Follow the tips below and you will have a better chance of getting an attractive rate.

Build a Strong Credit Score

Taking good care of your credit score can unlock the door to more attractive interest rates. This means checking your credit report for errors — and if you find any, request a correction. Try not to max out all your lines of credit. And keep on top of your bills.

Manage Debt-to-Income Ratio

Your debt-to-income (DTI) ratio, which compares your monthly income to your monthly debt obligations, is a key factor in determining your loan eligibility. Lenders typically want to see a DTI ratio under 36% for a home equity loan, though some lenders will accept up to 50%. To determine your number, add up your monthly debts, such as a car payment or student loan payment, and divide by your gross monthly income.

Obtain Adequate Property Insurance

Hopefully you are already well insured — after all, getting coverage is an important part of home ownership. But when it comes to home equity loans, having enough property insurance is a must.

Maintain Sufficient Home Equity

Lenders want to see you have a minimum of 20% equity in your primary residence. These regulations are in place to protect you and your investment, ensuring that you have a significant financial stake in your property, which ultimately lowers the risk of default for both you and the lender.

Fixed vs. Variable Interest Rates

Home equity loan interest rates are usually fixed. That means the rate you start with is the rate you’ll pay throughout the loan, which makes it easier to plan your monthly budget. It’s worth noting that these fixed rates might be a bit higher than the variable rates you would see if you sign up for a home equity line of credit (HELOC). But variable rates can change over time, so it’s worth considering that risk if you find yourself weighing a HELOC vs. a home equity loan.

Tools & Calculators

If you’re considering a home equity loan or HELOC, using tools and calculators can help you get a better idea of what you might be able to borrow. They can also help you see how different loan terms could impact your monthly payment. Here are three calculators you will find useful:

Closing Costs and Fees

Closing costs for a home equity loan can range from 2% to 5% of the loan amount. Common fees include an application fee, an origination fee, an appraisal fee, and a title search fee. Each lender has its own fee schedule, so be sure to compare both interest rates and fees.

Tax Deductibility of Home Equity Loan Interest

The interest on a home equity loan is tax-deductible if the loan is used to buy, build, or substantially improve the home. Married couples filing jointly can deduct the interest on up to $750,000 in loans, while single filers can deduct the interest on up to $375,000. You must itemize your deductions to claim the deduction, so you may want to speak with a tax preparer for advice.

Alternatives to Home Equity Loans

A home equity loan isn’t the only way to tap your home’s equity. We’ve mentioned a home equity line of credit (HELOC), but there are other options, too. Here’s the rundown:

Home Equity Line of Credit (HELOC)

Ready fpr the full explanation of what is a home equity line of credit?A HELOC is like having a credit card, but its spending limit is tied to the equity in your home. You only pay interest on the portion of the credit line that you use. During the HELOC’s “draw” period, you may make interest-only payments. When the draw period is over (typically after 10 years), you’ll have another 10 to 20 years to repay whatever you borrowed, with interest. HELOC interest rates are usually variable, as noted above, meaning they can go up or down with the market. This flexibility can be a plus, but it also means your payments could change, especially if the economy takes a turn.

Home Equity Conversion Mortgage (HECM)

A HECM is a government-insured reverse mortgage. It’s only an option for those 62 and older. If you qualify, you can opt for a lump sum, regular payments, or a line of credit. The beauty of an HECM is that you don’t need to make payments until you leave your home, unlike traditional home equity loans or HELOCs. While the closing costs and processing times may be a bit longer, the benefits are well worth it. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)

Cash-Out Refinance

A cash-out refinance is a special type of mortgage refinance. You’ll take out a new, larger mortgage to replace your existing one and pocket the difference to use as you wish. If you are weighing a cash-out refinance vs a home equity line of credit or HELOC, it’s important to consider that getting a new mortgage means getting a new interest rate. If you have a great rate on your current mortgage, you’ll want to carefully consider the added costs of a refi.

The Takeaway

Understanding Kentucky home equity loan rates and the factors that influence them is important for Kentucky homeowners who want to take advantage of their home equity. By shopping around, tending carefully to your credit score, and managing your debt-to-income ratio, you can find the best rates and terms for your needs.

FAQ

What’s the monthly payment on a $50,000 home equity loan?

The monthly payment on a $50,000 home equity loan will depend on your interest rate and term. The longer the term, the lower the monthly payment will typically be — but the more interest you will pay overall. A lower interest rate, of course, means lower payments and interest. You can play with different rates in a home equity loan calculator to get a feel for how rates and terms impact the numbers.

What is the monthly payment on a $100,000 home equity loan?

Your monthly payment amount will depend on your term and interest rate. For example, a $100,000 home equity loan with a 6.00% interest rate and a 10-year term will mean a monthly payment of $1,110.

What’s the payment on a $25,000 home equity loan?

Borrow $25,000 with an interest rate of 8.00% and a term of 5 years and you’re looking at a monthly payment of $507. If you repay the loan over 10 years at a rate of 8.00%, your monthly payment would be $303. As you can see, if you change either the interest rate or the term (or both), your payment amounts will shift.

What’s the monthly cost of a $30,000 home equity loan?

A rate of 7.50% and a 20-year term would mean the monthly payment on a $30,000 home equity loan is $242. To get an accurate idea of what your monthly payments could be, use a home equity loan calculator that allows you to type in rates and terms.

What could disqualify you from getting a home equity loan?

Factors that can disqualify you from getting a home equity loan include having a credit score below 680 and having a lot of debt payments to make each month relative to your income. Of course, not having much home equity or lacking adequate insurance coverage on your home could be problematic, too.

What are the benefits of a HELOC?

A home equity line of credit (HELOC) gives you a line of credit that you can use as needed. Some borrowers prefer this over taking out a lump-sum loan — it’s helpful if you aren’t sure exactly how much money you need, such as when you’re doing a renovation. With lower interest rates than most credit cards and the ability to only pay interest on the amount of credit you use, a HELOC can provide financial flexibility.

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-Q424-077