A home equity loan is a second mortgage that allows you to borrow against the value of your home. Your home equity is calculated by subtracting how much you still owe on your mortgage from the appraised value of your home. See below for top uses of home equity and more information.
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Find out more about home equity debt. Learn about the criteria used in surveys of rates above. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own website, where you can find additional information. Rates are subject to change without notice and may vary from branch to branch.
|Last update: 12/7/2018 8:15am|
|Home Equity Line of Credit||5.56%|
A home equity loan is a type of second mortgage that lets you borrow money against the value of your home. Whether you own your home outright or have a standard first mortgage, home equity loans let you unlock the equity in your home in exchange for a second mortgage.
The benefit of home equity loans is that the interest rates are usually lower than personal loans or credit cards because your house is the collateral.
“A home equity loan offers the certainty of a fixed interest rate, the same payment every month, and a specific date when it will be paid off entirely.”
- Greg McBride, CFA, Bankrate’s chief financial analyst.
A home equity loan makes more 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 make more sense.
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 other reason, such as paying off student debt or consolidating credit card bills, the interest you pay wouldn’t be eligible for a tax deduction under The Tax Cuts And Jobs Act.
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.
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, which they’re expected to.
Home equity loans can seem complicated — especially when you’re just starting out. Take a look at the breakdown below to learn more about the variables we use to find you the best rates.
Below are common terms we use when displaying rates.
Some lenders might say a percentage and then specify an upper limit (like $350k). This means the bank will lend you the percentage of equity up to $350k.
If you have more questions or are still unsure about home equity loans, take a look at the following frequently-asked questions.
If you are using a HELOC for any other purpose other than the home, you cannot deduct interest under the new federal tax laws (as of 06/13/2018).
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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.