Compare home equity loan rates in Arkansas.

Introduction to Home Equity Loan Rates

A home equity loan lets Arkansas homeowners take advantage of the equity they’ve built up in their home to fund big-ticket projects or cover unexpected bills. In this guide, we’ll cover everything you need to know about home equity loans interest rates in Arkansas. We’ll help you find the best rates in the state and understand the key factors that influence your home loan’s rates and terms. Why? Because even a small difference in interest rate can save you thousands of dollars over the life of a home equity loan.

How Do Home Equity Loans Work?

Before we get into interest rates, let’s clarify what is a home equity loan. It’s an installment loan, sometimes referred to as a second mortgage, that uses your home as collateral. Home equity loans typically come with a lower interest rate than a personal loan, and the interest rate is usually fixed, so your payments will remain consistent. The downside is that if you default, your home could go into foreclosure.

To qualify, you’ll need to have at least 20% equity in your home. To determine your maximum loan amount, your lender will calculate your combined loan-to-value ratio (CLTV), or your mortgage balance plus the amount you want to borrow, divided by the appraised value of your home. Most lenders require your CLTV to be 85% or less for a home equity loan or home equity line of credit (HELOC).

Let’s say your home is appraised at $300,000 and your mortgage owed is $200,000.

•  $300,000 X 85% = $255,000

•  $255,000 – $200,000 = $55,000 Max loan amount

Your maximum loan amount is $55,000, a generous sum that can be used for just about anything: home improvements, education, medical bills, or debt consolidation.

Where Do Home Equity Loan Interest Rates Originate?

The interest rates on home equity loans are a product of various economic influences, with the prime rate playing a significant role. The prime rate is what banks charge their most creditworthy clients. Additionally, Federal Reserve policy decisions regarding interest rates can nudge home equity loan rates up or down.

By grasping these factors, you’re better equipped to anticipate rate changes and make well-informed decisions about when and how to get equity out of your home.

How Interest Rates Impact Home Equity Loan Affordability

The interest rate you secure can have a big impact on your ability to pay down your loan. For example, a 20-year home equity loan of $100,000 with an interest rate of 7.50% would mean a monthly payment of $806. The table below shows you how that monthly payment will change if you alter the loan amount, interest rate, or loan term.

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

Home Equity Loan Rate Trends

The prime interest rate is a key number in the financial world, and it can tell you a lot about what to expect with home equity loan rates.

Historical Prime Interest Rates

Since 2018, the U.S. Prime Rate has fluctuated significantly. It has been as low as 3.25% and as high as 8.50%. These changes have an impact on the rates that consumers pay for financial products. This includes home equity rates in Arkansas.

The graphic below shows an even longer history of the prime rate over the last 50 years. See any patterns?

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

In Arkansas as elsewhere in the country, macroeconomic factors combine with microeconomic ones to produce your home equity loan interest rate. In other words, you as a borrower exercise some control over the rates you’re given. Your credit score, loan-to-value ratio, home value, property location, and lender policies all play a part.

Credit Score

If you’re someone who’s been diligent about making timely payments, you’re in a great position to secure a more favorable Arkansas home equity loan rate. Lenders usually look for a credit score of 680 or higher when considering different types of home equity loans, but many express a strong preference for scores of 700 or above. Why? It’s all about your history of responsible financial behavior.

Loan-to-Value (LTV) Ratio

As we noted above, the loan-to-value (LTV) ratio is a key factor in determining your maximum loan amount. The LTV ratio is calculated by dividing your mortgage balance plus loan amount by the appraised value of the property. Most lenders will approve an LTV up to 85%. For example, if you want to take out a $25,000 home equity loan on a house that’s appraised at $200,000, and you have $50,000 left on your mortgage, then your LTV will be 37.5%: $50,000 + $25,000 / $200,000 = 37.5%.

Home Value

Lenders will generally use an independent home appraisal to determine the value of your home and the amount of equity you have. The appraised value is a critical factor in determining your equity and the maximum amount of the loan that the lender is willing to extend. It also plays a role in the interest rate you’ll be charged and other terms of the loan.

Home Value Stability

The ups and downs of home values can have a big impact on the equity you can tap into. When values are on the rise, lenders are often more willing to approve larger loans, as the increased value of your property helps mitigate their risk. But if values take a dip, lenders may tighten their criteria, and you could find yourself with fewer options. This is especially true in certain areas of Arkansas, where the local market can have a big impact on the terms and availability of home equity loans.

Property Location

Living in areas with a higher risk of natural disasters can mean higher interest rates. High-risk areas often include places that are more prone to severe weather and natural disasters, like hurricanes, flooding, and wildfires. These disasters can cause significant damage to properties, which makes lending riskier. For example, Arkansas home equity loan rates may be higher because of the state’s risk of flooding and other natural disasters.

Lender Policies

Your chosen lender’s policies can affect the interest rate you’re offered. To make sure you’re getting the best deal, it’s important to shop around and compare interest rates, fees, and closing costs from multiple lenders. By doing your homework and comparing your options, you may be able to secure more favorable terms and save money in the long run.

Recommended: HELOC Repayment Calculator

How to Qualify for the Lowest Rates

To get the best home equity loan rates, you need to have a good credit score, manage your debt-to-income ratio, have adequate property insurance, and maintain a good amount of equity in your home. By doing these things, you can improve your chances of qualifying for the best loan terms and get yourself in a good position to access your home equity.

Build a Strong Credit Score

Your credit score can make all the difference when it comes to securing the best rates for Arkansas home equity loans. Those with a solid credit history often find themselves eligible for more favorable terms, which can translate to significant savings on interest over the life of the loan. By staying on top of your credit and making sound financial decisions, you can position yourself for greater financial benefits when the time comes.

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 player in the eligibility game. Lenders generally look for a DTI between 36% and 50%. This ratio gives them a good sense of whether you can handle your current debts and still manage the additional monthly payments that come with a home equity loan.

Obtain Adequate Property Insurance

For home equity loans, lenders often require robust property insurance to safeguard their investment. This means you might need to consider additional coverage, such as flood insurance, to ensure you’re fully protected. It’s a smart move that not only benefits you but also gives your lender peace of mind.

Maintain Sufficient Home Equity

You’ve got to keep a solid 20% equity in your property to qualify for a home equity loan. That equity is a big deal and plays a major role in whether you can snag that loan, for how much, and at what rate.

Fixed vs. Variable Interest Rates

Home equity loans are often set up with fixed interest rates. This means you enjoy the security of knowing what your monthly payments will be for the life of the loan. While fixed rates can start out a little higher than variable rates, they can be a great choice for homeowners in Arkansas who want to know exactly what to expect from their loan.

This is an important consideration when deciding between a HELOC vs home equity loan. HELOCs typically have variable rates, which may start out lower but can increase significantly depending on market conditions.

Tools & Calculators

Take full advantage of our online tools and financial calculators to get a clear picture of your eligibility for home equity loans and lines of credit. Use the results to help you make the best financial decision for your needs. Below you’ll find a home equity loan calculator as well as a HELOC interest only calculator.

Closing Costs and Fees

Closing costs for a home equity loan generally fall between 2% and 5% of the loan amount. These fees can include the cost of an appraisal, credit report, document preparation, origination, notary, title search, and title insurance. Origination fees can be a percentage of the loan amount or a flat fee. Title insurance is typically 0.5% to 1% of the loan amount. Appraisal fees can range from $300 to $500. Some lenders offer no-closing-cost loans, but they may come with a higher interest rate. Be sure to shop around and compare fees from multiple lenders.

Tax Deductibility of Home Equity Loan Interest

Here’s the deal: In Arkansas, the interest you pay on a home equity loan can be a tax-deductible expense, but only if you use the funds for home improvements. The deduction limit is $750,000 for married couples and $375,000 for singles, and you’ll need to itemize your deductions to claim this benefit.

Alternatives to Home Equity Loans

There are several other options for tapping into your home equity. These include home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances. Each of these options has its own unique features and requirements.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) is a bit like a credit card with lower interest rates. It empowers you to borrow up to a predetermined limit and pay interest solely on the amount you use. The variable interest rate, however, could potentially rise, leading to increased costs and payments. See the chart below for a quick look at what is a home equity line of credit compared to a home equity loan:

Home Equity Conversion Mortgage (HECM)

The HECM, a government-backed reverse mortgage, is an option for homeowners 62 and older. It allows you to receive payments based on your home’s value, either as a lump sum, regular payments, or a line of credit. The beauty of it? You won’t need to make payments until you leave your home. (While SoFi doesn’t offer HECMs at this time, we do offer HELOCs and home equity loans.)Cash-Out Refinance

A type of mortgage refinance, a cash-out refinance involves replacing your current mortgage with a new one and pocketing the difference. Most lenders allow you to borrow up to 85% of your home’s value. Home equity loans and HELOCs require at least 20% equity, while reverse mortgages have no equity requirement but do have an age stipulation. To crunch the numbers and see what fits, try our HELOC Monthly Payment Calculator.

Recommended: Cash Refinance vs Home Equity Line of Credit

The Takeaway

Home equity loans are a great way to tap into the value of your home to meet a variety of financial needs. By understanding current interest rates, different borrowing options, and how fees and terms vary among lenders, you can make wiser financial decisions.

FAQ

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

Calculating the monthly payment on a $50,000 home equity loan is simple. Use a loan calculator to input the loan amount, interest rate, and loan term. The calculator will then provide an estimate of your monthly payment. For example, a loan with an 8.00% interest rate and a 10-year term results in a monthly payment of $607. This can help you budget and plan for your monthly expenses.

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

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

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

When you take out a home equity loan for $25,000, your interest rate and loan term will determine your payment amount. For a loan with an 8.00% interest rate and 10-year term, the monthly payment would be $303. You can use a loan calculator to come up with an estimate of your monthly payment. This can be a helpful starting point for figuring out how much you can expect to pay each month and planning your budget accordingly.

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

When you’re looking at a $30,000 home equity loan, the interest rate and the loan term will affect your payment. For example, a $30,000 loan at 8.00% repaid over 7 years gives you a monthly payment of $468. The same loan amount and interest rate repaid over 15 years lowers the monthly payment to $287 but increases the total interest paid. To get an idea of what your payment might be, you can use a loan calculator. This will give you a better sense of what you can expect and help you make a more informed decision.

What could disqualify you from getting a home equity loan?

There are a few things that can make you ineligible for a home equity loan, including a history of bad credit, not having enough equity in your home, a debt-to-income ratio that’s too high, not enough insurance on your home, not having a steady job, and having a recent bankruptcy or foreclosure on your record.

What are the benefits of a HELOC?

A home equity line of credit (HELOC) offers a number of benefits, including flexible borrowing options, lower interest rates than most credit cards, and the ability to pay interest only on the amount of credit you use. Other advantages of a HELOC include the ability to access funds when you need them, potential tax deductions, and the ability to use the money for a variety of purposes, such as home improvements, debt consolidation, and educational expenses.

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

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

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

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

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

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