Bankrate's guide to home equity loans

Current home equity loan rates

Home equity loan rate: As of Jan 27, 2020, the average Home Equity Loan Rate is 7.30%.

Best home equity loans of 2020

A variety of lenders offer home equity loans that let you borrow against your home’s value. These loans come with a predictable monthly payment and a fixed interest rate that will never change. However, some lenders offer better loan terms, lower rates or low fees that make them especially attractive. Current home equity loan interest rates range between 3.79% and 11.99% depending on the loan amount and creditworthiness. Our list of the best home equity loans for 2020 can help you decide which loan might work best for your needs.

Best for low rates: PNC Bank

PNC offers home equity loans with lower interest rates than many of their competitors. This fact, coupled with their flexible loan terms, makes them a top lender for consumers who want to borrow against the equity in their homes without paying more interest than they have to.

Pros: Low fixed interest rates; receive a 0.25 percent rate discount with autopay on a PNC checking account

Cons: Rates may vary depending on where you live; some fees apply

Lender PNC Bank
Max LTV Ratio 89.9%
Max Debt-to-Income Ratio None
Min. Credit Score None
Interest Rates Fixed rates currently range from 4.29 percent to 7.14 percent but vary depending on loan amount
Loan Amount Varies depending on your home equity
Term Lengths Up to 30 years
Fees Recording fees, property search fee, late fee up to 10 percent of the payment amount or $40, and returned payment fee of $30; appraisal fee may not usually required
Additional Qualifications Need Social Security number, proof of income and government-issued ID to apply

Best for high loan limits: Discover

While Discover is popular for their rewards credit cards, the bank also offers personal loans and home equity loan products. Its home equity loan is popular thanks to its combination of low fees and high loan limits. Make sure to see how home equity loans from Discover stack up before you decide on a lender.

Pros: High loan limits coupled with low interest rates and no fees

Cons: Best rates go to customers with excellent credit

Lender Discover
Max LTV Ratio 90 - 95%
Max Debt-to-Income Ratio None
Min. Credit Score 620
Interest Rates Rates between 3.99 percent to 8.99 percent for first lien and 3.99 percent to 11.99 percent for second lien
Loan Amount $35,000 to $200,000
Term Lengths 10 to 30 years
Fees No origination fees, application fees, or cash required at closing
Additional Qualifications Plan to share your personal details, Social Security number, proof of income, employment information, tax returns and pay stubs when you apply

Best for low fees: BMO Harris Bank

BMO Harris Bank offers a home equity loan product with low loan minimums, low fees and a variety of term options. With so many ways to tailor your loan to your needs, a home equity loan from BMO Harris can be ideal for debt consolidation, home remodeling projects, a major purchase or any other financial need.

Pros: Low fees and low interest rates for those qualify; a 0.25 percent discount for autopay from a BMO Harris checking account is available

Cons: You can start your application online but must speak with a banker to get final approval

Lender BMO Harris Bank
Max LTV Ratio Not disclosed
Max Debt-to-Income Ratio None
Min. Credit Score None
Interest Rates Fixed rates currently range from 5.74 percent to 8.69 percent depending on the loan amount and your creditworthiness
Loan Amount From $5,000 to $150,000
Term Lengths Up to 20 years
Fees BMO Harris may pay many of your closing costs
Additional Qualifications Need Social Security number, proof of income and government-issued ID to apply

Best for homeowners with minimal equity: KeyBank

When you don’t have a lot of equity in your home, it can be difficult to find a lender willing to extend you credit. Fortunately, KeyBank lets consumers borrow up to 100 percent of their home’s value in a first and second mortgage if they qualify. Flexible terms also apply, making this bank a solid choice.

Pros: Borrow up to 100 percent of your home’s value; terms available up to 30 years

Cons: A $125 origination fee applies

Lender KeyBank
Max LTV Ratio 100%
Max Debt-to-Income Ratio None
Min. Credit Score None
Interest Rates Rates vary around the country but can be as low as 3.79 percent if you only want to borrow up to 85 percent of your home’s value; higher rates apply when you borrow up to 100 percent of the value of your home
Loan Amount $10,000 to $249,000
Term Lengths 1 to 30 years
Fees Fees that may apply include an origination fee, title insurance, closing fees and mortgage tax
Additional Qualifications Need to be 18, provide proof of income and live in AK, CO, CT, ID, IN, MA, ME, MI, NY, OH, OR, PA, UT, VT or WA

Best for bad credit: Spring EQ

Spring EQ offers home equity loans to consumers with a minimum credit score of just 640. Generous loan terms are offered, as well as the ability to get funding in as little as 14 days. If your credit isn’t great but you want to borrow against the value in your home, this company is worth checking out.

Pros: Low minimum credit score requirement; easy online application process

Cons: High fees and they don’t offer the lowest rates

Lender Spring EQ
Max LTV Ratio 100%
Max Debt-to-Income Ratio 43%
Min. Credit Score 640
Interest Rates Interest rates start at 4.99 percent for the first 6 months
Loan Amount Up to $500,000
Term Lengths Up to 30 years
Fees Plan for a $799 administration fee along with a credit report and flood certification fee, document prep fee, title report fee, notary or title fee, recording fee and appraisal fee
Additional Qualifications Plan to share your name, Social Security number, employment information and proof of income during the application process

Recap of best home equity loans of 2020

Lender
Best lender for
Max LTV
Current home equity loan rates
PNC Bank
Best for low rates
89.9%
4.29% - 7.14%
Discover
Best for high loan limits
90% - 95%
3.99% - 11.99%
BMO Harris Bank
Best for low fees
Not disclosed
5.74% - 8.69%
KeyBank
Best for homeowners with minimal equity
100%
As low as 3.79%
Spring EQ
Best for bad credit
100%
As low as 4.99%

Reasons to use home equity loans

A home equity loan makes sense for a large, upfront expense because it’s paid in a lump sum. If you have smaller expenses that will be spread out over several years, such as multiple home projects or college tuition payments, a home equity line of credit, or HELOC, may save you money on interest. Top uses of home equity loans include:

Pros and cons of home equity loans

Home equity loans are best suited for people who know how much they need as they’re distributed in one lump sum. Additionally, they’re a good option for folks who want to use the funds for home improvements. The reason for this is that the interest you’ll pay is tax deductible if the money is used for renovation.

Conversely, if you use home equity loan funds for any reason aside from substantial home improvements, such as paying off student debt or consolidating credit card bills, the mortgage interest is no longer deductible under the new tax law.

Another benefit of home equity loans are the competitive interest rates, which are usually much lower than personal loans and cash-out refinances. Be sure to compare lenders’ rates for the best deal available.

Pros:

Cons:

Alternatives to home equity loans

Before taking out a home equity loan, ask yourself whether there are other options for financing that might be appropriate for your situation. For example, if you don’t need the money all at once in a lump sum, a HELOC could save you on interest costs. A cash-out refinance is another option, especially if your original mortgage has a higher interest rate than what’s available in the current market.

How to apply for a home equity loan

Prepare for a home equity loan application by checking your credit, calculating your home equity and taking stock of how much other debt you already have. Many lenders let you start the application process online by entering your personal and financial information. During the approval process you’ll be asked to provide supporting documentation such as your government-issued identification and pay stubs. You may need to pay fees for a loan application, credit check and home appraisal.

Home equity loan FAQs

If you have more questions or are still unsure about home equity loans, here’s a list of questions and answers to help you better understand the product.

What is home equity?

Your home equity is calculated by subtracting how much you still owe on your mortgage from the appraised value of your home. Home equity is one way to measure your personal wealth.

What is a home equity loan?

A home equity loan is based on the equity of the borrower's home. Unlike a HELOC, you receive all of the money upfront and then make equal monthly payments of principal and interest for the life of the loan (similar to a mortgage).

How do you calculate your home equity?

Over time, you build up equity in your home as you make payments on your mortgage. You’ll need a substantial amount of equity in your home to qualify for a home equity loan.

Home equity is defined as the value of your home minus any amount you still owe on your mortgage. The amount you’re eligible to borrow for a home equity loan is based on your loan-to-value, or LTV, ratio. A home equity calculator can help you figure out how much you can borrow.

Where can I get a home equity loan?

A variety of banks and lenders offer home equity loans. It’s always a good idea to shop around with a few lenders to compare rates, fees and loan terms.

When is a good time to use a home equity loan?

If you’ve been considering a home equity loan, now is the time to lock in your rate. Rates have been slowly moving higher, but they’re still lower than historical benchmarks. If you get a fixed-rate loan, which most home equity loans are, you will end up saving money in the long run if rates continue to climb.

What are the minimum requirements?

In addition to having enough equity, lenders will also factor in your credit score, LTV ratio and income when determining whether to approve you for a home equity loan.

Minimum requirements generally include a credit score of 620 or higher, a maximum loan-to-value ratio of 80 percent and a documented source of income.

Home equity lenders reviewed by Bankrate

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Home equity tips

A home equity line of credit, or HELOC, has an adjustable rate of interest attached to paying it off, which means that your payments can fluctuate based on the federal funds rate. Think about a home loan if the idea of an adjustable rate unnerves you.

Know your loan-to-value, or LTV, ratio. This is how much you owe versus how much the home is worth. Many people are in trouble now because their homes dropped in value. You don't want to be stuck owing more than your house is worth.

Figure out what the loan is for and how long you'll need the money to help decide which kind of loan you need. Home equity loans are better for single lump sum expenses while home equity lines of credit, or HELOCs, are best for prolonged expenses, like college tuition.