Compare HELOC rates in Georgia.

Introduction to HELOC Rates

Looking for a way to borrow against the accumulated equity in your primary residence? This guide provides an overview of HELOCs in Georgia and how to find the best available interest rates in the state. You’ll learn about the factors influencing HELOC rates, the application process, and how to use tools like a HELOC interest-only calculator to make informed decisions. This information can assist homeowners in maximizing your home equity and managing your finances effectively.

We’ll start with the million dollar question: What is a home equity line of credit?

What Is a HELOC?

A HELOC is a revolving credit line secured by your home equity. Because your home serves as collateral, HELOC interest rates are lower than those for personal loans — and much lower than most credit cards. You may borrow up to 90% of your home’s value, minus your mortgage. A HELOC has two phases: draw and repayment.

The Draw Period

During the HELOC’s draw period, which typically lasts 10 years, you can access funds up to your credit limit, make payments, and borrow again. While interest-only payments are usually required, principal payments may be optional. And you pay interest only on the amount you draw, not the full amount you’re approved for. This flexibility is what makes it such a popular way get equity out of your home.

The Repayment Period

During the repayment period, which is typically 10 to 20 years, borrowing ends, and the principal is paid back with interest. Be prepared for the variable interest rate to fluctuate. That means your payment can increase over time (though it can also decrease), according to prevailing rates. The major downside is the risk of foreclosure if you default.

Where Do HELOC Interest Rates Come From?

HELOC interest rates are tied to the prime rate, the benchmark interest rate reserved for the most creditworthy customers. Federal Reserve policy decisions also impact HELOC rates. Understanding these factors can help borrowers anticipate rate fluctuations and make informed decisions about the best time for a HELOC. But not everyone gets this rate, and the interest rate you’re offered will depend on a number of other factors — we’ll get to those later.

How Interest Rates Impact HELOC Affordability

HELOC affordability over a decade-long draw and two-decade repayment term is significantly impacted by your interest rate. A mere 1% difference in interest rate can result in an additional $14,000 in interest over the life of the loan. The table below shows how changes in interest rate affect the monthly payment and total interest paid on a $100,000 HELOC with a 20-year term.

HELOC Interest Rate Trends

Georgia HELOC rates are closely connected to the fluctuations of the prime interest rate. Keeping a watchful eye on these trends empowers borrowers with the knowledge to secure better rates.

Historical Prime Interest Rate

Since 2018, the prime rate has undergone significant fluctuations, reaching a low of 3.25% in 2020 and a high of 8.50% in 2023. These variations have a direct impact on Georgia HELOC rates. The chart below gives an even broader overview of the prime rate over the past 50 years.

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

We hinted above that there’s more to Georgia HELOC rates than just the prime rate. A borrower’s financial profile and the property they’re leveraging also factor in. Understanding this can assist you in securing more favorable rates with different types of home equity loans and lines of credit.

Home Equity

Possessing a significant amount of equity in your residential property makes you appear less risky to lenders, which often leads to more favorable interest rates. Typically, homeowners must have a minimum of 15% equity to qualify for a HELOC.

Credit Score

Maintaining a credit score of 680 or higher is needed for securing a HELOC. Some lenders even prefer a credit score of 700 or higher. A higher credit score is a clear indicator of lower risk, which often leads to more favorable terms and rates.

Stable Income

Lenders analyze your income to assess your ability to repay your HELOC. A consistent and reliable income serves as a compelling indicator of creditworthiness. That means consistent employment in the same job over the years can be just as important as how much you make.

Loan-to-Value Ratio

Most lenders require your combined loan-to-value ratio (mortgage balance + desired HELOC amount / appraised home value) to be 90% or less, although some will allow you to borrow 100% of your home’s value.

The ratio is a key metric in determining your credit limit. If your home value is $500,000, your mortgage balance is $300,000, and your HELOC balance is $100,000, then your CLTV ratio is 80%.

Variable vs Fixed Interest Rates

HELOCs feature variable interest rates, which are subject to fluctuations throughout the entire loan term. Initially, variable interest rates can be lower compared to fixed rates. But they can rise or fall with market conditions, making your monthly payment a bit unpredictable.

For some borrowers, that’s too much uncertainty. They tend to go with a home equity loan instead, because of its fixed interest rate. While it may start out a bit higher, your monthly payment will always be the same.

Tools & Calculators

When it comes to home loans, having the right tools at your disposal can be invaluable. SoFi offers numerous calculators to help you estimate your payments and see how interest rates affect the affordability of different financing options. Three tools relevant to HELOCs are embedded below, including a HELOC repayment calculator, which allows you to estimate your payment once the draw period is over.

How to Qualify for a Competitive HELOC Rate

If you’re eager to qualify for the most favorable HELOC rates available in Georgia, here’s the map to get you there. You’ll have to spend time enhancing your credit score, evaluating your home equity stake, and diligently comparing the offers presented by multiple lenders. It’s work, but as we showed you above, the payoff can be in the thousands, or even tens of thousands, of dollars.

Cultivate to Your Credit Score

Making timely payments and reducing credit card balances can significantly bolster your credit score. Conducting periodic reviews of your credit report can help you identify areas that warrant improvement, guiding you to take proactive steps toward enhancing your overall credit standing.

Assess Your Home Equity

The first step in any HELOC application is to calculate your home equity. Regular mortgage payments help in building home equity over time. It can also be boosted through renovations that increase the property’s value. More home equity can lead to better terms and higher amounts when applying for a HELOC.

Calculate Your Debt-to-Income Ratio (DTI)

Finance loves their three-letter shortcuts: Your DTI ratio is an important metric used by home equity lenders to assess your borrowing capacity. It is calculated by dividing your total monthly debt payments by your gross monthly income. Generally, lenders prefer a DTI below 36%, but a lower DTI is more advantageous. A lower DTI can increase your chances of securing a HELOC with better terms and conditions.

Application Process for a HELOC in Georgia

The application process for a HELOC in the state of Georgia involves a thorough review of your financial health, preparation of all necessary documentation, submission of a formal application, scheduling and undergoing a professional home appraisal, and final approval and closing. Each step is necessary for ensuring a successful application and a favorable outcome.

Step 1. Run the Numbers

Check your credit scores (is it 680+?), calculate your DTI (under 36%?), and get a good estimate of your home equity (over 15%?) before you apply for a HELOC.

Step 2. Compare Lenders

See what offers you might qualify for when it comes to interest rates, but also compare their qualification requirements, loan minimums and maximums, fees, the length of the draw and repayment periods they’re offering, and other factors.

Step 3: Gather Your Documents

To ensure a smooth and efficient HELOC application, prepare all the necessary documents. These typically include proof of income (pay stubs and W2s), employment history, credit history, and documentation substantiating your home’s value.

Step 4: Submit Your Application

Submitting your HELOC application takes place online, by phone, or in person.

Step 5: Get an Appraisal

If your home appraises for more than your mortgage balance, the lender may approve you for a HELOC. The appraisal helps determine the amount of equity you have in your home, which affects the loan amount you can qualify for.

Step 6: Prepare for Closing

Before accessing your HELOC funds, you must sign loan documents and pay necessary fees. Some lenders can make funds available within three days of closing your HELOC.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the borrowed funds are used for buying, building, or significantly improving their primary residence. Interest deductions are limited to the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consulting a tax advisor can help you navigate the specific tax implications and confirm eligibility for deductions related to HELOCs.

Closing Costs and Fees

HELOC closing costs are usually lower than home-buying or mortgage refinance costs. The appraisal fee, typically the highest expense, ranges from $150 to $500. Other costs may include application, loan origination, and administrative fees. Some lenders charge annual maintenance fees, transaction fees for withdrawals, inactivity fees, or early termination fees. Many lenders may reduce or waive closing costs but charge a higher interest rate, which may not be cost-effective.

Alternatives to HELOCs

When considering alternative financing options to HELOCs, carefully evaluate the various types of home equity loans, compare a cash-out refinance vs a home equity line of credit, and explore personal loans. Each option presents unique benefits and drawbacks, so it’s wise to assess your requirements and circumstances before making a decision.

Home Equity Loan

Unlike HELOCs, home equity loans provide a lump sum amount and are paid back at a set interest rate. Borrowers can usually access up to 85% of the equity in their home. Use a home equity loan calculator to estimate your potential loan amount.

The chart below provides an at-a-glance comparison of a HELOC vs. a home equity loan:

Cash-Out Refinance

This option allows homeowners to tap into their home equity by refinancing their existing mortgage for more than they owe. They can then use the extra cash for any purpose. A cash-out refinance will leave you with one monthly payment (a new mortgage) rather than the two you would have if you carry a mortgage plus a HELOC or home equity loan. But it also means you will have a new interest rate. So if your current home loan provides a very favorable rate, you’ll want to look closely at how much more you would pay in interest with a refi.

Personal Loan

A personal loan is an installment loan that is repaid immediately with monthly payments spanning two to seven years. Personal loans do not necessitate collateral, making them a good alternative for individuals who lack substantial home equity. However, the lack of collateral also results in a higher interest rate than you would get with a HELOC or home equity loan.

Credit Cards

Credit cards typically come with much higher interest rates than HELOCs, which makes them much more expensive if you carry a large balance from month to month. While credit cards offer convenience and flexibility for smaller purchases, a HELOC can provide a more cost-effective solution for larger expenses such as home improvements or debt consolidation.

The Takeaway

A HELOC can be a valuable financial tool for homeowners looking to leverage their home’s equity. HELOC loans offer competitive interest rates and flexible repayment terms, making them a popular choice for various financial needs. However, it’s essential to understand the application process and compare offers from different lenders to secure the best rates. Over a lengthy repayment period, total interest paid can really add up, so even a fraction of a percentage makes a difference.

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

FAQ

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

When determining the monthly payment for a $50,000 HELOC, using a HELOC monthly payment calculator can be helpful. If you had a 20-year repayment term and a 6.00% interest rate, your monthly payment would be $358. At a 7.00% interest rate, your monthly payment would jump to $388.

Is a HELOC a good idea right now?

It really depends on your circumstances and goals. HELOCs can be particularly useful for necessary home renovations, debt consolidation, or other substantial expenditures. However, it pays to analyze the interest rates and repayment terms before making a decision.

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

To calculate the monthly payment on a $100,000 HELOC, you can utilize a HELOC repayment calculator. But if you have drawn the maximum and are paying it off over 20 years, you would have a monthly payment ranging from around $700 to $900 if your interest rate was in the neighborhood of 6.00% to 8.50%.

What are the benefits of a HELOC?

HELOCs provide homeowners with competitive interest rates, flexible repayment terms, and the convenience of accessing funds as needed. Its variable interest rate is initially lower than the fixed rate of a home equity loan — but not everyone is comfortable risking higher payments down the road.

Do you need an appraisal for a HELOC?

Yes, an appraisal is typically required for HELOC loans. The appraisal is needed to determine your home’s value and therefore your equity position.

What disqualifies you from getting a home equity loan?

Several factors, such as a low credit score (below 680), insufficient home equity (under 15%), or a high debt-to-income ratio (over 50%), can potentially disqualify you from obtaining a home equity loan.

How difficult is it to get a HELOC?

The difficulty level of obtaining a HELOC depends on your financial circumstances. Lenders take into account various elements, such as credit score, home equity, and income, when assessing HELOC loan applications. By enhancing your credit score and evaluating your home equity, you can potentially increase your likelihood of approval for a HELOC.

Does HELOC affect credit score?

Yes, a HELOC can affect your credit score. Applying for a HELOC results in a hard inquiry, which can temporarily lower your score by a few points. Additionally, how you manage your HELOC, including making timely payments, can impact your credit score over time.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

SOHL-Q424-020

Compare HELOC rates in Arkansas.

Introduction to HELOC Rates

For homeowners who have been making regular home loan payments over the years, leveraging their accumulated equity can be a relatively cheap source of cash. But with so many financing options out there, how do you choose the best one for your financial situation and goals? And how do you know you’re getting the best available interest rate?

This article provides an overview of Arkansas HELOC interest rates. Readers will learn about the HELOC application process, the benefits of HELOCs, and other ways to borrow against your home. By the end, you’ll understand the factors influencing these interest rates and how to secure a competitive deal that fits your long-term needs.

First we’ll get into what is a what is a home equity line of credit.

What Is a HELOC?

A HELOC is a revolving credit line that allows the homeowner to borrow up to 90% of your home’s value, minus what you owe on your mortgage. Because a HELOC works somewhat like a credit card, you don’t have to borrow the entire amount at once. You can borrow in increments as you need the money. And because the HELOC is secured by your home, it usually has a lower interest rate than a credit card or personal loan.

A HELOC has two phases: draw and repayment.

The Draw Period

During the HELOC’s draw period (usually 10 years), you can access funds up to your credit limit, make payments to reduce your balance, and borrow again. Interest-only payments are typically required during this period, but principal payments may be optional.

The Repayment Period

During the repayment period (typically 10 to 20 years), borrowing ends, and you pay back the principal with interest (but only on the amount borrowed, not the full credit line). HELOCs have variable interest rates that fluctuate over the loan term, making repayment unpredictable. A HELOC repayment calculator can help you understand the impact of interest rate changes on your payments.

Where Do HELOC Interest Rates Come From?

HELOC interest rates are tied to the prime rate and influenced by economic and housing market factors. The prime rate is the benchmark interest rate for a bank’s most creditworthy customers. Federal Reserve policy decisions also impact HELOC rates.

Understanding these factors can help borrowers anticipate rate fluctuations and make informed decisions about the best time for a HELOC.

How Interest Rates Impact HELOC Affordability

Interest rates significantly impact the affordability of HELOCs over a 10-year draw and 20-year repayment period. A mere 1% difference in interest rate can result in thousands of dollars in additional interest over the duration of the loan. This example, for a $50,000 HELOC repaid over 20 years, shows the monthly payment and total interest paid at three different interest rates:

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

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

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

HELOC Interest Rate Trends

HELOC rates follow the prime interest rate trends. Since 2018, the prime rate has ranged from a low of 3.25% in 2020 to a high of 8.50% in 2023. The chart shows prime rate fluctuations over the last 50 years. Understanding these trends can help you predict where HELOC rates are headed.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

HELOC rates are also influenced by the borrower’s financial profile.

Home Equity

Possessing substantial home equity places you in a lower risk category for lenders, thereby securing you more favorable interest rates. Customarily, homeowners are required to have a minimum of 15% equity to qualify for a HELOC. Employing a home equity loan calculator can give you an estimate of your equity and potential borrowing capacity.

Credit Score

You need to maintain a credit score of 680 or higher when seeking a HELOC in Arkansas, and many lenders prefer it to be 700+. Building your credit score can increase your chances of securing more beneficial terms.

Stable Income

A steady income serves as a reliable indicator of a lower likelihood of default. That means consistent employment in the same job over the years can be just as important as how much you make.

Loan-to-Value Ratio

Most lenders require your combined loan-to-value ratio (your mortgage balance + desired HELOC, divided by your appraised home value) to be 90% or less, although some will allow you to borrow 100% of your home’s value. The ratio is a key metric in determining your credit limit. If your home value is $500,000, your mortgage balance is $300,000, and your HELOC balance is $100,000, then your LTV ratio is 80%.

Recommended: HLEOC Interest-Only Calculator

Variable vs Fixed Interest Rates

HELOCs feature variable interest rates, which are subject to change over the course of the loan term. These rates may start lower compared to typical fixed rates but then change — going either up or down — with market conditions.

Tools & Calculators

Online calculators can be valuable tools to have at your disposal when deciding between a HELOC vs a home equity loan. You can utilize our calculators to plan your budget, estimate your interest-only payment during the draw period, and your larger monthly payment when borrowing is over.

How to Qualify for a Competitive HELOC Rate

To secure the most favorable Arkansas HELOC rates, there are steps you can take. First, work to cultivate your credit score over time, evaluate the state of your home equity, and precisely calculate your debt-to-income ratio.

Take Care to Your Credit Score

Consistently pay your bills on time, and diligently pay down your credit card balances, and your credit score will benefit. Review your credit reports on a regular basis as well, and dispute any errors you find.

Assess Your Home Equity

Regular mortgage payments help in building home equity over time. Home equity can be enhanced through renovations that boost the property’s value. Increased home equity can lead to better terms and higher amounts when applying for a HELOC.

Calculate Your Debt-to-Income Ratio (DTI)

Your debt-to-income ratio (DTI) is calculated by dividing your total monthly debt payments by your monthly income. Generally, home equity lenders prefer a DTI below 36%, but the lower your DTI, the more favorable it is.

Application Process for a HELOC in Arkansas

The HELOC loan application process in Arkansas consists of multiple essential steps. Here they are in detail.

Run the Numbers

Check your credit scores, calculate your DTI, and get a good estimate of your home equity before you apply for a HELOC. Some lenders allow borrowers to prequalify for a HELOC online, streamlining the application process.

Compare Lenders

See what interest rates you qualify for in Arkansas, but also compare lenders’ qualification requirements, loan minimums and maximums, fees, the length of the draw and repayment periods they’re offering, and other factors.

Gather Your Documents

Before applying for HELOC loans, it is imperative to gather and organize all the necessary documents. These typically include proof of income (W2s, pay stubs), employment history (a resume), credit reports, and documentation of your home’s value. Having these documents readily available will not only streamline the application process but also ensure a smoother and more efficient experience.

Submit Your Application

Submitting your HELOC application takes place online, by phone, or in person. Make sure to complete all fields; leaving anything blank or failing to attach documentation can slow or stall the process.

Get an Appraisal

If your home appraises for more than your mortgage balance, the lender may approve you for a HELOC. The appraisal helps determine the amount of equity you have in your home, which affects the loan amount you can qualify for.

Prepare for Closing

Before accessing your HELOC funds, you must sign loan documents and pay necessary fees. Certain lenders conveniently make funds available within a mere three business days following the closing of the HELOC loans.

Tax Benefits and Considerations

Homeowners can deduct HELOC interest if the borrowed funds are used for buying, building, or significantly improving their primary residence. Interest deductions are limited to the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consulting a tax advisor can help borrowers navigate the specific tax implications and confirm your eligibility for deductions.

Closing Costs and Fees

HELOC closing costs are usually lower than home buying or cash-out refinance costs. The appraisal fee, typically the highest expense, ranges from $150 to $500. Other costs may include application, loan origination, and administrative fees. Some lenders charge annual maintenance fees, transaction fees for withdrawals, inactivity fees, or early termination fees. Many lenders waive closing costs but may charge a higher interest rate.

Alternatives to HELOCs

There are different types of home equity loans in addition to home equity lines of credit (HELOCs), other financing options include home equity loans, cash-out refinancing, and personal loans. Carefully consider the pros and cons of each option, including HELOCs versus home equity loans and cash-out refinancing versus home equity lines of credit, to determine the best fit for your specific financial needs and circumstances.

Home Equity Loan

Now we come to what is a home equity loan. Unlike home equity lines of credit, home equity loans provide a lump sum amount and are repaid at a fixed interest rate. Homeowners can typically borrow up to 85% of the equity built in their homes through a home equity loan. The chart below breaks down the differences between these two popular options.

Cash-Out Refinance

This type of mortgage refinance allows homeowners to pay off their current mortgage for more than they owe and take the difference in cash. A cash-out refi will leave you with one monthly payment (a new mortgage) rather than the two you would have if you carry a mortgage plus a HELOC or home equity loan. However, if you have a rock-bottom interest rate on your current mortgage, a refi might not make sense at this time.

Personal Loan

An unsecured personal loan is repaid in regular monthly payments over a term of two to seven years. Personal loans do not require collateral, making them a good alternative for individuals who lack home equity. However, interest rates are typically higher than those for HELOCs and home equity loans.

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

Credit Cards

Credit cards typically come with higher interest rates than HELOCs, which can make them considerably more expensive if you carry a substantial balance over an extended period of time. While credit cards offer convenience and flexibility for smaller purchases, they often don’t make sense for larger expenses such as home improvements or debt consolidation.

The Takeaway

Understanding HELOCs and their alternatives can be a complex endeavor. In a nutshell, HELOCs offer competitive interest rates and flexible repayment for a host of big-ticket items. If you’ve cultivated a good credit score, have a low DTI ratio, and substantial home equity, a HELOC is worth considering. Just make sure to shop around with multiple lenders to find the best available rates and terms before making a decision.

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

FAQ

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

The monthly payment for a $50,000 HELOC, which is a type of revolving credit that uses the equity in your home as collateral, is determined by the interest rate and repayment terms. Employing a HELOC monthly payment calculator can be helpful in approximating the payments. For instance, with a 7.25% interest rate and a 10-year repayment period, the monthly payment would amount to approximately $587.

Is a HELOC a good idea right now?

Deciding whether a HELOC is a good choice is contingent upon your financial situation. While HELOC loans can make paying for home improvements or debt consolidation a bit more cost-effective and convenient, they are not without drawbacks. Carefully consider the current interest rates, your ability to repay, and the possible impact on your overall financial stability before making a decision.

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

The monthly payment for a $100,000 home equity line of credit (HELOC) can fluctuate based on the prevailing interest rate, the chosen repayment term, and the amount you draw. For example, if the interest rate is set at 7.25% and the repayment term is 10 years, the monthly payment would hover around $1,174.

What are the benefits of a HELOC?

HELOC loans provide numerous advantages, including flexible access to funds, competitive interest rates, and potential tax benefits. These versatile loans can be utilized for a wide range of purposes, encompassing home renovations, education expenses, and debt consolidation. However, responsible management of the loan is crucial to avoiding financial strain and ensuring a positive borrowing experience.

Do you need an appraisal for a HELOC?

In most cases, a HELOC loan requires an appraisal to ascertain the property’s current market value. However, some lenders may offer appraisal-free options based on automated valuation models. The appraisal serves as a crucial safeguard to ensure that the loan amount does not surpass the property’s equity, safeguarding both the borrower and the lender.

What disqualifies you from getting a home equity loan?

Several factors, including a low credit score, inadequate home equity, a high debt-to-income ratio, and unstable income, can impede your ability to secure a home equity loan.

How difficult is it to get a HELOC?

Obtaining a HELOC can be challenging due to various factors, primarily credit score, home equity, and income stability. Generally, lenders mandate a minimum credit score of 680, along with home equity of at least 15%. Assessing your financial situation in advance can significantly improve your chances of qualifying for a HELOC.

Does HELOC affect credit score?

HELOC loans can impact your credit score in various ways. Submitting an application for a HELOC may trigger a hard inquiry, which can temporarily cause a small reduction in your score. Conversely, prudent use and punctual payments can contribute to maintaining or even enhancing your credit score.

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-Q424-014

Compare HELOC rates in Alabama.

Introduction to HELOC Rates

If you’re looking for the best HELOC rates in Alabama, it’s important to compare offers from different lenders, as factors like your home equity and credit score greatly influence the rates you’ll receive. But first it’s helpful to have a solid grounding in HELOCs, also known as home equity lines of credit.

Here, you’ll gain valuable insights into all the factors that influence HELOC rates, plus the strategies to secure the most favorable deals and other types of home equity loans.

Let’s start at the beginning: What is a home equity line of credit in the first place?

What Is a HELOC?

A HELOC is a revolving line of credit similar to a credit card, but secured by your home’s equity. (Equity is the difference between your home’s current value and your mortgage balance; you’ll need to have at least 15% or 20% equity to secure a HELOC.) You may be able to borrow up to 90% of your home’s value, minus whatever you still owe on your home loan.

HELOC interest rates are typically variable, so there is a possibility that if interest rates rise, your payment amounts will rise too. However, HELOCs often start at a lower rate than either home equity loan or unsecured loans such as personal loans. And with a HELOC, you don’t have to borrow (or pay interest on) the entire credit line at once. You can take money in increments.

To understand a HELOC, it’s important to grasp its two phases, the draw period and the repayment period.

The Draw Period

During the home equity line of credit’s draw period, which typically spans a decade, you are afforded the opportunity to access funds up to the limit of your credit line, make payments, and borrow funds once again. While interest payments are usually required, principal payments may be optional.

Utilizing a HELOC monthly payment calculator can prove to be a valuable tool in effectively budgeting for your payments.

The Repayment Period

Generally lasting 10 to 20 years, the repayment period signifies the conclusion of borrowing and the commencement of repaying the principal amount along with accumulated interest. To gain a clearer understanding of your financial obligations and how variable interest rates might affect payment amounts, consider utilizing a HELOC repayment calculator to estimate your payments at different interest rates.

Where Do HELOC Interest Rates Come From?

HELOC interest rates are tied to the prime rate, which in turn is heavily influenced by Federal Reserve policy. Banks and other lenders use a prime rate for the customers they deem to be at lowest risk of default. But that rate is adjusted based on each individual applicant’s financial picture — the rosier the picture, the closer to prime you’ll come. Why does all this matter so much, especially when you consider that rates are measured to the fraction of a percentage? Let’s have a look.

How Interest Rates Impact HELOC Affordability

As with your home loan, interest rates are the primary driver of the cost of your HELOC. Over the course of a typical 20-year repayment term, even a seemingly small 1% difference in the interest rate can result in thousands of dollars in additional interest paid. Let’s say you obtain a $75,000 HELOC and enter the 20-year repayment period owing the full amount. Here’s how costs would stack up at different interest rates:

•   At 6.00%, monthly payment: $537; total interest paid: $53,958

•   At 7.00%, monthly payment: $581; total interest paid: $64,554

•   At 8.00%, monthly payment: $627; total interest paid: $75,559

HELOC Interest Rate Trends

The average prime rate has fluctuated widely since 2018, hitting a record low of 3.25% in 2020 and soaring to 8.50% in 2023, as seen in the chart below. By keeping an eye on the prime rate and listening for news of rate shifts from the Fed, would-be borrowers can make an informed decision about whether or not to apply for a HELOC.

The graphic below shows 50-plus years of the average prime rate. It’s helpful to have that perspective. For one thing, it shows how unusual it is for the rate to fall below 4.00%.

Historical Prime Interest Rate

Historical U.S. Prime Rates

Factors Influencing HELOC Rates

The prime rate is important, but several other key factors come into play as a lender determines what HELOC rate to offer an individual applicant:

Home Equity

Generally, a minimum of 15-20% equity is required to qualify for a HELOC. But having more significant home equity places you in a lower-risk category for lenders, potentially leading to reduced interest rates.

Credit Score

A credit score of 680 or higher is a good entry point for a HELOC, but again, higher is better and some lenders prefer a score of 700 or more.

Stable Income

A steady stream of income serves as a reliable indicator of reduced default risk, which often translates into more favorable HELOC rates. By maintaining consistent employment and a steady income, you can significantly bolster your prospects of securing advantageous terms for your HELOC.

Loan-to-Value Ratio

Most lenders require your combined loan-to-value ratio to be 90% or less. (Your CLTV is your current mortgage principal owed plus the amount you wish to borrow divided by your home’s appraised value.)

Variable vs Fixed Interest Rates

HELOCs are characterized by variable interest rates, which fluctuate during the loan term. Initially, variable interest rates are lower than typical fixed rates. However, they adjust up or down in direct response to the prevailing market conditions.This is one important difference between a HELOC and a home equity loan. A home equity loan usually has a fixed interest rate.

Tools & Calculators

Using online calculators can help you better plan your financial strategy when considering a HELOC or a home equity loan. Here are three of the most useful tools:

How to Qualify for a Competitive HELOC Rate

To secure the most favorable Alabama HELOC rates, it’s imperative to maintain an excellent credit score, demonstrate a steady and reliable source of income, and manage your debt-to-income ratio. Below is a list of things you can do before you apply for a HELOC in Alabama:

Tend to Your Credit Score

Pay on time and avoid maxing out all your credit cards — it’s good credit hygiene for life. Another thing you’ll want to do is check your credit report for errors. They do happen and fixing them can help your score recover.

Assess Your Home Equity

Regular mortgage payments have helped you build equity. You can use a real estate site to get a general idea of your property value. Then subtract whatever you owe on your mortgage to see how much equity you have. Ideally it’s more than 20%, though some lenders allow 15%.

Calculate Your Debt-to-Income Ratio (DTI)

Your debt-to-income (DTI) ratio, calculated by dividing your monthly debt payments by your gross monthly income, serves as a key indicator of your financial health. Lenders prefer a DTI ratio below 36%, though some will go as high as 50%. The lower your DTI, the more attractive your loan application becomes.

Application Process for a HELOC in Alabama

The application process for obtaining a HELOC in the state of Alabama, as elsewhere in the U.S., entails a series of distinct steps. Let’s take them one by one:

Step 1. Run the Numbers

Some lenders enable prospective borrowers to prequalify for a home equity line of credit online, thereby streamlining the application process. These lenders will calculate your DTI ratio and equity. If you don’t prequalify online, you’ll need to do the math by hand. First make sure you have at least 15% equity. Then ensure a DTI ratio of at least 50%. If you tick both boxes, it’s time for Step 2.

Step 2. Compare Lenders

When seeking the best Alabama HELOC rates, it’s essential to compare various lenders. Consider factors such as interest rates, qualification requirements, loan minimums and maximums, fees, and the length of draw and repayment periods.

Step 3: Gather Your Documents

Prior to applying for a home loan, you’ll need to gather proof of income (pay stubs, W2s, at least one tax return), employment history, and recent bank statements. Having these things readily available will expedite the application process.

Step 4: Submit Your Application

You can apply online, over the phone, or by visiting a physical branch in person, depending on the lender. Double-check all the information you provide for accuracy — errors will complicate the approval process.

Step 5: Get an Appraisal

After you submit your application, the lender will request an appraisal of your home’s value from a qualified professional. This will determine the amount of equity you can access via a HELOC. Schedule the appointment promptly if an in-person visit is needed.

Step 6: Prepare for Closing

Before accessing your HELOC funds, you’ll want to meticulously review and sign all loan documents, and you’ll need to pay any necessary fees. Some lenders make funds available within three business days following the official closing of the HELOC.

Tax Benefits and Considerations

Homeowners may deduct interest paid on a HELOC if the borrowed funds are used to purchase, construct, or substantially improve their residence. The interest deduction is limited to the interest paid on the first $375,000 of the mortgage principal for individual taxpayers ($750,000 for married couples filing jointly). Consulting a tax professional is advisable to understand the tax guidelines and confirm eligibility for deductions related to home loans.

Closing Costs and Fees

Fees associated with HELOCs are usually lower than those for buying a home or executing a refinance. The appraisal fee, often the highest expense, ranges from $300 to $600. Other costs include application, loan origination, and administrative fees. Some lenders charge annual maintenance, transaction, inactivity, or early termination fees.

Alternatives to HELOCs

There are other ways to get equity out of your home in addition to HELOCs. If you can qualify for a HELOC, you may also have other financing options such as a home equity loan or a personal loan. Taking a closer look at these can help you determine which one aligns best with your specific needs and financial objectives.

Home Equity Loan

In contrast to HELOCs, home equity loans offer a lump sum payment. An important consideration when you’re thinking about what is a home equity loan and how it differs from a HELOC is that these loans are repaid at a fixed interest rate with a term of anywhere from five to 30 years. So you begin paying off the entire loan amount from Day One. Typically, borrowers can access up to 85% of the equity they have accumulated in their homes (vs. a possible 90% with a HELOC).

Here’s a quick look at the differences between a HELOC vs. a home equity loan:

Cash-Out Refinance

A cash-out refinance is a type of mortgage refinance that allows homeowners to tap into their home equity by refinancing their existing mortgage for more than they owe, paying off their old loan, and taking the difference in cash. This option can be beneficial for those needing a substantial lump sum.

A few considerations if you’re thinking about a cash-out refinance vs. a home equity line of credit: The refinance means you’ll have only one monthly payment, versus two if you take on a HELOC in addition to paying off a mortgage. It also means an entirely new interest rate and loan terms. If rates have dropped since you initially financed your home, this could be good news. But you’ll want to look closely at the current interest rates in Alabama to make sure a new rate wouldn’t be wildly higher than your old one.

Personal Loan

A personal loan is a flexible, typically unsecured loan that you repay in regular, fixed payments over a typically 2 to 7-year term. These loans are versatile and can be used for a variety of purposes. If you are considering a personal loan, it is worth noting that it will probably come with a higher interest rate than a HELOC. But it doesn’t require your home as collateral, and for some borrowers this is reassuring.

Credit Cards

Credit cards, like a personal loan, are unsecured. But (again like a personal loan) their interest rates are usually higher than those for HELOCs. So carrying a substantial balance on a credit card over time can be quite costly.

The Takeaway

Understanding what determines who gets the most favorable HELOC rates in Alabama is paramount to making a well-informed decision about when and how to borrow money. HELOCs provide homeowners with funds for home improvement projects, debt consolidation, and unforeseen expenses. By diligently comparing lenders, cultivating a good credit score, and carefully assessing available home equity, homeowners can secure highly competitive rates and enjoy the financial freedom that comes with having a line of credit.

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

FAQ

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

The monthly payment on a $50,000 home equity line of credit (HELOC) is determined by the interest rate and the terms of repayment. If you used a HELOC to borrow $50,000 and repaid it over 20 years at an interest rate of 7.50%, your monthly payment would be $403.

Is a HELOC a good idea right now?

HELOCs can be beneficial depending on one’s financial circumstances. They offer flexibility and can be utilized for any purpose — and best of all, you only pay interest on the amount of the credit line that you are using. However, it’s imperative to carefully consider the variable interest rates, which have the potential to increase (or decrease) over time with market conditions.

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

The monthly payment on a $100,000 home equity line of credit (HELOC) could be in the neighborhood of $700 to $850 depending on the interest rate available in the current market. This assumes a 20-year term.

What are the benefits of a HELOC?

HELOCs are a versatile financial tool. You can borrow what you need when you need it up to the predetermined credit line. You only pay interest on what you borrow. And interest rates are usually lower than with unsecured loans. Moreover, if you use your HELOC for major home improvements you may be able to deduct some or all of the interest you pay.

Do you need an appraisal for a HELOC?

Yes, your lender will tell you what type of appraisal is needed but it’s almost always necessary with a HELOC, as well as with a home equity loan.

What disqualifies you from getting a home equity loan?

An unfavorable credit history, insufficient home equity, a high debt-to-income ratio, and unstable income are some of the factors that can disqualify you from securing a home equity loan.

How difficult is it to get a HELOC?

As long as you meet minimum home equity and credit score requirements and don’t have other red flags in your application, it should not be difficult to get a HELOC. You may need to have an in-person appraisal of your home. And it’s important to have all your documents ready and to complete the application accurately. But being organized and thorough can go a long way toward smoothing your path to a HELOC.

Does HELOC affect credit score?

Yes, obtaining a home equity line of credit (HELOC) can have an impact on your credit score. When you apply for a HELOC, a hard inquiry is made, which may temporarily cause a reduction in your score. Furthermore, utilizing a substantial portion of your available credit limit can lead to an increase in your credit utilization ratio, potentially having a negative effect on your score. Making on-time payments on your HELOC and handling it responsibly, however, can have a favorable effect on your score.

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*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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