Compare home equity loan rates in Hawaii.

Introduction to Home Equity Loan Rates

Our guide to Hawaii home equity loan rates will help you understand how these interest rates work and how to find the best rates and terms for your needs. We’ll cover what home equity loan rates are based on, what a home equity loan is, and some alternatives to be aware of. Armed with this information, you’ll be better prepared to make the right financial decisions for you and your home.

How Do Home Equity Loans Work?

A home equity loan is an installment loan that uses your home as collateral, so it usually has a lower interest rate than an unsecured personal loan. If you are currently paying off your primary home loan, the home equity loan would be a second mortgage. The interest rate is typically fixed, which means your payment will be the same every month. Repayment terms range from 5 to 30 years.

To qualify for a home equity loan, you’ll need to have at least 20% equity in your home. By entering your estimated home value and existing mortgage balance into a home equity loan calculator, you can see how large a loan you might qualify for.

Home equity loans can be used for a variety of expenses, such as home improvements, education costs, medical bills, or debt consolidation.

Source of Home Equity Loan Interest Rates

In Hawaii, home equity loan interest rates are a product of several factors, with the prime rate taking center stage. The prime rate is what banks charge their most creditworthy clients. Federal Reserve policy decisions on interest rates can also move home equity loan rates.

You just need a loose understanding of these influences to better anticipate rate changes and make informed decisions about when and how to get equity out of your home in Hawaii.

How Interest Rates Impact Home Equity Loan Affordability

Your interest rate will largely determine how affordable your loan will be over time. For example, a 1% difference in interest rates on a 20-year loan can mean a higher monthly payment and an additional $28,000+ in interest paid over the life of the loan. Check out this example, assuming a homeowner borrows $200,000 with a 20-year term:

•  At 6.00% interest, monthly payments would be $1,433 and the total interest paid would be $143,887.

•  At 7.00% interest monthly payments would be $1,551 and the total interest paid would be $172,143.

•  At 8.00% interest monthly payments would be $1,673 and the total interest paid would be $201,491.

Understanding how interest rates can impact your loan can help you shop around for the best available deal.

Home Equity Loan Rate Trends

As we mentioned, the prime interest rate is a key indicator of home equity loan rates. By following the fluctuations of the prime rate, you can see how the market is moving and make decisions about your home equity loan.

Historical Prime Interest Rates

Since 2018, the prime rate has seen its ups and downs, hitting a low of 3.25% in 2020 and a high of 8.50% in 2023. Below the table, you’ll see a chart that gives an even broader overview of the prime rate over the last 50 years.

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

Many elements come into play when determining the interest rate for different types of home equity loans in Hawaii. Lenders consider the housing market and economic climate when adjusting rates, but also the borrower’s financial profile and the property details.

Credit Score

Your credit score is a big deal. It’s like a financial report card that lenders use to gauge your trustworthiness. If you’ve been diligent with your payments, you’re in luck — that could mean better interest rates for you. In Hawaii, a credit score of 680 is a good starting point for a home equity loan, but aiming for 700 or higher could open the door to even more favorable terms.

Home Value

Lenders typically determine the value of a home through an independent appraisal. This helps them understand how much the home is worth so they can determine how much they can loan you. The appraisal is a critical step in the home buying process, and whether you’re getting a mortgage, home equity loan, or home equity line of credit (HELOC), your lender will require one.

Loan-to-Value (LTV) Ratio

The LTV ratio is a key factor in determining the maximum amount lenders will allow for home equity loans. This ratio is calculated by adding the mortgage balance to the hoped for loan amount, then dividing the total by the home’s appraised value. Most lenders cap home equity loans at 85% LTV. Here’s an example of how that looks for a home that appraised for $1,000,000. Let’s say the owner owes $600,000 on the existing mortgage and wants to borrow $200,000 with a home equity loan:

•  $600,000 mortgage balance + 250,000 home equity loan = $850,000

•  $850,000 / $1,000,000 = 85%

With an LTV of 85%, this owner is in a good position to obtain the desired $250,000 loan. By looking at the LTV, lenders can get a better understanding of your financial situation and whether you can afford to take on more debt.

Home Value Stability

The rise and fall of home values in Hawaii directly impacts the equity you can tap into. When the market is up, lenders tend to be more generous, allowing you to leverage a larger portion of your property’s worth. But when the market takes a dip, lenders get cautious, and you might find yourself facing stricter lending standards and lower loan amounts. This is why it’s crucial to stay informed about the current state of home equity rates in Hawaii.

Property Location

Living in a high-risk area can mean higher interest rates. High-risk areas are often places that are more likely to experience extreme weather or natural disasters, like hurricanes, flooding, and wildfires. These factors can affect the value of your home and your financial stability as a homeowner.

Lender Policies

Lender policies can have a big impact on the interest rate you get. It’s a good idea to compare interest rates, fees, and closing costs among a few different lenders to make sure you’re getting the best deal. This can help you save money and make sure you get a loan that works for you over the long term.

How to Qualify for the Lowest Rates

To qualify for the best home equity loan rates, you’ll need to have a strong credit score, a low debt-to-income ratio, adequate property insurance, and a good amount of home equity. By focusing on these areas, you can set yourself up for the best home equity loans in Hawaii. Here’s your To Do list:

◦  Build a Strong Credit Score

A higher credit score often translates to more attractive interest rates on home equity loans. Plus, a better credit score can lead to lower fees, further reducing your borrowing costs. To build your credit score, make sure to pay your credit card in full and on time every month, don’t max out your cards, and regularly check your credit report for errors that might impact your score.

◦  Manage Debt-to-Income Ratio

When you’re ready to apply for a home equity loan, your debt-to-income (DTI) ratio is a key metric. It’s the number that compares your monthly income to your monthly debt obligations. Most lenders in Hawaii are looking for a DTI ratio that falls below 36%, but some lenders will go as high as 50%. This ratio is a way for them to see if you can manage your current debt and take on the additional monthly payments a home equity loan would require.

◦  Obtain Adequate Property Insurance

Sufficient property insurance is a must-have for home equity loans, particularly in areas prone to flooding. Lenders want to ensure their investment is protected, and may require additional coverage.

◦  Maintain Sufficient Home Equity

In the beautiful state of Hawaii, as elsewhere, homeowners should maintain a minimum of 20% equity in their primary residence to qualify for a home equity loan. To lenders, this means you have a solid financial foundation in your property.

Fixed vs. Variable Interest Rates

Home equity loans in Hawaii usually come with fixed interest rates. This means you’ll have the same monthly payment for the entire term of the loan. Fixed rates can give you peace of mind and make it easier to budget, but they might be a little higher at the beginning than variable rates. With a heloc vs a home equity loan, rates are typically variable; they usually start lower, but they can go up or down over time.

Tools & Calculators

By using the online tools and calculators available to you, you can get a detailed estimate of your home equity loan payments, compare interest rates, and see the impact of different loan terms on your financial well-being. Below, in addition to the home equity loan calculator, you’ll find a HELOC repament 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 scoop: The interest on your home equity loan could be tax-deductible if you use it for home improvements. Couples filing joint tax returns can deduct interest paid on up to $750,000 of qualified home equity loans, while single filers may deduct interest paid on loans up to $375,000. To claim this benefit, you’ll need to itemize your deductions. For the nitty-gritty on maximizing your tax benefits, it’s wise to chat with a tax advisor.

Alternatives to Home Equity Loans

In Hawaii, homeowners have access to a variety of home equity products, including home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances. Each of these has its own features and eligibility requirements, so it’s important to carefully consider your options before making a decision.

Home Equity Line of Credit (HELOC)

Now that you know your way around a home equity loan, what is a home equity line of credit? A HELOC is a bit like a credit card with a lower interest rate. It allows you to borrow up to a certain limit, and you pay interest only on the amount you borrow. Unlike a fixed-rate loan, the interest rate on HELOCs is variable. This means it can go up or down based on the market, which impacts how much you pay.

Home Equity Conversion Mortgage (HECM)

An HECM is a government-insured reverse mortgage that empowers homeowners aged 62 and older to receive payments from the lender based on their home’s value. You can choose to receive the proceeds as a lump sum, regular payments, or a line of credit. The beauty of an HECM is that you’re not required to repay it until you leave the home. HECMs may have higher closing costs and longer processing times.

Cash-Out Refinance

A cash-out refinance is a type of mortgage refinance. You take out a new, larger mortgage that pays off your existing one and leaves you with a lump sum of cash. Lenders in Hawaii typically allow you to borrow 85% of your home’s equity.

Recommended: Cash Refinance vs Home Equity Line of Credit

The Takeaway

Understanding Hawaii home equity loan rates and the factors that influence them is key to making smart financial decisions. By comparing lenders, building your credit, and considering financing alternatives, you can find the best rates and terms for your specific needs and financial goals.

FAQ

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

A loan calculator can help you get an accurate estimate of your monthly payments, but you’ll need to enter the interest rate and loan term. For example, a $50,000 loan at an 8.00% interest rate repaid over 10 years would give you a monthly payment of $418.

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

The monthly payment on a $100,000 home equity line of credit (HELOC) varies depending on how much you draw, the interest rate, and the repayment term. If you draw the full amount and repay it over 20 years at 8.00%, your monthly payment will start at $836. However, it’s important to note that HELOCs often come with variable interest rates, meaning your monthly payment could change over time.

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

The interest rate and loan term are the main factors that determine your home equity loan payments. For example, a $25,000 loan repaid over 10 years at 8.50% gives you a monthly payment of $310. For a more precise estimate, use a home equity loan calculator. These tools consider your individual circumstances and loan details to give you a more accurate payment estimate.

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

When you’re looking at a $30,000 loan, the interest rate and the length of the loan will determine your monthly payment. An interest rate of 8.50% repaid over 10 years will give you a monthly payment of $372. You can use a loan calculator to see what your payments would be with different interest rates.

What could disqualify you from getting a home equity loan?

There are a few things that could keep you from getting a home equity loan, including: A low credit score, High debt-to-income ratio, low equity in your home, or not enough insurance coverage on the property. These factors can make it harder for you to get the loan you want, but there are ways to work around them and improve your chances of getting approved.

What are the benefits of a HELOC?

HELOCs are a great option for flexible borrowing, often with lower interest rates than credit cards. With a HELOC, you only pay interest on the amount of credit you use. Just be aware that variable interest rates can lead to higher costs if rates go up. Be sure to weigh all the factors before deciding if a HELOC is the right choice for you.

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-Q424-071

Compare home equity loan rates in Illinois.

Introduction to Home Equity Loan Rates

This guide will help you become a savvy consumer when it comes to Illinois home equity loan rates. The rate you might be offered as a borrower will depend on the lender, your financial situation, and the country’s larger financial environment. We’ll take you through the factors that help determine rates and provide tips for getting the best one available for you. Prepare to maximize the equity you get out of your home and find a loan that will help you achieve your financial goals.

How Do Home Equity Loans Work?

A home equity loan is a lump-sum loan that leverages your home as collateral. Because a home guarantees the loan, borrowers often find they can get a lower interest rate with a home equity loan than with a personal loan. If you are currently 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 you repay the money you borrow over a term of 5 to 30 years. To qualify for this type of loan, homeowners need a minimum of 20% equity in their primary residence. In Illinois, as elsewhere in the U.S., a home equity loan can be used for a variety of purposes, from home improvements to debt consolidation.

Where Do Home Equity Loan Interst Rates Originate From?

The interest rates lenders set for home equity loans are a product of various economic factors. The Federal Reserve sets its own rates and then lenders set their prime rate — the rate they offer their most creditworthy clients. From there, your personal financial profile helps determine what rate you’ll be offered — we’ll cover that in more detail below.

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. 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. Check out 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, as noted above. 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, hitting a low of 3.25% in 2020 and a high of 8.50% in 2023. Below you’ll find a look at recent years and an overview of more than 50 years.

Historical Prime Interest Rates

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

The prime rate isn’t the only factor driving what interest rate you’re offered. These other factors determine the level of risk associated with your application, and thus the rate that you might qualify for.

Credit Score

You know how your lender examined your credit score when you took out a home loan to purchase your home? Well they’ll look again if you apply for a home equity loan. They’re more likely to approve you if your credit score is 680 or higher, but many prefer to see 700 or above.

Home Value

You’ll need a home appraisal if you apply for a home equity loan, as the value of your property will determine how much equity you have in your home (remember, you need at least 20% equity in order to get the loan).

Loan-to-Value (LTV) Ratio

Your home value is also important for figuring your loan-to-value (LTV) ratio, which helps determine how much you can borrow. You can compute your personal number by adding the amount you wish to borrow to the amount you currently owe on your mortgage (if anything). Then divide that total by the appraised value of your home. Multiply the result by 100 and you’ll have what’s called a “combined LTV,” or CLTV. The highest LTV most lenders will allow for a home equity loan is 85%. If you’re not sure how much you might be allowed to borrow, you can run the numbers with a home equity loan calculator.

Home Value Stability

How stable home values are in your area is another thing that lenders consider. When the market is healthy and values are stable or rising, lenders are more likely to give the okay to larger loans. But when the housing market is soft, lenders may tighten their criteria and offer smaller loan amounts.

Property Location

If your property is located in an area that is deemed at high risk for natural disasters such as flooding or tornadoes, higher interest rates may be in your future, as lenders consider these areas more risky.

Lender Policies

Policies set by individual lenders can have a noticeable impact on the interest rates they offer borrowers. That’s why you’ll want to compare offers from a few different lenders during the loan application process and look not only at the interest rate you’re offered but also at the fees.

How to Qualify for the Lowest Rates

Take these steps and you’ll improve your chances of getting the lowest possible home equity loan rate in Illinois:

1. Build a Strong Credit Score

Keep tabs on your credit report, promptly report any inaccuracies, and request a correction. Pay your bills on time, naturally. And don’t spend to the max on every credit line you have.

2. Manage Debt-to-Income Ratio

The debt-to-income (DTI) ratio, which compares your monthly debt obligations to your gross monthly income, is a significant factor when lenders evaluate loan applications. The typical DTI limit for a home equity loan is 36%, though some lenders allow up to 50%.

3. Obtain Adequate Property Insurance

It’s standard for lenders to require proof of adequate property insurance before granting Illinois home equity loans. This is especially important if you live in an area prone to flooding or other natural disasters.

4. Maintain Sufficient Home Equity

In Illinois, and across the country, you need to keep at least 20% equity in your home to qualify for a home equity loan. It’s the lender’s way of making sure you aren’t borrowing more than you can afford.

Fixed vs. Variable Interest Rates

Home equity loans, which use your home as collateral, often come with fixed interest rates. The upside to this is that your rate stays the same over the loan’s life, making it easier to plan for monthly payments. But because fixed rates are, well, fixed, they might be a bit higher when you first take out the loan compared to variable rates. Variable rates, on the other hand, can start out lower but may change over time.

Tools & Calculators

As you search for the best home equity loan for you, online calculators can help you estimate your future payments. Here are some of our favorites:

Closing Costs and Fees

Home equity loans come with closing costs that hover between 2% and 5% of your loan amount. Lenders may (or may not, according to their policies) charge for the appraisal, credit report, document preparation, origination, notary, title search, and title insurance fees. Factor in each lender’s fees as you compare home equity loan offers.

Tax Deductibility of Home Equity Loan Interest

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 may deduct interest paid on loans up to $375,000 — that is, provided you use the money to “buy, build, or substantially improve” a home. For the nitty-gritty on how to maximize your tax benefits, a sit-down with a tax advisor is a smart move.

Alternatives to Home Equity Loans

There are different types of home equity loans you might consider if you’re looking to take advantage of the equity you’ve built up in your property. Here are three options:

1. Home Equity Line of Credit (HELOC)

A HELOC is akin to a credit card, but one that’s backed by your home. If you’re approved, you’ll be allowed to borrow up to a certain amount, but (here’s the key) you’ll only pay interest on the portion of the credit line that you actually use. This makes a HELOC a good solution if you know you need to borrow money but you aren’t exactly sure how much. When you compare a HELOC vs.a home equity loan, there is another difference to note: Unlike a home equity loan, a HELOC typically has a variable rate that changes over time, which means your monthly costs might increase, too.

2. Home Equity Conversion Mortgage (HECM)

An HECM, or home equity conversion mortgage, is a government-insured reverse mortgage that lets homeowners aged 62 and older receive payments from the lender based on their home’s value. The payment can be a lump sum, regular installments, or a line of credit. And no repayment is required until you leave the home. This is in contrast to home equity loans and HELOCs, which demand monthly payments. While HECMs may have higher closing costs and longer processing times, they offer unique benefits that may be worth exploring. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)

3. Cash-Out Refinance

A cash-out refinance is a type of mortgage refinance that lets you pay off your old mortgage and borrow extra funds to use in any way you like. As with a home equity loan, lenders usually allow you to borrow up to 85% of your home’s value. When comparing a cash-out refinance vs. a home equity line of credit, the main difference, of course, is that the former is a refinance — meaning you’ll be getting a brand new mortgage at whatever current rate you qualify for in Illinois.

The Takeaway

Understanding home equity loan rates and the various factors that influence them can empower Illinois homeowners to make smart financial decisions. Using an online calculator, polishing up your financial profile, and exploring all options including a HELOC or a cash-out refi, will help ensure you get the right loan for your needs.

FAQ

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

The payment on a $50,000 home equity loan will vary depending on the interest rate and loan term. An 8.00% interest rate and a 10-year term would mean a monthly payment of $607. Score a 6.00% rate and choose a 20-year term and you’d pay $358 per month.

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

The monthly payment on a $100,000 home equity line of credit (HELOC) will depend on how much of the line of credit you have used. If you used the entire $100,000 and repaid it over 20 years at 7.00% interest, you would need to come up with $775 per month.

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

Remember that the 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, use a home equity loan calculator.

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

Borrowing $30,000 with a home equity loan would cost you $348 per month if you had a 7.00% interest rate and repaid the loan over 10 years.

What could disqualify you from getting a home equity loan?

Things that could make a lender disqualify you include having too little equity in your home, lacking a strong credit score, having a high debt-to-income ratio, or not adequately insuring your property.

What are the benefits of a HELOC?

A home equity line of credit (HELOC) provides flexibility. You only borrow what you need at any given time, and you pay interest only on the amount you borrow. This makes HELOCs a popular choice for homeowners who know they need some cash on hand but aren’t sure exactly how much.

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-Q424-073

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.

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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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.

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