Compare home equity loan rates in Texas.

Introduction to Home Equity Loan Rates

Welcome to our guide to home equity loan rates in Texas. We’ve done the legwork to highlight the factors that influence rates, and how to snag the lowest ones. We’ll cover closing costs, tax deductibility, and alternatives to home equity loans, and introduce you to helpful tools and calculators. Armed with this information, you’ll be ready to make the best choice for your home equity financing needs.

How Do Home Equity Loans Work?

A home equity loan is like a second mortgage. It uses your home as collateral, which often means lower interest rates than with personal loans. And just like your mortgage, you pay back the loan in equal monthly installments with interest over a longer term (typically 20 years).

The interest rate is typically fixed, so you can plan your budget with more certainty. To qualify, you’ll usually need to have at least 20% equity in your primary residence.

Where Do Home Equity Loan Interest Rates Originate?

Home equity loan interest rates are influenced by a variety of economic factors, including the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers.

Federal Reserve policy decisions regarding interest rates can also influence home equity loan rates. Understanding the factors that influence home equity rates can enable borrowers to anticipate rate fluctuations and make informed decisions about the best time to take out a home equity loan.

How Interest Rates Impact Affordability

The interest rate you secure can have a big impact on your monthly loan payments and the total interest you pay over the life of the loan. For example, the difference between a 7.00% and 8.00% interest rate on a 20-year term can add up to $11,000 more in interest. The more you borrow, the more noticeable the difference in monthly payment and total interest would be.

A home equity loan calculator can help you understand how different interest rates and loan terms affect your monthly payment and the overall cost of the loan.

HELOCs vs Home Equity Loans

It’s important not to confuse a home equity loan with a home equity line of credit (HELOC), which is also secured by your home. The chart below explains HELOCs vs. home equity loans.

Recommended: What Is a Home Equity Line of Credit?

Home Equity Loan Rate Trends

The prime interest rate is a key indicator of future home equity loan rates. By keeping an eye on the prime rate, you can get a sense of where home equity loan rates are headed. This can help you make smarter decisions about the timing and terms of your home equity loan application, so you can get the best rate possible in Texas.

Historical U.S. Prime Rates

Since 2018, the U.S. prime rate has fluctuated greatly, reaching a low of 3.25% in 2020 and a high of 8.50% in 2023. This rate plays a large role in the economic environment, and it is important to understand how it can affect Texas home equity loan rates.

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

In addition to macroeconomic factors like the prime rate, the interest rate you’re offered for a home equity loan is influenced by microeconomic metrics. These include the borrower’s credit score, their loan-to-value ratio, the stability of the local housing market, the location of the property, and the policies of the home loan lender.

Understanding these factors can help you secure the best possible rates and make the most of your financial strategy.

Credit Score

Those who have a track record of responsible financial management, including making payments on time, are more likely to be offered a lower interest rate. Most lenders will look for a credit score of about 680 or higher when considering a home equity loan, but many prefer a score of 700 or above. This is because higher credit scores are associated with a lower risk of default, which makes you a more attractive candidate for a loan.

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio is a key factor in determining the maximum LTV most lenders will allow for a home equity loan, which is typically 85%. The LTV is calculated by dividing the loan amount by the appraised value of the property. By looking at the LTV, a lender can determine the appropriate interest rate and loan term for a borrower.

Home Value

Lenders often use independent appraisals to help determine a home’s market value and the maximum loan amount. This is important because the amount of equity you have in your home can impact the maximum loan amount a lender is willing to approve. The valuation process is an important step in assessing your financial standing and ensuring responsible lending practices.

Home Value Stability

The stability of home values can significantly impact the amount of equity homeowners can potentially access and utilize. When local home values experience an upward trend, lenders may be more inclined to approve larger home equity loans, as the increasing value of the property mitigates some of the associated risk. Conversely, when home values decline, the lender’s risk exposure increases, potentially leading to stricter lending criteria and smaller home equity loans approvals.

Lender Policies

Here’s a tip: Lender policies can really shake up the interest rates they offer. So when you’re on the prowl for the best deal, be sure to compare rates, fees, and closing costs from a handful of lenders. It takes time, but it can lead to some serious savings and a much better borrowing experience.

Property Location

If you live in an area with a high risk of extreme weather, you might see higher interest rates. That’s because lenders see these areas as riskier to lend in. These areas can be more prone to natural disasters like hurricanes, floods, and wildfires. And if you’re in one of these areas, it could impact your home equity.

How to Qualify for the Lowest Rates

To qualify for the best home equity loan rates, you need to have a good credit score, a low debt-to-income ratio, and enough equity in your home. You also need to have property insurance. If you meet these requirements, you can get a lower rate on your loan.

Build a Strong Credit Score

A higher credit score can be your golden ticket to snagging more attractive interest rates on home loans, which translates to significant savings over the loan’s lifetime. Not only that, but a beefed-up credit score can also unlock loan options and better terms, giving you the flexibility and control you want. And here’s a little secret — a higher credit score can even mean lower fees, lightening the load of borrowing.

Manage Debt-to-Income Ratio

When it comes to securing a home equity loan, your debt-to-income (DTI) ratio can play a big role in determining your eligibility. This ratio compares your monthly income to your monthly debt obligations, which helps lenders get a better picture of your financial health. Typically, lenders want to see a DTI that’s 36% or lower, but some may go up to 50%. Staying within these parameters can help you be better positioned to qualify for a loan.

Obtain Adequate Property Insurance

In many cases, having the right property insurance is a must for home equity loans, especially if you live in an area of Texas prone to flooding. This insurance is designed to protect both you and the lender in case of damage to your property.

Maintain Sufficient Home Equity

To secure a Texas home equity loan, you’ll need to maintain at least 20% equity in your primary residence. This requirement is in place to protect your financial well-being, ensuring you have a significant ownership stake in your property before you take on additional debt.

Fixed vs. Variable Interest Rates

Home equity loans often come with fixed interest rates. This means you’ll have the same interest rate and monthly payment for the life of the loan. While fixed rates offer stability, they can also start out higher than variable rates. Variable rates can start out lower, but they change over time based on the market. When it comes to how to get equity out of your home, it’s important to consider whether you prefer the fixed interest rate of a home equity loan or the variable interest rate of a HELOC.

Tools & Calculators

A variety of practical tools and calculators are available to help you get an accurate estimate of your home equity loan payments and determine your borrowing capacity. These resources can provide you with a better understanding of the financial implications of taking out a home equity loan, and help you make more informed decisions. Here, in addition to the home equity loan calculator, you’ll find a HELOC repayment calculator and a HELOC interest only calculator.

Closing Costs and Fees

Home equity loan closing costs in Texas tend to run 2% to 5% of the loan amount. Common fees include the appraisal, credit report, document prep, origination, notary, title search, and title insurance. Here are some quick estimates of what you might pay:

•  Loan origination fee: 0.5-1% of loan amount or flat fee.

•  Title insurance: 0.5-1% of loan balance.

•  Appraisal: $300-$500.

•  Credit report: $50-$100.

•  Document prep and attorney fees: $500-$2,000.

No-closing-cost loans exist but often have higher interest rates. Compare multiple lenders — including their rates, fees, and terms — before choosing a loan.

Tax Deductibility of Home Equity Loan Interest

Here’s the scoop: The interest you pay on a home equity loan can be tax-deductible if you use the funds for home improvements. If you’re married and filing jointly, you can deduct interest on loans up to $750,000. Single filers can deduct interest on loans up to $375,000. Just remember, you’ll need to itemize your deductions to get this benefit.

Recommended: What Is a Home Equity Loan?

Alternatives to Home Equity Loans

You have a range of different types of home equity loans to consider, such as home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances (one type of mortgage refinance). Each option has its own unique features and eligibility requirements. These alternatives provide you with additional borrowing options that may be more tailored to your specific financial needs and circumstances.

Home Equity Line of Credit (HELOC)

A home equity line of credit (HELOC) is akin to a credit card, but with the potential for a much higher limit. It allows you to borrow up to a certain amount, and you only pay interest on what you’ve borrowed. However, the variable interest rate means that if market rates go up, your costs will too. It’s important to weigh both the benefits and risks associated with HELOCs.

Home Equity Conversion Mortgage (HECM)

An HECM, or home equity conversion mortgage, is a government-backed reverse mortgage that allows homeowners aged 62 and older to receive payments from the lender based on their home’s value. The disbursement form is your choice: lump sum, regular payments, or a line of credit. The beauty of an HECM is that you’re not required to make payments until you leave the home. Note that HECMs typically have higher closing costs and longer processing times compared to home equity loans and HELOCs.

Cash-Out Refinance

A cash-out refinance is a new mortgage that pays off your old one and lets you borrow extra cash. Lenders typically limit the loan-to-value (LTV) ratio to 80-85% of a home’s equity. If comparing all these options is confusing, you may find the comparison article Cash-Out Refinance vs Home Equity Line of Credit helpful.

The Takeaway

Home equity loans can be a great way to get the cash you need for a variety of uses, from home renovations to high-interest debt consolidation. Understanding how home equity loan rates work in Texas is important when shopping around for the best deal for your situation. By comparing rates and fees from multiple lenders, using online tools, and considering other options, you can find the best home equity loan for you.

FAQ

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

The monthly payment for a $50,000 home equity loan is determined by the interest rate and the loan term. For example, with an interest rate of 8.00% and a 10-year loan term, your monthly payment would be approximately $607. This is based on a standard repayment schedule with equal payments of principal and interest over the life of the loan.

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

The monthly payment on a $100,000 Home Equity Line of Credit (HELOC) is determined by the interest rate and the amount drawn. Let’s consider one scenario: Suppose we have a HELOC with an interest rate of 7.99% and a $50,000 draw. The monthly payment over 20 years would be approximately $418. If you draw the full $100K, the monthly payment would be $836.

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

Your monthly payment for a home equity loan depends on the interest rate and the length of the loan. Let’s say you borrow $25,000 with an 8.00% interest rate and a 10-year term. Your monthly payment would be about $303. But remember, your number could be different based on the interest rate and other factors.

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

The monthly payment amount on a $30,000 home equity loan is going to be based on the interest rate you secure and the term of the loan. For instance, if you were to get an 8.00% rate and a 10-year term, your payment would be around $364.

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. If your credit score is too low, your debt-to-income ratio is too high, the equity in your home is too low, or you don’t have enough insurance on your home, you might not qualify. These are all things that you can work on to improve your chances of getting approved.

What are the benefits of a HELOC?

HELOCs, a type of revolving credit, offer several advantages, often including lower interest rates compared to credit cards, and the flexibility to pay interest only on the borrowed amount during the draw period. However, borrowers should be aware that variable interest rates can result in higher costs if rates increase, making it important to carefully consider the potential risks and benefits before using a HELOC.

Photo credit: iStock/Art Wager

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-Q424-103

Compare home equity loan rates in Arizona.

Introduction to Home Equity Loan Rates

If you want to know your options for tapping your home equity, you’ve come to the right place. This guide focuses on how Arizona homeowners can get the best available rate on a home equity loan, also known as a “closed end” second mortgage.

We’ll also talk about how to calculate your home equity and different types of home equity loans, such as HELOCs and cash-out refis. And we’ll show you some handy online tools to help you zero in on the right repayment term.

Your home equity is a powerful financial tool, and understanding the rates in Arizona can help you make the most of it.

How Do Home Equity Loans Work?

What is a home equity loan? Usually, funds are distributed in a lump sum, which you start paying back right away with fixed monthly payments over 5 to 30 years. This predictability can be a big help when you’re planning your budget. And because it’s secured by your home, a home equity loan offers a lower interest rate than other, unsecured loans. The downside: Failing to make the monthly payments could result in foreclosure.

Most lenders require your combined loan-to-value ratio (CLTV) to be 85% — that’s your mortgage balance plus the amount you want to borrow, divided by the appraised value of your home. You can estimate your maximum loan amount with this two-step formula:

•  Home Value x 85% = Maximum Mortgage + Loan Amount

•  Maximum Amount – Mortgage Owed = Maximum Home Equity Loan Amount

Let’s say your home is appraised at $800,000 and your mortgage owed is $600,000.

•  $800,000 X 85% = $680,000

•  $680,000 – $600,000 = $80,000 Max loan amount

A home equity loan calculator can help you determine how much you can borrow, based on your home’s value and your existing mortgage balance.

Home equity loans are the Swiss Army knives of the financial world, ready to tackle a variety of needs, from sprucing up your home to unexpected medical bills to consolidating high-interest debt. They offer the kind of flexibility that can help you reach your goals faster. In Arizona, home equity loans are a particularly good option, thanks to the state’s strong housing market.

HELOCs vs Home Equity Loans

How do you decide between a HELOC vs. a home equity loan? Both can allow you to borrow a large sum at a relatively low interest rate, and with lower fees than a mortgage refinance. But there are significant differences, as the chart below shows.

Recommended: What Is a Home Equity Line of Credit?

How Are Home Equity Loan Interest Rates Determined?

Home equity loan interest rates are based on the prime rate, which is influenced by a variety of economic factors. Understanding these factors can help you predict whether home equity loan rates are likely to rise or fall in Arizona.

The prime rate is the interest rate that banks give to their most creditworthy customers. The prime rate influences the interest rates that banks offer on home equity loans.

When shopping around for home equity loans rates, remember that half a percentage point can make a big difference in affordability over the long term. In the table below, you’ll see how the interest rate on a $50,000 home equity loan affects the monthly payment and total interest paid over a 10-year term:

Arizona Home Equity Loan Rate Trends

Like most interest rates, the prime interest rate has fluctuated over time. That has a direct impact on the rates for home equity loans. Keeping an eye on the benchmark prime interest rate can give you a heads-up on what’s to come with your home equity loan.

Historical Prime Interest Rates

Since 2018, the prime rate has fluctuated from a low of 3.25% in 2020 to a high of 8.50% in 2023.

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

A variety of factors can impact the interest rates you’re offered for a home equity loan in Arizona. Understanding these factors can help you secure a more competitive rate, which can help your financial situation and get you closer to your goals as a homeowner.

Credit Score

A strong credit score is your ticket to favorable interest rates and terms on Arizona home equity loans. It’s a reflection of your financial prudence and can lead to lower monthly payments, among other benefits. Lenders typically like to see a credit score of 680 or higher for home equity loans. Many lenders prefer 700+.

Loan-to-Value (LTV) Ratio

The loan-to-value ratio, or LTV, is a comparison of your loan size to the appraised value of your home. It’s a big deal because the lower your LTV, the better your interest rate. The maximum LTV most lenders allow for a home equity loan is 85%, though some lenders will allow you to borrow 100%.

Home Value

Lenders use professional appraisals to determine the market value of a home. This helps them decide how much money they can lend you and at what interest rate.

Home Value Stability

When home values are stable or on the rise, you stand to gain more equity. This is especially good news if you’re considering a home equity loan. Home value stability can translate to improved loan terms, lower interest rates, and better financial opportunities.

Property Location

Properties in high-risk areas, such as those prone to natural disasters, may have higher interest rates because lenders view them as riskier. This risk premium is added to the interest rate to compensate the lender for the increased risk of default and potential loss on the property.

Lender Policies

Lending institutions have different policies, criteria, and guidelines that influence the interest rates they offer to potential borrowers, especially for home equity loans. By comparing different lenders, borrowers can identify and secure the most favorable interest rates available.

Recommended: Cash Refinance vs Home Equity Line of Credit

How to Qualify for the Lowest Rates

To ensure you snag the best Arizona home equity loan rates out there, make it a priority to boost your credit score, manage your debt-to-income ratio wisely, get the right property insurance, and maintain a healthy amount of home equity.

Build a Strong Credit Score

You can take charge of your financial future by being proactive about your credit score. Making consistent, timely payments and managing your finances responsibly can help you secure more favorable interest rates on home equity loans, which could mean significant savings for you.

Keep Your Debt-to-Income Ratio in Check

A lower debt-to-income (DTI) ratio indicates your overall financial health. Not only does it make you look better to lenders, but it can also snag you more favorable home equity loan terms and interest rates. That can save you thousands of dollars in the long run. The DTI requirement for a home equity loan is typically 36% to 50%.

Obtain Adequate Property Insurance

Lenders often require comprehensive property insurance to protect their investment, especially in areas with increased risk, such as flood zones. This insurance helps ensure that you and your lender are financially protected in the event of property damage or loss due to natural disasters or other unexpected events.

Keep Your Equity Above 20%

Why the 20% benchmark? It’s a safety net, ensuring you have a financial cushion and that the lending institution is protected from potential losses.

Fixed vs. Variable Interest Rates

Understanding the difference between fixed and variable rates can help you make the best financial decision for your situation. Home equity loans are typically offered with a fixed interest rate. This means that your monthly payments will remain the same over the life of the loan, which can make it easier to budget.

Home equity loans are structured much like your first home loan. You borrow a specific amount and agree to repay it, with interest, over a set period of time (typically 20 years). The amount of the loan is secured by your home and paid back with a series of regular payments.

Tools & Calculators

SoFi has a wealth of financial tools and calculators that can help you determine whether a home equity loan may be right for you and what your monthly payments will be. These resources can help you plan for the future and make sure you’re making the most of your home’s equity. Here, in addition to the home equity loan calculator, you’ll find a HELOC repayment calculator and a HELOC interest only calculator.

Closing Costs and Fees

Closing costs and fees for home equity loans can vary significantly from lender to lender. Understanding these costs and their potential impact on the overall loan amount can help you budget effectively and make informed decisions about your financing options.

Closing costs for home equity loans generally range from 2% to 5% of the loan amount. Your costs will likely include an application fee, title search, appraisal, and attorney’s fees.

•  Loan origination fees, which are for processing the loan paperwork, are typically around 0.5% to 1% of the loan amount. Alternatively, this can be a flat fee that’s charged no matter how much you’re borrowing.

•  Title insurance costs for home equity loans can range from 0.5% to 1% of the loan balance, with title search fees typically falling between $100 and $250. These fees can vary depending on the location of the property, the loan amount, and the lender’s requirements.

•  An appraisal is an unbiased professional opinion of a home’s value. Appraisals are almost always used in purchase and sale transactions and commonly used in mortgage refinance transactions. Appraisals for home equity loans typically range between $300 and $500.

•  The preparation of documents and legal fees associated with home equity loans can vary significantly, ranging from a minimum of $500 to a maximum of $2,000. The specific cost incurred is largely influenced by the level of complexity associated with the loan process.

•  Credit report costs for lenders can vary significantly, usually falling between $50 and $100, depending on the number of credit bureaus that must be accessed. Lenders may also incur additional fees for specialized credit reports or expedited services.

You can find lenders who will waive the closing costs on a home equity loan. But the trade-off might be a slightly higher interest rate to cover the costs the lender would typically recoup at closing.

Tax Deductibility of Home Equity Loan Interest

The deductibility of home equity loan interest for tax purposes depends on how you use the loan. You can deduct the interest on your home equity loan only if the money is funneled directly into the acquisition, construction, or substantial improvement of your residential property. Other uses of the loan don’t make the cut for tax deductions.

For borrowers who are married and file jointly, you can deduct the interest on up to $750,000 of qualified home equity loans obtained after December 15, 2017. Single filers are allowed up to $375,000 of such loans for deduction.

To claim the home equity loan interest deduction, you’ve got to itemize your deductions on your tax return. Taking the standard deduction isn’t possible if you want to snag this benefit. (Also keep in mind, it’s the interest you pay that’s tax-deductible, not the principal.)

Speaking with an experienced tax advisor can be invaluable in helping you navigate the complexities of the tax code and make the most of potential tax benefits associated with home equity loan interest deductions.

Alternatives to Home Equity Loans

If you’re still wondering how to get equity out of your home, you should explore other options like home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances. Each of these comes with its own unique features and eligibility requirements. You should understand these options thoroughly to make an informed decision and choose the best financing solution that suits your specific needs and circumstances.

Home Equity Line of Credit (HELOC)

A HELOC is a lot like a credit card, but with much lower interest rates. It’s a flexible way to borrow money, because you can take out what you need, when you need it. And like a credit card, as you pay down the balance, your available credit is replenished.

As noted above, HELOCs have variable interest rates that can change with the market. If you’re considering a HELOC, it’s important to understand that your payments could go up if interest rates rise, which means you could end up paying more over the life of the loan.

Home Equity Conversion Mortgage (HECM)

HECMs are government-backed reverse mortgages specifically designed for homeowners aged 62 and above. HECMs provide retirees with cash borrowed against the value of their home, through a lump sum, monthly payouts, or a credit line. Borrowers make no monthly payments themselves, as long as they stay in their home. And because the money borrowed isn’t considered income, income taxes aren’t owed on it.

Because interest is building over time and not being repaid, however, HECMs can eat into the equity you’ve built in your home, which may be less than ideal if you’re planning to pass it on to an heir as an asset.

Cash-Out Refinance

A cash-out refinance involves securing a new mortgage loan to pay off the existing one and obtain a lump sum of cash. The amount of cash received is determined by the amount of equity that the homeowner has. This equity is calculated by subtracting the outstanding mortgage balance from the appraised value of the home.

The Takeaway

Home equity loans can be a great way to get the cash you need for a variety of uses. By understanding the details of your loan and taking the time to shop around, you can make the best decision for your situation and get the most out of your home equity loan.

FAQ

What would the monthly payment be on a $50,000 home equity loan?

Your monthly payment on a $50,000 home equity loan will depend on the interest rate and the length of the loan. For a $50,000 loan with an 8.00% interest rate and a 10-year term, your monthly payment would be $607. Using a monthly payment calculator can help you get an accurate estimate based on current rates and terms, so you can figure out what your payment will be.

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

The monthly payment on a $100,000 home equity loan depends on the interest rate charged and the repayment term. For example, a $100,000 loan at 7.00% interest with a 20-year term would result in a monthly payment of $775. A monthly payment calculator can be a useful tool to estimate your payment amount.

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

The monthly payment on a $25,000 home equity loan is determined by a number of factors, including the interest rate, loan term, and any fees involved. For example, a $25,000 loan with a 7.00% APR and a 5-year loan term has a monthly payment of $495. By using a loan calculator, you can get a good estimate of what your monthly payment will be, allowing you to make the best financial decision for your situation.

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

The interest rate and term of the loan will determine the monthly payment of a $30,000 loan. An 8.50% interest rate repaid over 10 years gives you a monthly payment of $372. Use our loan payment calculator to determine what your monthly payment might be based on the interest rate and term of the loan.

What might disqualify you from getting a home equity loan?

There are a few key factors that might make you ineligible for a home equity loan. These include a poor credit history, not enough equity in your home, a high debt-to-income ratio, or not having enough property insurance. Each factor can play a big role in your ability to get a home equity loan, so it’s important to consider them before applying.

What are the benefits of a HELOC?

The beauty of a HELOC is its flexibility. You can borrow what you need, when you need it, and you’ll only pay interest on the amount you’ve drawn — much like a credit card.

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-Q324-063

Compare home equity loan rates in Montana.

Home equity loans provide homeowners with a single, lump-sum payment that is repaid with fixed monthly payments over a term of 5 to 30 years. Home equity rates in Montana vary, so it’s important to compare offers from different lenders to find the best deal.

Let’s take a closer look at the factors that influence home equity loan rates — especially those that homeowners can control — so you can feel confident in taking this financial step.

How Do Home Equity Loans Work?

If you’re wondering how to get equity out of your home, home equity loans are a great option. Home equity loans are a type of second mortgage that uses your primary residence as collateral. They provide a lump-sum payment that is repaid in equal monthly installments over a term ranging from five to 30 years.

Because home equity loans use the equity in your home as collateral, they offer lower interest rates than unsecured personal loans. The interest rate is typically fixed, which can be advantageous for borrowers who prefer a consistent and reliable payment structure over the life of the loan.

To determine how much you can borrow with a home equity loan, lenders will calculate the combined loan-to-value ratio (CLTV): your mortgage balance plus the amount you want to borrow, divided by the appraised value of your home. Most lenders will require your CLTV to be 85% or less for a home equity loan or HELOC.

You can calculate your maximum loan using this two-step formula:

•  Appraised home value x 85% = Maximum debt amount

•  Maximum debt – Mortgage owed = Maximum loan amount

Now let’s use real numbers, assuming your appraised home value is $500,000 and your mortgage owed is $350,000.

•  $500,000 x 85% = $425,000 max debt

•  $425,000 – $350,000 = $75,000 max loan amount

If the math is less than crystal clear, don’t worry: home equity loan calculator can help you determine your home equity and maximum loan amount.

With their inherent flexibility, home equity loans empower homeowners to fund many kinds of big ticket expenses. These may include home renovations, educational costs, medical bills, and debt consolidation.

Where Do Home Equity Loan Interest Rates Come From?

Home equity loan interest rates are influenced by a variety of economic factors, including the prime rate. Understanding these influences can enable borrowers to anticipate rate fluctuations and make informed decisions about all kinds of home loans, including home equity loans.

The prime rate, which is the interest rate that banks charge their most creditworthy customers, has a direct impact on home equity loan rates. Federal Reserve decisions and broad economic conditions can also have an effect on rates.

How Interest Rates Impact Affordability

As you shop around for a home equity loan, remember that your interest rate can make a big difference in affordability over the long term. Below, you can see how the interest rate on a $50,000 home equity loan affects the monthly payment and total interest paid over a 10-year term:

•  At 8.50%, your monthly payment is $620 and your total interest paid is $24,391.

•  At 8.00%, your monthly payment is $607 and your total interest paid is $22,797.

•  At 7.50%, your monthly payment is $594 and your total interest paid is $21,221.

While the difference between monthly payments isn’t astronomical, many of us could think of better ways to spend that extra $3K in total interest. As you see, it pays to look for the best available interest rates, whether you’re shopping for a home equity loan or a HELOC.

Montana Home Equity Loan Rate Trends

The prime interest rate serves as a barometer for different types of home equity loans in Montana. By examining the historical prime interest rate over an extended period of time, you can get some insight into the trajectory of home equity loan rates.

Historical Prime Interest Rates

Source: TradingView.com

Factors Influencing Home Equity Loan Rates

In addition to the prime rate, a number of economic and consumer factors influence home equity loan rates. For those seeking the best deals on home equity loans in Montana, the following are particularly important to consider.

Credit Score

A robust credit score, reflecting a proven track record of punctual payments, can secure homeowners a more favorable interest rate on a home equity loan. Lenders typically like to see a credit score of 680 or higher for home equity loans, and many lenders prefer 700+. (For reference, a conventional mortgage refinance requires a credit score of 630­ to 650.)

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio – calculated by dividing the loan amount by the appraised value of the home — helps lenders determine what interest rate and loan term to offer a borrower. The maximum LTV most lenders allow for a home equity loan is 85%.

Home Value

Lenders rely on independent appraisals to ascertain the market value of a home. This valuation process determines a homeowner’s equity and the maximum loan amount a lender will approve.

Home Value Stability

Stable home values allow homeowners to tap into a larger portion of their property’s equity. In other words, a stable local housing market can increase the maximum loan amount lenders will approve.

Lender Policies

Lenders have some leeway in the interest rates they offer for home equity loans. By carefully comparing the interest rates and fees of multiple lenders in Montana, borrowers can secure the most favorable home equity loan rates.

Property Location

Properties in locations with a heightened level of risk — due to extreme weather or natural disasters — may be subject to elevated interest rates. This is due to the increased potential for default and the associated financial losses incurred by lenders in these areas.

How to Qualify for the Lowest Rates

Whether you’re shopping around for a HELOC vs home equity loan, the tactics are the same to secure the most favorable interest rates. Prospective borrowers should prioritize establishing a robust credit score, diligently managing their debt-to-income ratio, securing adequate property insurance coverage, preserving sufficient home equity, and demonstrating a consistent history of responsible financial management.

Build a Strong Credit Score

By making consistent and timely payments and exercising responsible credit use, you can elevate your credit score.

Manage Debt-to-Income Ratio

Maintaining a low debt-to-income (DTI) ratio makes you a more attractive candidate to lenders. The DTI requirement for a home equity loan is typically 36% to 50%.

Obtain Adequate Property Insurance

Make sure you have sufficient property insurance coverage in place. Not only does it safeguard your investment, it is frequently a prerequisite for obtaining a home equity loan.

Maintain Sufficient Home Equity

In the state of Montana and elsewhere, lenders commonly require borrowers to have a minimum of 20% equity in their homes before they can qualify for a home equity loan. This requirement helps to ensure that borrowers have a sufficient financial stake in their properties and are less likely to default on their loans.

Fixed vs. Variable Interest Rates

Home equity loans generally feature fixed interest rates, offering stability and predictability in monthly payments. Variable rates might offer lower initial rates but they have the potential to fluctuate over time, leading to higher costs in the long run.

Tools & Calculators

Many tools and calculators are readily available to assist borrowers in determining loan amounts, interest rates, and the calculation of monthly payments.

Closing Costs and Fees

Closing costs and fees for home equity loans can vary significantly, ranging from 2% to 5% of the total loan amount.

Home equity loan fees typically include an appraisal, credit report, document preparation, origination, notary, title search, and title insurance costs. These fees can vary depending on the lender and the specific loan terms, so it’s important to compare multiple lenders before choosing one.

Some lenders offer no-closing-cost home equity loans, but these options may come with higher interest rates to compensate for the waived fees. However, it’s important to note that these loans can be beneficial for borrowers who don’t have the upfront cash to cover closing costs.

Recommended: HELOC Interest Only Calculator

Tax Deductibility of Home Equity Loan Interest

Interest on home equity loans may be tax-deductible if the loan proceeds are utilized for residential property acquisition or renovation. Married couples filing joint tax returns can deduct interest paid on up to $750,000 of qualified home equity loans that were obtained after December 15, 2017, whereas single filers are permitted to deduct interest paid on loans of up to $375,000.

Qualifying home improvements that may be eligible for tax deductions encompass those that augment the home’s value, extend its usable lifespan, or adapt it to serve new purposes, thereby enhancing its overall functionality, liveability, and potential for energy efficiency, ultimately increasing its worth and desirability.

In the context of claiming the home equity loan interest deduction, taxpayers are obligated to meticulously itemize each and every deduction on their tax returns rather than opting for the standard deduction, which presents a simplified and generalized approach to tax deductions.

Consulting with a knowledgeable and experienced tax advisor can provide invaluable guidance on the intricate rules and regulations governing home equity loan interest deductions.

Alternatives to Home Equity Loans

In addition to home equity loans, other options include home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances. Each has unique features and eligibility criteria. These alternatives provide homeowners with various methods to access the equity they have built in their properties, offering financial flexibility and potential cost savings.

Home Equity Line of Credit (HELOC)

What is a home equity line of credit? Often referred to as a HELOC, it allows homeowners the flexibility to borrow up to a predetermined limit as needed, much like a credit card. Interest is only charged on the amount of credit that is actually drawn. HELOCs incorporate adjustable interest rates, potentially leading to higher monthly payments.

Recommended: HELOC Repayment Calculator

Home Equity Conversion Mortgage (HECM)

A Home Equity Conversion Mortgage (HECM) is a type of reverse mortgage backed by the federal government. It permits homeowners who are 62 or older to access a portion of their home’s value in the form of a lump sum, regular payments, or a line of credit. As time passes, the outstanding debt on the mortgage increases. HECMs generally come with higher upfront costs and extended processing compared to other home equity financing options.

Cash-Out Refinance

A cash-out refinance involves securing a new mortgage loan to pay off the existing one and obtain a lump sum of cash. The amount of cash received is determined by the amount of equity that the homeowner has. For details, check out our guide to Cash Refinance vs Home Equity Line of Credit.

The Takeaway

Home equity loans can be a relatively low cost method of using your home equity to fund a big ticket project, consolidate high-interest debt, or cover unexpected bills. By understanding how home equity loan interest rates are determined and taking the time to shop around, you can make the best decision for your situation and get the most out of your home equity loan.

FAQ

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

When considering a $50,000 home equity loan, the interest rate and loan term will determine the monthly payment. For a $50,000 loan with an 8.00% interest rate and a 10-year term, your monthly payment would be $607. A reliable loan calculator can provide an estimate based on your own numbers.

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

The monthly payment for a $100,000 Home Equity Line of Credit (HELOC) will vary depending on the interest rate and the repayment term. A $100K HELOC with a 6.00% interest rate and a 10-year term, for example, results in a monthly payment of $1,110. A HELOC Monthly Payment Calculator can be a useful tool to help determine the payment amount.

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

To calculate the monthly payment on a $25,000 home equity loan, you need the interest rate and the duration of the loan. For example, a $25,000 loan with a 7.00% APR and a 5-year loan term has a monthly payment of $495. For an estimate of your payment amount, enter your loan terms into any loan calculator.

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

The monthly payment for a $30,000 home equity loan is determined by the interest rate and the chosen loan term. An 8.50% interest rate repaid over 10 years gives you a monthly payment of $372. Utilizing a reliable loan calculator can provide an accurate estimate of the payment amount.

What disqualifies you from getting a home equity loan?

Several factors can hinder or even disqualify your ability to obtain a home equity loan. These factors include an unfavorable credit history, insufficient equity in your property, a high debt-to-income ratio, and inadequate property insurance coverage.

What are the benefits of a HELOC?

HELOCs provide the flexibility to obtain funds as needed up to a predetermined borrowing limit. This means you pay interest only on the amount you use. The potential for more favorable initial interest rates compared to fixed-rate loans further enhances their appeal and affordability.

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.

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