Current Home Equity Loan Rates in Hawaii Today
HAWAII HOME EQUITY LOAN RATES TODAY
Current home equity loan rates in
Hawaii.
Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Turn your home equity into cash. Call us for a complimentary consultation or get prequalified online.
Compare home equity loan rates in Hawaii.
Key Points
• Home equity loan rates in Hawaii vary based on factors like lender policies, borrower’s credit score, and loan-to-value ratio.
• Home equity loans allow homeowners to borrow against their home’s equity for various expenses like renovations, education, or debt consolidation.
• Home equity loan interest rates are influenced by the prime rate and economic conditions.
• To qualify for the lowest rates, borrowers should prioritize building a strong credit score, managing debt-to-income ratio, obtaining adequate property insurance, and maintaining sufficient home equity.
• Alternatives to home equity loans include HELOCs, HECMs, and cash-out refinances, each with unique features and eligibility criteria.
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.
| Date | Prime Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.50% |
| 9/27/2018 | 5.25% |
Source: St. Louis Fed
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.
Run the numbers on your home equity loan.
-
Home Equity Loan Calculator
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
-
HELOC Payment Calculator
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
-
HELOC Interest Only Calculator
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
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.
Unlock your home’s value with a home equity loan from SoFi.
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
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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.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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
More home equity resources.
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What is a Home Equity Line of Credit
-
Different Types of Home Equity Loans
-
HELOC vs Home Equity Loan: How They Compare
Turn your home equity into cash. Call us for a complimentary consultation or get prequalified online.
Current Home Equity Loan Rates in Georgia Today
GEORGIA HOME EQUITY LOAN RATES TODAY
Current home equity loan rates in
Georgia.
Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Turn your home equity into cash. Call us for a complimentary consultation or get prequalified online.
Compare home equity loan rates in Georgia.
Key Points
• Home equity loans allow homeowners to borrow against the equity in their home for purposes such as renovations, education, or debt consolidation.
• Home equity loan rates are influenced by credit scores, loan-to-value ratios, lender policies, and geographical location.
• Fixed-rate home equity loans offer predictable monthly payments, while variable-rate loans may start lower but can fluctuate over time.
• Closing costs and fees for home equity loans can vary from 2% to 5% of the loan amount.
• Home equity loan interest may be tax-deductible if used for home acquisition or substantial improvements.
Introduction to Home Equity Loan Rates
Congratulations. If you’ve been thinking about how to get equity out of your home, then chances are good you’ve been making regular payments on your home loan and have built up some serious equity in your property. The next step? Understanding how home equity loans work and learning about current home equity loan rates in Georgia. Taking the time to learn what lenders are looking for and how to weigh your home equity loan options will be well worth it when you secure the right rate and loan package for your financial situation.
How Do Home Equity Loans Work
Let’s start at the beginning, with what is a home equity loan. A home equity loan is a loan that uses your home as collateral, which allows for lower interest rates than many other types of loans. The interest rate is usually fixed, so it’s a good option if you prefer predictable monthly payments. To qualify for a home equity loan, you’ll need to have at least 20% equity in your home.
Home equity loans can be used for all sorts of expenses, including home improvements, tuition, medical bills, or debt consolidation. If you’re considering a home equity loan vs. a HELOC (home equity line of credit), it’s important to understand what is a home equity line of as well. We’ll get to that below.
Where Do Home Equity Loan Interst Rates Originate From?
Home equity loan interest rates are not arbitrary; they are influenced by a variety of economic factors. Federal Reserve policy decisions regarding interest rates play a role in shaping the prime rate, which is the interest rate that banks charge their most creditworthy customers. But that prime rate is just a starting point. A lender will adjust loan rates and terms up or down based on the individual borrower’s financial profile.
How Interest Rates Impact Home Equity Loan Affordability
The interest rate you secure for your home equity loan can have a significant impact on how much the loan costs over the long term. The table below shows how the interest rate for a $50,000 home equity loan affects the monthly payment and total interest paid over a 10-year term:
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 8.50% | $620 | $24,391 |
| 8.00% | $607 | $22,797 |
| 7.50% | $594 | $21,221 |
Home Equity Loan Rate Trends
The prime interest rate is a key indicator of what kind of rate a lender might offer you. So it helps to have a sense of what kind of prime rates borrowers have seen in recent years. Since 2018, the prime rate has dropped to a low of 3.25% in 2020 and climbed to a high of 8.50% in 2023, as shown in the chart below. Looking back over the last 50 years, as shown in the graphic below, will give you a sense of how much the rate has fluctuated over time.
Historical Prime Interest Rates
| Date | Prime Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.50% |
| 9/27/2018 | 5.25% |
Source: St. Louis Fed
Source: TradingView.com
Factors Influencing Home Equity Loan Rates
As noted above, the prime rate is only the beginning and lenders might adjust the rate they offer an individual borrower based on a number of other factors — some of which, happily, are within your control. Get to know them here:
Credit Score
Your credit score is a big deal. It’s not just a number; it’s a story of your financial reliability. The better your score, the more favorable your interest rates are likely to be. For Georgia home equity loan rates, as elsewhere in the U.S., most lenders are looking for a credit score of 680 or higher. And if you’re aiming for top-tier rates, you’ll want to set your sights on 700 or above.
Home Value
Lenders typically determine the value of your home by ordering an appraisal from an independent appraiser. The appraisal will establish how much equity you have in the home as well as the maximum loan amount the lender is willing to approve.
Loan-to-Value (LTV) Ratio
Once the appraiser reports on the value of your home, you and your lender can compute the loan-to-value (LTV) ratio. Most home equity loan lenders require your combined loan-to-value ratio (CLTV) to be no more than 85%. To determine your CLTV, you’ll add the balance owed on your first mortgage, if any, to the amount you want to borrow. Then you’ll divide by your home’s appraised value and multiply the answer by 100 to arrive at a percentage. As long as your result is under 85%, you can likely find a lender to work with, provided your other financial metrics are solid.
Home Value Stability
The stability of home values can significantly impact the amount of equity homeowners can potentially access and utilize. When home values are on an upward trend, lenders may be more inclined to approve larger loan amounts. Conversely, if home values decline, the lender’s risk exposure increases, potentially leading to more stringent lending criteria and reduced loan amounts.
Property Location
Living in a place that’s been flagged as high risk can sometimes nudge interest rates up, thanks to the added lending risk lenders take on by loaning money in those areas.
Lender Policies
Lenders’ policies can influence the interest rates offered on home equity loans, and each lender is slightly different. This is why it pays 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, you’ll need to have a great credit score, a low debt-to-income ratio, and a good amount of equity in your home — among other things. Here’s your to-do list:
◦ Build a Strong Credit Score
A stellar credit score can work wonders when you’re seeking a Georgia home equity loan. It’s wise to periodically check your credit report for inaccuracies (and correct any you find). Don’t max out all your credit cards. And pay your bills promptly.
◦ Manage Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is a key factor in determining your loan eligibility. It’s calculated by adding up your monthly debt obligations and dividing by your gross monthly income. Typically, the DTI requirement for a home equity loan ranges from 36% to 50%. This means that if your monthly debt payments eat up more than half of your monthly income, you may not qualify for a home equity loan.
◦ Obtain Adequate Property Insurance
If you’re in an area that’s prone to flooding or other natural disasters, it’s especially important to have property insurance in place before you apply for a home equity loan. It’s a smart move that not only safeguards your investment but also gives you peace of mind.
◦ Maintain Sufficient Home Equity
As noted above, you’ll need to keep at least 20% equity in your property to be eligible for a home equity loan. It’s a way to show that you’re in a solid financial position and are likely to be able to repay the money you borrow.
Fixed vs. Variable Interest Rates
Home equity loans typically come with fixed interest rates, which means you can count on having the same monthly payment for the life of the loan. While fixed rates offer stability, they can also come with higher initial rates than variable rates, which start out lower but can increase over time.
Tools & Calculators
As you’re thinking about how much you might want to borrow with a home equity loan (or a home equity line of credit), online tools and calculators can be useful. They’ll help you compare various loan scenarios and see how different loan amounts, terms, and interest rates affect monthly payments. Here are three helpful ones:
Run the numbers on your home equity loan.
-
Home Equity Loan Calculator
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
-
HELOC Payment Calculator
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
-
HELOC Interest Only Calculator
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
Closing Costs and Fees
Lender policies differ, and that extends to closing costs and fees as well. Home equity loan closing costs typically range from 2% to 5% of the loan amount. A lender might charge for any or all of the following: appraisal, credit report, document preparation, loan origination, notary, title search, and insurance. Make sure you include fees when comparing different offers from lenders.
Tax Deductibility of Home Equity Loan Interest
The interest on your home equity loan is tax-deductible if you use it for home improvements. If you’re married and file jointly, you can deduct the interest on loans up to $750,000. For single filers, the limit is $375,000. To get this tax break, you’ll need to itemize your deductions. We recommend consulting a tax advisor to understand the specific rules and how you can maximize your benefits.
Alternatives to Home Equity Loans
In addition to a standard home equity loan, there are different types of home equity loans that also let you take advantage of the equity you have in your home. These include a home equity line of credit (HELOC), a home equity conversion mortgage (HECM), and a special type of mortgage refinance called a cash-out refinance. Here’s the lowdown on each:
Home Equity Line of Credit (HELOC)
A HELOC is akin to having a credit card that’s guaranteed by your home. A lender will approve you for a certain credit line. You can then draw on that line and — this is key — only pay interest on the amount you draw. As you compare HELOCs vs. home equity loans, one thing to keep in mind is that HELOC interest rates are typically variable, meaning they can change with the market, while home equity loan rates are fixed.
Home Equity Conversion Mortgage (HECM)
An HECM is a government-insured reverse mortgage, exclusively for those 62 and older, that offers a unique way to tap into your home equity. You can receive the funds as a lump sum, regular payments, or a line of credit. The best part? You don’t have to make any payments until you leave the home. This sets it apart from home equity loans and HELOCs, which require monthly payments. While HECMs do have higher closing costs and longer processing times, the benefits are worth considering. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
Cash-Out Refinance
A cash-out refinance involves getting a brand-new mortgage. You’ll use it to pay off whatever you owe on your original mortgage but you’ll also be borrowing some extra cash to use as you please. When you’re considering a cash-out refinance vs. a home equity line of credit or a home equity loan, one important consideration is that getting a new mortgage means getting a new rate. If you have a low interest rate on your current mortgage, it may not make financial sense to get a new one. Run the numbers to doublecheck.
The Takeaway
For Georgia residents, the key to making the most of your home equity when borrowing against it is to understand home equity loan (or HELOC) rates and the factors that influence them. By comparing rates, exploring your home equity borrowing options, and keeping your finances in good order, you can make sure you’re getting the best deal and setting yourself up for a strong financial future.
Unlock your home’s value with a home equity loan from SoFi.
FAQ
What would the monthly payment be on a $50,000 home equity loan?
An 8.00% interest rate and a 10-year term would mean a monthly payment of $607 on a home equity loan of $50,000. If the interest rate was 7.00%, the monthly payment would change to $581.
What is the monthly payment on a $100,000 HELOC?
The monthly payment on a $100,000 home equity line of credit (HELOC) can vary depending on the interest rate and how much you have drawn on the account. You can use a HELOC payment calculator to estimate your payments. Try adjusting the interest rate and the loan amount to see different scenarios and find the right plan for you.
What is the payment on a $25,000 home equity loan?
The monthly payment on a $25,000 home equity loan varies based on a number of factors, including the interest rate and the loan term. Assuming a 10-year term, an interest rate of 6.00% would mean a $278 monthly payment. For the most accurate estimate, it’s a good idea to use a loan calculator.
What would the payment be on a $30,000 home equity loan?
A $30,000 home equity loan with a rate of 7.50% and a 20-year term would cost you $242 each month. Changing the rate or loan term will alter the monthly payment amount.
What could disqualify you from getting a home equity loan?
A poor credit history, not enough equity in your home, a high debt-to-income ratio, and not having enough insurance on your property could all disqualify you from getting a home equity loan or a HELOC.
What are the benefits of a HELOC?
HELOCs have a number of benefits but the biggest one is that you only pay interest on the amount of the credit line that you actually use. They also have lower interest rates than most credit cards.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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-Q424-070
More home equity resources.
-
What is a Home Equity Line of Credit
-
Different Types of Home Equity Loans
-
HELOC vs Home Equity Loan: How They Compare
Turn your home equity into cash. Call us for a complimentary consultation or get prequalified online.
Current Home Equity Loan Rates in Illinois Today
ILLINOIS HOME EQUITY LOAN RATES TODAY
Current home equity loan rates in
Illinois.
Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Turn your home equity into cash. Call us for a complimentary consultation or get prequalified online.
Compare home equity loan rates in Illinois.
Key Points
• Home equity loan rates in Illinois depend on various factors like credit score, loan-to-value ratio, and debt levels.
• Lender policies, prevailing interest rates, and housing market conditions also have an impact on rates lenders will offer.
• Home equity loans provide homeowners with access to additional funds by leveraging the accumulated equity they have in their properties.
• Fixed interest rates offer consistent and predictable monthly payments, while variable rates may initially be lower but carry the risk of future increases.
• Alternatives to home equity loans include HELOCs, HECMs, and cash-out refinances, each with its own features and eligibility requirements.
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
| Date | Prime Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.50% |
| 9/27/2018 | 5.25% |
Source: St. Louis Fed
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:
Run the numbers on your home equity loan.
-
Home Equity Loan Calculator
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
-
HELOC Payment Calculator
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
-
HELOC Interest Only Calculator
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
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.
Unlock your home’s value with a home equity loan from SoFi.
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.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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
More home equity resources.
-
What is a Home Equity Line of Credit
-
Different Types of Home Equity Loans
-
HELOC vs Home Equity Loan: How They Compare
Turn your home equity into cash. Call us for a complimentary consultation or get prequalified online.
This Is the Moment of Redemption (for Credit Card Points)
Americans are flush with credit card points. By 2023, cardholders with three of the biggest issuers had racked up more than $34 billion worth of them – a 70% increase from 2019, according to a Wall Street Journal analysis.
But rapidly rising prices have taken a big bite out of credit card point values just as they’ve eroded the purchasing power of our dollars. In the post-COVID era, everything from groceries to construction materials has grown significantly more expensive, and unlike investments, points can’t grow to offset that inflation; their redemption value remains more or less fixed at around one cent per point. (It’s actually far more convoluted if you care to dive into that particular rabbit hole).
Consumers have accumulated such a big stockpile of points for two reasons: They weren’t using them to travel during the pandemic, and anytime they spend more money on their cards, they earn more points.
But since 2019, inflation has reduced the purchasing power of a penny (and, in turn, a point) by
more than 20 percent. And it can get worse when you transfer points to airline or hotel loyalty programs, some of which have jacked up their redemption thresholds to keep pace with rising prices. One frequent traveler reported a flight that would’ve cost 60,000 points last year requires 80,000 to 90,000 points today, according to the Journal.
Credit card points have become a political issue too. In September, the Transportation Department launched an inquiry into some airlines’ loyalty programs and legislators have introduced bills that could jeopardize, or at least change, the rewards landscape in the coming years.
So what? Experts suggest using your points ASAP to avoid “pointsflation.” If you’re sitting on a pile, this could be the ideal moment to cash them in to fund this year’s holiday shopping, shore up your emergency fund, or book a trip.
Related Reading
• A Beginner’s Guide to Traveling on Points and Miles (NerdWallet)
• These Are the 3 Worst Ways to Redeem Credit Card Rewards (CNBC Select)
• 15 Ridiculous Skymall Products (Pointchaser)
photocredits: iStock/andreswd
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
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Dear SoFi, I’m overwhelmed by debt. Can you help me?
Dear SoFi, I’m overwhelmed by my debt. I don’t know how to get my finances under control. Can you help me?
Personal debt is as American as apple pie at a bake sale.
Midway through 2024, total U.S. household debt reached an all-time high of $17.8 trillion, according to the Federal Reserve Bank of New York. And that enormous sum is spread pretty broadly across the population: Two-thirds of Americans have some personal debt, and the average amount people owe is $22,713,
according to a 2024 Northwestern Mutual study.
Meanwhile, the average American pays $1,225 toward debt each month, which would eat up more than 25%
of the median U.S. monthly income of $4,660. And these are just rough numbers; for many, the financial
pressure is even greater. Is it any wonder that 90% of us are stressed about money, according to research from Thrive Global and Discover?
Facing your debt head-on can be extremely challenging. And yet it’s really the only way to bring about change. Here’s a quick overview of how you might do it.
First, write down what you owe. Sort your debts by interest rate. If you crave the satisfaction of completing a task, you can elect to pay off a smaller debt completely. Or you can tackle the debt with the highest interest rate first, which usually makes the most financial sense.
This is not rocket science. And it’s not easy, either. But setting a goal and then hatching a plan that is integrated into your budget will help you climb out of debt. In fact, taking the first step may provide some real relief, emotional and financial.
Here are some commonly used strategies for paying down debt:
• Debt snowball: Those who struggle with discipline may be able to build some momentum by paying off their smallest debt first. The satisfaction may help sustain your efforts. (Just remember to continue making the minimum payments on your other debts in the meantime.)
• Debt avalanche: From a financial perspective, this is the best strategy for most people. It’s simple in concept: Divert as much as you can reasonably manage toward the debt with the highest interest rate. The trick is sticking with it. (Continue making the minimum payments on all your other debts.)
• Debt fireball: Identify your “good debt” – that is, loans or mortgages you’ve taken out to finance purchases that may appreciate, like a home. Then list out your “bad debts,” which you racked up to pay for items that usually lose value such as clothing, furniture, or vacations. Pay down the bad debt first, then move on to the good debt.
• Refinance: Interest rates aren’t always set in stone, and there are a number of ways to refinance your debt – using a loan or credit card, for example. If you can get a lower interest rate, it may be a savvy move. There may be drawbacks, however. Some 0% balance transfer cards charge fees, and the interest-free payback period typically lasts three to 18 months. Once it ends, you’ll need to make sure your debt is paid off, or you may be subject to a very high interest rate. So, refinance carefully and in the context of a practical payback plan.
• Consolidate: Transferring a handful of different debts into one can simplify things considerably. A SoFi personal loan can be used to consolidate debts with no origination fees, no prepayment fees, and no late fees.
Learn more about creating a debt reduction plan.
Digging out of debt isn’t easy. It may require you to adjust your budget until you get back on track. For example, if you follow the 50/30/20 method – where you spend 50% of your income on needs, 30% on wants, and 20% on savings – you could divert that 20% to additional debt payments. And I’d also recommend that you stop using credit cards.
Setting achievable goals will help you stay motivated. Stick with it and celebrate your wins along the way. With some time and discipline, you can be debt-free. (Almost) Easy as pie.
In financial health,
Kendall Meade,
CERTIFIED FINANCIAL PLANNER®
photocredits: iStock/SrdjanPav
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
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