Compare home equity loan rates in South Dakota.

Introduction to Home Equity Loan Rates

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

Let’s dig into the basics, starting with what is a home equity loan, anyway?

How Do Home Equity Loans Work?

A home equity loan is a fixed-rate installment loan that uses your home as collateral. Because it’s effectively a second mortgage, secured by your property, it will likely offer a lower interest rate than an unsecured personal loan. You repay the money you’ve borrowed, with interest, over anywhere from 5 to 30 years, depending on your loan agreement. The fixed interest rate can make it easier to budget for your monthly payments. To qualify for a home equity loan, you typically need at least 20% equity in your home. You can use the loan to pay for a variety of expenses, such as education, medical bills, or debt consolidation.

Where Do Home Equity Loan Interest Rates Originate?

The chief driver of a home equity loan’s cost is its interest rate. In South Dakota, as elsewhere in the U.S., home equity loan interest rates are a product of a lender’s prime rate — the rate the lender offers its most creditworthy customers. The prime rate is influenced by Federal Reserve monetary policy. By grasping the dynamics at play, borrowers can watch for news on Fed movements or prime rates to better anticipate fluctuations in interest rates.

How Interest Rates Impact Home Equity Loan Affordability

The ups and downs of interest rates will have an impact on what it costs you to borrow money. A 1% difference in an interest rate might not seem like much, but it can add up to a significantly higher monthly payment over the life of a loan. The chart below shows how different loan amounts, interest rates, and loan terms influence your monthly costs.

Home Equity Loan Rate Trends

If you’re watching for news rate shifts, it’s helpful to have a sense of how much change is typical. Below you’ll see a snapshot of recent years in detail (it dropped to a low of 3.25% in 2020 and peaked at 8.50% in 2023), plus a visual showing 50-plus years of rates. This should give you a feel for how much movement you might expect.

Historical Prime Interest Rates

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

You’re not purely at the mercy of big economic trends when it comes to getting a home equity loan rate in South Dakota. Many other factors can influence the rate you are offered and, thankfully, some of them are within your control.

Credit Score

If you’ve been diligent with your finances and have a credit score of 680 or more, you’re in a great position to secure a competitive interest rate. And you can expect an even sweeter rate with a score of 700 and above.

Home Value

Lenders typically use appraisals to ensure that the amount of money they lend you is not more than the home’s value. This is good for you as well, as it will help you avoid borrowing more than you can afford. A prospective lender may send an appraiser to your home or use a digital tool called an automated valuation model that amasses data and arrives at an estimated value.

Loan-to-Value (LTV) Ratio

Once you know the value of your home, you (or your lender) can compute the LTV ratio. This is the loan amount (whatever you owe on your current home loan plus the amount you wish to borrow) divided by the appraised value of the property. The maximum LTV most lenders will permit is 85%. The LTV ratio is also used to determine the interest rate and loan term offered.

Home Value Stability

When home values seem to be trending upward, lenders may be more inclined to approve larger loan amounts, as the increasing value of the property mitigates some risk. Conversely, when home values are declining, a lender may feel more exposed, which can lead to stricter lending criteria and reduced loan amounts. So keep an eye on what’s happening in the real estate market in your corner of South Dakota.

Property Location

Living in areas with a higher risk of natural disasters or extreme weather can sometimes mean you’ll face higher interest rates on your home mortgage. Lenders may see these areas as riskier places in which to do business.

Lender Policies

Each lender has its own unique set of policies and these can affect what rate you’re offered or whether you qualify for a home equity loan at all. To ensure you get the best deal, take the time to shop around and compare interest rates, fees, and closing costs among multiple lenders.

How to Qualify for the Lowest Rates

To get the best home equity loan rates, make sure your financial house is in order before you begin applying.

Build a Strong Credit Score

A higher credit score can be your ticket to a better rate on South Dakota home equity loans, potentially saving you a bundle on interest over the loan’s lifetime. Make sure you check your credit report now and then and correct any inaccuracies. Avoid using your credit cards to the max. And above all, stay current on your bills.

Manage Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is a critical number for loan eligibility. It compares your monthly income to your monthly debt obligations. Most lenders require a DTI of 36% or less, though some will allow a max of 50% for a home equity loan. To compute your DTI, add up all your monthly debts (car payment, student loan, credit cards, current mortgage, for example) and divide the answer by your gross monthly income.

Obtain Adequate Property Insurance

You should already have solid property insurance — after all, it’s the smart thing to do and probably required by your primary mortgage lender. But you’ll definitely need this if you’re in the market for a home equity loan.

Maintain Sufficient Home Equity

You’ll need to keep at least 20% equity in your primary residence if you’re eyeing a home equity loan. When you’re assessing your equity, remember to use the current appraised value of your home, not the amount you paid for it initially.

Fixed vs. Variable Interest Rates

Home equity loans typically come with fixed interest rates. This means you can expect to make the same monthly payment over the life of the loan. While fixed rates offer predictability, they may start out higher than variable rates. Variable rates, on the other hand, can start out lower but may increase over time.

Tools & Calculators

Using an online calculator can help you determine if you might qualify for a home equity loan (or its cousin, the home equity line of credit, or HELOC). A calculator can also give you an idea of how much you could borrow and what your monthly payments would look like. Check out three of our favorites:

Closing Costs and Fees

Closing costs for a home equity loan typically fall between 2% and 5% of the loan amount. You might find charges for the appraisal, credit report, document preparation, notary, title search, and title insurance. Since these fees can differ based on the lender and loan terms, it’s wise to factor each lender’s fees into the total cost of the loan as you make your decision.

Tax Deductibility of Home Equity Loan Interest

If you use your home equity loan to build or substantially improve a home, the interest you pay could be deductible. Joint filers can claim as a deduction interest on up to $750,000 of a home equity loan, while single filers can claim interest on up to $375,000 of a loan. Just remember to itemize your deductions when you file your taxes. And save the receipts from your renovations with your tax documents.

Alternatives to Home Equity Loans

In addition to traditional home equity loans, there are several alternative financing options available to homeowners, each with its own distinct features.

Home Equity Line of Credit (HELOC)

A HELOC is a bit like a credit card in that it provides a revolving line of credit that you can draw on as needed. When you consider a HELOC vs. a home equity loan, remember that with a HELOC, you only pay interest on the amount of the credit line that you actually use. However, the interest rate on a HELOC is variable, meaning that it can fluctuate with the market. This can lead to increased costs if rates rise. A HELOC monthly payment calculator can help borrowers see how changing rates impact costs.

Home Equity Conversion Mortgage (HECM)

An HECM, or home equity conversion mortgage, is a government-insured reverse mortgage that allows homeowners aged 62 and older to receive payments from the lender based on their home’s value. Borrowers can choose to receive the funds as a lump sum, regular payments, or a line of credit and don’t need to make payments until they leave the home, unlike home equity loans and HELOCs. HECMs may have higher closing costs and longer processing times, but they offer a unique set of benefits. (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. It gets you a brand new mortgage for more than you owe on your existing mortgage. You take the difference in cash to use as you wish. One difference in the cash-out refinance vs home equity line of credit equation is that, unlike a home equity loan or HELOC, a cash-out refi leaves you with a single monthly payment. If you’re considering a cash-out refi, take a close look at the mortgage interest rates in South Dakota and think about how they compare to the rate you have on your current mortgage. You’ll want to make sure you stand to save money, ideally by securing a lower rate.

The Takeaway

Understanding home equity loan rates and options available in South Dakota can help you make well-informed decisions about which type of loan to go with — or whether to borrow at all. Make sure you have adequate equity in your home and that your credit score is healthy before you begin applying for a home equity loan. And consider all options, including a HELOC.

FAQ

What will your monthly payment be on a $50,000 loan?

Payments on a $50,000 home equity loan will be driven by the interest rate and loan term. Assuming a 10-year term, if your interest rate is 7.00% your monthly payment would be $581. At 8.00% it rises to $607.

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 will you pay on a $25,000 home equity loan?

When you’re pondering a $25,000 home equity loan, the interest rate and loan term are key players in your monthly payment. To get a handle on what this might look like, use a home equity loan calculator.

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

Borrowing $30,000 with a 20-year term at a rate of 7.50% would mean a monthly payment of $242. A different interest rate or loan term will change the monthly payment amount.

What could disqualify you from getting a home equity loan?

There are a few things that might stop you from getting a home equity loan. If your credit score is too low, your debt-to-income ratio is too high, you don’t have enough equity in your home, or you don’t have enough insurance on your home, you might not be able to get a home equity loan.

What are the advantages of a HELOC?

A home equity line of credit (HELOC) offers several benefits, including flexibility in borrowing, a lower interest rate than a credit card, and the ability to pay interest on only the amount you’ve borrowed. This makes HELOCs a good option for homeowners who might need varying amounts of cash over time for different financial needs or long-term projects.

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-Q424-101

Compare home equity loan rates in Alabama.

Introduction to Home Equity Loan Rates

Welcome to our guide on Alabama home equity loan rates. We’re here to help you navigate the current market and make sense of the various ways to get equity out of your home. By the time you’re done reading, you’ll have a solid grasp of the factors that influence rates in Alabama, how to snag the lowest ones, and the key differences between fixed and variable interest rates. Armed with this knowledge, you’ll be well-equipped to make smart decisions about home equity loans.

First, you need to know what is a home equity loan.

How Do Home Equity Loans Work?

A home equity loan, also known as a second mortgage, is a loan that uses your home as collateral. It typically offers a lower interest rate than unsecured personal loans. To qualify for a home equity loan, you generally need to have at least 20% equity in your home. Home equity loans can be used to finance a variety of expenses such as home renovations, education costs, medical bills, or debt consolidation.

Borrowers receive their funds in a lump sum, to be repaid in equal monthly installments over a term that can extend from five to 30 years. It’s important not to confuse a home equity loan with a home equity line of credit (HELOC). We’ll dig into the differences below.

Recommended: HELOC Monthly Payment Calculator

Where Do Home Equity Loan Interest Rates Originate?

Home equity loan interest rates are set based on a number of economic influences, with the prime rate playing a significant role. The prime rate is what banks charge their most trustworthy clients. Federal Reserve interest rate policy also has a ripple effect on home equity loan rates. Being in the know about these factors can help you anticipate rate changes and make savvy decisions about home equity loans.

How Interest Rates Impact Home Equity Loan Affordability

Your interest rate is a key factor in the long-term affordability of any home loan. Over a standard 20-year home equity loan term, even a 1% difference in rates can mean a higher monthly payment. But that’s not all — you could also end up paying an extra $11,000 in interest over the life of the loan.

A home equity loan calculator can show you how much you’ll pay in interest based on different rates and loan terms.

Home Equity Loan Rate Trends

Changes in the prime rate can have a big impact on the lending market and on how much you might pay for your loan. Keeping an eye on these changes can help you make more informed decisions about your borrowing strategy and whether a HELOC vs home equity loan makes more sense for you.

Historical Prime Interest Rates

Let’s take a look at the prime rate over the past five years. Starting in 2018, the rate has fluctuated quite a bit. It was at its lowest, 3.25%, in 2020, and at its highest, 8.50%, in 2023. This range shows just how much the prime rate can change and how it can impact the financial products that are tied to it.

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

Credit score, loan-to-value ratio, home value, property location, and lender policies are all elements that influence the rates for home equity loans. Lenders meticulously consider these factors to pinpoint the most suitable interest rate for you. By familiarizing yourself with these components, you can make well-informed decisions when applying for a home equity loan and potentially secure a more favorable rate.

Credit Score

Borrowers who show they can handle their finances responsibly by making timely payments are more likely to be offered more favorable interest rates. When it comes to a home equity loan, most lenders look for a credit score of 680 or higher, with many requiring a score of 700 or more.

Loan-to-Value (LTV) Ratio

The loan-to-value ratio is a key factor in determining your maximum loan amount. Your LTV is the sum of your mortgage balance plus your home equity loan amount, divided by your home’s market value, expressed as a percentage. Most lenders will approve a maximum LTV of 85% (though some will go up to 100% of your home’s value). The LTV ratio also helps lenders set appropriate interest rates and loan terms for each borrower.

Home Value

Lenders often use independent appraisals to determine the fair market value of your home and how much they’re willing to loan you. The amount of equity you have in your home is also important, and it will play a big role in determining the maximum loan amount that a lender will approve. This is especially true with home equity loans, where the loan amount is directly tied to the value of your home.

Home Value Stability

The stability of home values can significantly impact the amount of equity homeowners can potentially access and utilize. When home values experience an upward trend, lenders may be more inclined to approve larger loan amounts, as the increasing value of the property mitigates some of the associated risk. On the other hand, if home values decline, the lender’s risk exposure increases, potentially leading to stricter lending criteria and lower loan amounts.

Property Location

Living in a region that’s been flagged as high-risk can sometimes mean higher interest rates. The risk may be due to the potential for extreme weather or natural disasters, like hurricanes, flooding, wildfires, and earthquakes. If you’re in an area like this in Alabama, it could impact your home equity rates.

Lender Policies

Lender policies can have a big impact on the interest rate you get for your home equity loan. It’s a good idea to shop around and compare home equity loan rates, fees, and closing costs from several lenders in Alabama to make sure you’re getting the best deal. This can help you save a lot of money on interest over the life of the loan.

How to Qualify for the Lowest Rates

To get the best home equity loan rates, you’ll need a good credit score, a low debt-to-income ratio, good property insurance, and a healthy amount of home equity. By doing your due diligence in advance, you can improve your chances of getting the best loan terms.

Build a Strong Credit Score

You’ve probably heard that the better your credit score, the better the interest rate you’ll get on a home equity loan. And it’s true. That’s why it’s so important to keep an eye on your credit score and work to improve it. By doing so, you could save a significant amount of money over the life of your loan. Plus, the higher your credit score, the more likely you are to qualify for a loan or line of credit.

Manage Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is a critical piece of the loan-eligibility puzzle. This ratio compares your monthly income to your monthly debt obligations — mortgage, credit cards, car loan, personal loan, etc. The typical DTI limit for a home equity loan in Alabama is 36% to 50%. Lenders use this ratio to assess your ability to manage payments and your existing debt. The lower your DTI, the better your financial situation is generally considered, which can boost your chances of loan approval.

Obtain Adequate Property Insurance

It’s a standard requirement for home equity loans, especially in areas prone to flooding. These policies are a safety net, ensuring that if the unexpected happens, your lender’s investment is protected.

Maintain Sufficient Home Equity

Here in Alabama, we like to see our homeowners keep at least 20% equity in their homes when considering a home equity loan. It’s not just a number; it’s a way to make sure you’re financially secure in your investment. By maintaining this equity, you’re not only protecting your own interests but also those of the lenders who are there to support your homeownership dreams.

Fixed vs. Variable Interest Rates

Home equity loans typically come with a fixed interest rate, which means your interest rate — and your monthly payments — will stay the same throughout the life of the loan. While fixed rates can provide peace of mind, they can also be a little higher than variable rates to start. Variable rates can be lower, but they can also increase over time.

Tools & Calculators

When it comes to your money, it’s important to do your homework and figure out what you can afford before you get a home equity loan. Use our tools and calculators to help you compare loan options, understand how much you could borrow, estimate your monthly payments, and more. Here, in addition to the home equity loan calculator, you’ll find a HELOC repayment calculator and a HELOC interest only calculator.

Closing Costs and Fees

The closing costs for a home equity loan typically range from 2% to 5% of the loan amount. These can include fees for an appraisal, credit report, document preparation, origination, notary, title search, and title insurance. Keep in mind that opting for a no-closing-cost loan may result in a higher interest rate.

Tax Deductibility of Home Equity Loan Interest

Here’s the deal: The interest you pay on a home equity loan is tax-deductible, but only if the funds are used for home improvements. The deduction limit is $750,000 for married couples and $375,000 for singles. You’ll need to itemize your deductions to claim this benefit, so it’s a good idea to consult with a tax advisor to make sure you’re getting the most out of it.

Alternatives to Home Equity Loans

There are other ways to borrow against your home’s equity, including different types of home equity loans and lines of credit. Each option has its own features and eligibility requirements. These alternatives can provide you with more flexibility and potentially cost less than a home equity loan.

Home Equity Line of Credit (HELOC)

What is a home equity line of credit (HELOC)? Think of it like a credit card — a revolving line of credit that allows you to borrow against the equity in your home. You can borrow up to a certain preapproved amount, and the money can be used for whatever you need. You only pay interest on the amount you actually borrow.

Home Equity Conversion Mortgage (HECM)

HECMs are government-backed reverse mortgages designed for homeowners aged 62 and older. With an HECM, you can receive payments from the lender based on your home’s value. You have the flexibility to choose how you receive these funds: as a lump sum, regular payments, or a line of credit. The beauty of HECMs is that you don’t have to repay the loan until you leave the home, unlike home equity loans and HELOCs. (While SoFi doesn’t offer HECMs, we do offer home equity loans and HELOCs.)

Cash-Out Refinance

A cash-out refinance is a type of mortgage refinance that pays off your old mortgage loan and lets you borrow extra cash. Most lenders allow you to borrow up to 85% of your home’s value.

One big difference between a cash refinance vs a home equity line of credit is that a cash-out refi leaves you with a single monthly payment, while a HELOC results in two payments, one for your mortgage and one for the HELOC.

The Takeaway

Understanding home equity loan rates and the many factors that influence them is key to making smart financial decisions. By shopping around, working to improve your credit score, and considering other financing options, you can increase your chances of getting the best possible terms on your home equity loan and make the most of your financial situation.

FAQ

What will you be paying each month on a $50,000 home equity loan?

When you take out a home equity loan, you need to consider the monthly payment amount. This is determined by the interest rate and loan term. For example, at 8.00% interest over 10 years, your payment would be around $607. To get an estimate of your monthly payment based on current rates, use our loan calculator.

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

It’s important to understand how the interest rate and the drawn amount influence your monthly payment. A HELOC calculator is your ally here, providing a close estimate based on current rates. By way of example, assuming you draw the full amount and secure an interest rate of 8.00% to be repaid over 20 years, your payment would be around $607.

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

The monthly payment on a $25,000 home equity loan can vary greatly depending on the interest rate and the length of the loan. At 7.50% interest over 10 years, your monthly payment would be approximately $297. To get a better idea of what your monthly payments might be, use a home equity loan calculator that includes current interest rates.

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

When you’re looking at 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, at 7.50% interest over 10 years, your payment would be about $356. To get a better idea of what your financial obligations will be, you can use a loan calculator that includes the current interest rate.

What could disqualify you from getting a home equity loan?

There are a few key factors that can lead to disqualification, such as a lower credit score (below 680), a high debt-to-income ratio (over 50%), insufficient equity in your home (below 20%), or inadequate property insurance coverage. These are all important considerations to keep in mind before you apply.

What are the benefits of a HELOC?

HELOCs offer flexibility and usually lower rates than credit cards. You also have the option to pay interest only on the amount you borrow. This feature can provide short-term cash flow relief. But remember, if interest rates rise, your payments could go up.

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-Q424-061

Compare home equity loan rates in Colorado.

Introduction to Home Equity Loan Rates

This guide will help you understand Colorado home equity loan rates, which can vary depending on the lender, your financial situation, and the country’s larger financial environment. We’ll walk you through the factors that affect rates and provide tips for getting the best deal on your loan. Prepare to maximize the equity you get out of your home and find the right loan for your financial goals.

How Do Home Equity Loans Work?

A home equity loan is a lump-sum loan that leverages your home as collateral, often granting you lower interest rates than a personal loan would. So if you are still paying off your primary home loan, the home equity loan would be a second mortgage.

The interest rate is typically fixed, ensuring your repayments remain steady, and the funds borrowed are repaid during a term that can be anywhere from 5 to 30 years. To qualify for this type of loan, homeowners should have at least 20% equity in their primary residence. In Colorado, as in other states, a home equity loan can be used for a variety of purposes, from home improvements to debt consolidation.

Where Do Home Equity Loan Interest Rates Originate?

The interest rates lenders set for home equity loans are a product of various economic factors. The Federal Reserve sets interest rates and this, in turn, influences lenders’ prime rates, which is what that charge their most creditworthy clients. By grasping the nuances of these factors, you’re better equipped to anticipate rate shifts and make savvy decisions when considering a home equity loan in Colorado. Your personal financial profile also helps determine what rate you’ll be offered — we’ll get to that in more detail later.

How Interest Rates Impact Home Equity Loan Affordability

The interest rate you secure can have a significant impact on your ability to afford a loan over its term. When considering a 20-year mortgage, a seemingly small 1% difference in the interest rate can translate to a substantially greater amount of interest paid. Have a look at this example, assuming a homeowner borrows $60,000 with a 20-year term:

•  At 6.00% interest, monthly payments would be $430 and the total interest paid would be $43,166.

•  At 7.00% interest monthly payments would be $465 and the total interest paid would be $51,643.

•  At 8.00% interest monthly payments would be $502 and the total interest paid would be $60,447.

Home Equity Loan Rate Trends

The prime interest rate is a key indicator of home equity loan rates. So it’s helpful to keep an eye on the prime rate and to understand how it has changed over time. Since 2018, the U.S. prime rate has fluctuated significantly, reaching a low of 3.25% in 2020 and a high of 8.50% in 2023. Below you’ll find an up-close look at recent years and an overview of 50-plus years.

Historical Prime Interest Rates

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

Rest assured the prime rate isn’t the only thing that will affect what interest rate you’re offered on a home equity loan. In Colorado, and throughout the U.S., lenders also factor in your credit score, loan-to-value ratio, home value and other things. Each lender also has its own policies and risk tolerance.

Credit Score

Here’s a tip: Be the kind of person lenders love by keeping up with your payments. It’s a surefire way to better your chances of getting attractive interest rates. Most lenders in Colorado look for a credit score of 680 or higher when it comes to home equity loans, but many prefer to see 700 or above. The rates might fluctuate, but a solid credit score will always be your best friend.

Home Value

Lenders often use independent appraisals to determine a home’s market value. Appraisals also help determine how much equity you have in your home. This is important because the amount of equity you have in your home is one of the factors that will determine the maximum loan amount a lender will approve.

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio is a key factor in determining the maximum amount that most lenders will allow for a home equity loan. 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%.

At 82.5% CLTV, there is a good chance a lender will approve a home equity loan but it will be dependent on the lender’s policies, and your other financial metrics will need to be favorable. The LTV ratio also matters if you decide to borrow money with a home equity line of credit (HELOC).

Home Value Stability

The stability of your home’s value plays a role in how much equity you can tap into. When home values are rising in an area, lenders may be more open to approving larger loan amounts. But if values seem to be sliding, the risk for lenders goes up.

Property Location

Living in areas with a history of extreme weather or natural disasters can sometimes mean higher interest rates. Lenders might see these areas as riskier places to lend money. Colorado home equity loan rates may be affected by the state’s risk of wildfires, for example.

Lender Policies

When you’re looking for a home equity loan, it’s important to think about how lenders’ policies can affect the interest rates they offer. To make sure you’re getting the best deal, you should shop around and compare interest rates, fees and closing costs from several lenders. By doing your homework and comparing your options, including home equity rates from different lenders available in Colorado, you could end up with a loan that has better terms and could save you money in the long run.

How to Qualify for the Lowest Rates

To get the best home equity loan rates, you’ll want to take good care of your credit score. But that’s just the beginning. Here are some steps to help ensure you get the best possible rate:

Build a Strong Credit Score

Tending to your credit score means paying your bills on time, periodically checking your credit reports to ensure there are no errors (and correcting any that you do find), and trying not to spend to the max on every credit line you have. These habits will help you build credit over time and put you in a better position to secure the best available home equity loan interest rate in Colorado, saving serious money over the life of your loan.

Manage Debt-to-Income Ratio

Your debt-to-income (DTI) ratio, which compares your monthly income to your monthly debt payments, is a key factor in determining your eligibility for a loan. To compute your DTI ratio, divide your monthly debts by your gross monthly income. The typical DTI limit for a home equity loan is 36%, but can be as high as 50% for some lenders in Colorado.

Obtain Adequate Property Insurance

Property insurance is a must with any mortgage. It helps protect both you and the lender, ensuring that you’re both financially secure in the event of a water-related disaster. If you’re considering a Colorado home equity loan, it’s important to understand that your interest rate may be affected by your insurance coverage.

Maintain Sufficient Home Equity

Lenders typically require that owners maintain a minimum of 20% equity in their primary residence to be eligible for a home equity loan. This requirement is in place to protect you (borrow too much against your home and if its value drops, you could find yourself owing more than the property is worth). Having adequate equity also ensures that you have a significant financial stake in your property, which from a lender’s perspective makes you a good bet.

Fixed vs. Variable Interest Rates

In Colorado and elsewhere, fixed-rate is the most common type of home equity loan. This means you’ll have a predictable monthly payment for the entire life of the loan. While the stability of a fixed rate is appealing, it can come with a higher starting interest rate than a variable rate. Variable rates can start off lower, but they can increase (or decrease) after an introductory period.

Tools & Calculators

Don’t hesitate to utilize digital tools and calculators to make an informed decision. Here are three useful ones:

Closing Costs and Fees

When it comes to home equity loans, you can expect to pay closing costs that typically range from 2% to 5% of the loan amount. These costs can include fees for services such as appraisals, credit reports, document preparation, origination, notary, title searches, and title insurance. It’s important to consider fees and closing costs when you compare offers from multiple lenders, as they can vary.

Tax Deductibility of Home Equity Loan Interest

Here’s the lowdown: The interest you pay on a home equity loan in Colorado can be a federal tax write-off, but only if you’re using the funds to substantially improve your home. Couples filing joint tax returns can deduct interest paid on up to $750,000 of qualified home equity loans obtained after December 15, 2017, while single filers are permitted to deduct interest paid on loans of up to $375,000. Remember, to snag this benefit, you’ll need to itemize your deductions.

Alternatives to Home Equity Loans

In Colorado, a home equity loan isn’t your only option for tapping into your home equity. The different types of home equity loans include a home equity conversion mortgage (HECM) and a cash-out refinance. A home equity line of credit (HELOC) is also an option. Each of these options has its own unique features and requirements, as you’ll see below.

Home Equity Line of Credit (HELOC)

You’ve probably been wondering what is a home equity line of credit? And how is it different from a home equity loan? A HELOC is like a credit card in that you can borrow up to a certain limit and only pay interest on the amount you actually use. The interest rate on a HELOC is variable, meaning it can fluctuate with the market. This can lead to higher costs if interest rates rise. It’s important to consider the current home equity loan and HELOC rates in Colorado when deciding which is the right choice for you.

Here’s a quick look at helocs vs. home equity loans.

Home Equity Conversion Mortgage (HECM)

The HECM, a government-backed reverse mortgage, is an option for those 62 and older to receive funds based on their home’s value, either as a lump sum, regular payments, or a line of credit. Unlike home equity loans and HELOCs, HECMs don’t require payment until you leave your home. While HECMs have higher closing costs and longer processing times, it’s an option worth considering as you weigh your choices. (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 new mortgage that pays off your old one and lets you borrow additional cash. In the cash-out refinance vs. home equity line of credit comparison, the big difference is that a cash-out refi leaves you with one mortgage and one payment, while a HELOC will require a payment separate from your primary home loan. As with any mortgage refinance, you’ll want to look closely at the interest rate you currently have and compare it to the rate a lender offers for a cash-out refinance before proceeding.

The Takeaway

Understanding home equity loan rates and the many factors that impact them is key to making smart decisions about how to make the best use of your hard-earned home equity. By comparing rates from multiple lenders, using online tools, and considering all costs associated with each option, you can choose the home equity loan that suits you best for living in the beautiful state of Colorado.

FAQ

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

If you borrow $50,000 with a home equity loan and pay it back over 10 years, the monthly payments could range from $530 to $607, depending on your interest rate (this range is from 5.00% to 8.00%).

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

How much interest you’ll pay on a home equity line of credit (HELOC) depends on how much of the credit line you have used. But if you’ve maxed out your HELOC and are paying it back over 20 years at a rate of 7.00%, you can expect to pay $775 per month. Of course this is just an example. You can use a HELOC repayment calculator to compute the number for your exact interest rate.

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

When you’re contemplating a $25,000 home equity loan, it’s crucial to factor in the interest rate and the loan term to see how they’ll affect your monthly payments. For an accurate picture of what you might owe, a trustworthy loan calculator is your best friend. It can lay out a repayment plan and empower you to make wise choices about your home equity loan.

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

The monthly payment on a $30,000 home equity loan can vary depending on the interest rate and the loan term but a 10-year term and 8.00% interest rate would mean a monthly payment of $364.

What could disqualify you from getting a home equity loan?

There are a few factors that could potentially disqualify you from securing a home equity loan. These include a history of poor credit, insufficient equity in the home, a high debt-to-income ratio, and inadequate insurance coverage for the property.

What are the benefits of a HELOC?

HELOCs have a variety of benefits, including flexible borrowing options (you only borrow and pay interest on what you need at the moment, up to whatever credit line has been approved). They also have lower interest rates than most credit cards. These benefits make HELOCs a great option for many different financial needs and situations, offering a flexible and cost-effective way to get the money you need for a variety of financial needs.

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-Q424-066