Bankrate's guide to home equity loans

• Average home equity loan rates
• Reasons to use home equity loans
• Pros and cons
• Shopping for home equity loans
• How to calculate home equity
• Home equity loan eligibility
• Alternatives to home equity loans
• How to apply
• Home equity loan FAQs
• Home equity lender reviews

Today's Average Home Equity Rates

Best home equity loans of 2019

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. Our list of the best home equity loans for 2019 can help you decide which loan might work best for your needs.

• Best for low rates: PNC
• Best for low fees: BMO Harris
• Best for homeowners with minimal equity: KeyBank
• Best for bad credit: Spring EQ
• Best for high loan limits: Discover

Best for low rates: PNC

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

Interest rates: Fixed rates can range from 4.29 percent to 7.14 percent but vary depending on loan amount

Qualifications:

• Maximum loan to value ratio: 89.9 percent
• Maximum debt-to-income ratio: None
• Minimum credit score: None
• Minimum annual income: None
• Need Social Security number, proof of income and government-issued ID to apply

Available term lengths: Up to 30 years

Loan amounts: Varies depending on your home equity

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

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

Interest rates: Fixed rates range from 5.74 percent to 8.69 percent depending on the loan amount and your creditworthiness

Qualifications:

• Maximum loan-to-value ratio: Not disclosed
• Maximum debt-to-income ratio: None
• Minimum credit score: None
• Minimum annual income: None
• Need Social Security number, proof of income and government-issued ID to apply

Available term lengths: Up to 20 years

Loan amounts: From $5,000 to $150,000

Fees: BMO Harris may pay many of your closing costs

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

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

Qualifications:

• Maximum loan-to-value allowed is 100 percent
• Maximum debt-to-income ratio: None
• Minimum credit score: None
• Minimal annual income: None
• 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

Available term lengths: One to 30 years

Loan amounts: $10,000 to $249,000

Fees: Fees that may apply include an origination fee, title insurance, closing fees and mortgage tax

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

Interest rates: Interest rates start at 4.99 percent for the first 6 months

Qualifications:

• Maximum loan-to-value allowed is 100 percent
• Maximum debt-to-income ratio: 43 percent
• Minimum credit score: 640
• Minimum annual income: None
• Plan to share your name, Social Security number, employment information and proof of income during the application process

Available term lengths: Loan terms up to 30 years available

Loan amounts: Borrow up to $500,000

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

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

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

Qualifications:

• Maximum loan-to-value ratio is 90 percent to 95 percent
• Maximum debt-to-income ratio: None
• Minimum credit score: 620
• Minimum annual income: None
• Plan to share your personal details, Social Security number, proof of income, employment information, tax returns and pay stubs when you apply

Available term lengths: Borrow for 10 to 30 years

Loan amounts: $35,000 to $200,000

Fees: No origination fees, application fees, or cash required at closing

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:

• Making substantial home improvements.
• Consolidating higher-interest debt, such as credit cards.
• Buying a vacation home or investment property.
• Paying for college tuition or expenses for yourself or a child.
• Starting a business.

What are some benefits and drawbacks 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 and cons of home equity loans

Why is now 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.

How to calculate 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.

Eligibility

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.

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).

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.

Home equity lenders reviewed by Bankrate

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