Best home equity loan rates for April 2023

Bankrate guide to choosing the best home equity loan

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At Bankrate, our mission is to empower you to make smarter financial decisions. We’ve been comparing and surveying financial institutions for more than 40 years to help you find the right products for your situation. Our award-winning editorial team follows strict guidelines to ensure our content is not influenced by advertisers. Additionally, our content is thoroughly reported and vigorously edited to ensure accuracy.

Bankrate analyzes loans to compare interest rates, fees, accessibility, online tools, repayment terms and funding speed to help readers feel confident in their financial decisions. Our meticulous research done by loan experts identifies both advantages and disadvantages to the best lenders.

When shopping for a home equity loan, look for a competitive interest rate, repayment terms that meet your needs and minimal fees. Loan details presented here are current as of the publication date. Check the lenders’ websites to see if there is more recent information. The top lenders listed below are selected based on factors such as APR, loan amounts, fees, credit requirements and broad availability.

What are today's average interest rates for home equity loans?

Best home equity loan rates in April 2023

The best home equity loan lenders offer a variety of repayment terms, low interest rates and few fees. Each lender will evaluate your eligibility differently, so shopping around can help you find the best offer. Your rate will depend on your credit score, income, home equity and more, with the lowest rates going to the most creditworthy borrowers.

Methodology

To select the top lenders that offer home equity loans, Bankrate considered 15 factors that help consumers decide whether a lender is a good fit for them, such as minimum APR and maximum combined loan-to-value ratio. We sought lenders with low fees and a range of loan amounts for borrowers with varying budgets and credit profiles. We also looked for conveniences like online applications and fast funding.

Of the 34 lenders reviewed, 10 made Bankrate's list of best home equity loans. Each lender has a Bankrate rating, which consists of three categories. These categories include:

• Availability: The minimum loan amount, time to approval, days to close, minimum draw requirement, minimum credit score and loan types offered
• Affordability: The minimum APR, intro APR, discounts for auto-payers and fees
• Customer experience: Online application availability, online account access, customer support options, auto-payment and app availability

What is a home equity loan and how does it work?

A home equity loan is a lump sum that you borrow against the equity you’ve built in your home. Most lenders will let you borrow up to 80 percent to 85 percent of your home’s equity; that is, the value of your home minus the amount you still owe on the mortgage.

These loans have fixed interest rates and typical repayment periods between five and 30 years. Because your home serves as the collateral for a home equity loan, a lender can foreclose on it if you fail to make the payments.

Home equity loans are available at many banks, credit unions and online lenders. You can use these funds for a range of purposes, including debt consolidation, home improvement projects or higher education costs. The amount you can borrow depends on how much equity you have, your financial situation and other factors.

After reviewing your application and checking your credit, the lender will tell you how much you can borrow, your interest rate, your monthly payment, your loan term and any fees involved. Once you agree to the loan terms, the financial institution will disburse funds as one lump sum. You then repay the loan over time in fixed monthly payments.

How rising mortgage rates affect home equity loans

The Federal Reserve raised interest rates seven times in 2022 to fight inflation. This action from the Fed has led to rising home equity rates. For fixed-rate home equity loans, the average rate was 7.86 percent for 15-year loans and 7.93 percent for 10-year loans as of Jan. 18, 2023 according to Bankrate’s national survey of lenders. Senior Vice President, Chief Financial Analyst, for Bankrate Greg McBride expects rates on home equity loans to reach 8.75 percent by the end of the year.

Best uses for a home equity loan

A home equity loan may be a good option if you've been planning a large home renovation or if you need to consolidate debt and you spot a good rate. If you’ve been considering a home equity loan, now might be a good time to lock in your rate before they rise further.

Because mortgage rates have risen sharply since early 2022, home equity loans have grown more attractive as an alternative to a cash-out refinance.

Some of the best uses to make the most of your loan include:

• Home improvements: Because these can often add value over time, using your home's value to increase the value can be helpful.
• Education: Home equity loans generally have a lower interest rate than private student loans.
• Debt consolidation: Using home equity to help with debt consolidation may give you better interest rates so you can get your finances on track.
• Emergency expenses: If you don't have the funds for an immediate need, home equity loans can give you money with much more favorable interest rates than something like a payday loan.
• Investments: Using home equity on investments may benefit your financial portfolio over time.

Alternatives to a home equity loan

A home equity loan is not the right choice for every borrower. Depending on what you need the money for, one of these options may be a better fit:

• Home equity line of credit (HELOC): Like a home equity loan, a HELOC allows you to borrow from your home's equity. However, you'll borrow from a credit line. Additionally, HELOCs have variable rates.
• Cash-out refinance: If you can qualify for a lower interest rate than what you're currently paying on your mortgage, you may want to refinance your mortgage. If you refinance for an amount that's more than your current mortgage balance, you can pocket the difference in cash.
• Reverse mortgage: With a reverse mortgage, you receive an advance on your home equity that you don't have to repay until you leave the home. However, these often come with many fees, and variable interest accrues continuously on the money you receive. These are also only available to older homeowners (62 or older for Home Equity Conversion Mortgage, the most popular reverse mortgage product, or 55 and older for some proprietary reverse mortgages).
• Personal loan: Personal loans may have higher interest rates than home equity loans, but they don't use your home as collateral. Like home equity loans, they have fixed interest rates and disburse money in a lump sum.

Home equity loan vs. HELOC

Home equity loans and home equity lines of credit (HELOCs) are both loans backed by the equity in your home. However, while a home equity loan has a fixed interest rate and disburses funds in a lump sum, a HELOC allows you to make draws with variable interest rates, like a credit card.

Generally speaking, if you're planning on doing multiple home improvement projects over an extended period of time, a HELOC may be the better option for you. If you're thinking about consolidating high-interest credit card debt or doing a larger home improvement project that would require all of the funds upfront, a home equity loan may be the best option.

Requirements of getting a home equity loan

Costs of a home equity loan

Depending on the lender, borrowers may pay various fees either at closing or throughout the life of the loan. These add to your overall costs, so understand what you’ll pay before signing for a home equity loan. Some common costs include:

• Origination fee to set up the loan
• Closing costs
• Late fees for a delayed monthly payment
• Prepayment penalty for paying the loan off before the term ends

Additionally, you may have to pay for title insurance, property insurance, flood insurance or certain taxes depending on the lender, the home’s location, your state laws or other factors.

Getting a home equity loan with bad credit

If you have poor credit, you may have a harder time getting approved for a loan, but it is still possible. If you're interested in applying for a bad-credit home equity loan, the first step is to shop around with a few lenders. Since each lender has its own requirements, it's possible one lender will be more accepting of a poorer credit score and offer better rates than a similar lender.

Generally, you'll have to meet the following criteria to qualify for a home equity loan:

• At least 15 percent to 20 percent equity in your home
• A minimum credit score of 620
• A maximum debt-to-income ratio of 43 percent
• On-time bill payment history
• Stable employment or income history

If you don't meet the requirements, you may want to consider getting a co-signer to increase your chances of approval.

Because home equity loans and HELOCs both use your home as collateral, they are both viable options if you have poor credit — it will likely be easier to qualify for a home equity product than, say, an unsecured personal loan.

However, it's still important to consider which option is right for your financial situation, especially if your low credit score is a result of missed or late payments. If you know that you would benefit from a structured monthly budget, a home equity loan is the right option. If you would rather focus on keeping your debt low, a HELOC will allow you to take out only as much as you need and pay it back on a more flexible timeline.

If you've shopped around at different lenders, have considered getting a co-signer and still aren't sure if you'll get approved due to your credit score, you still have options. Consider why you're interested in taking out a loan. Do you need the funds immediately? Will this help you or hurt you in the long run by racking up more debt?

If you're having trouble getting approved, take some time to improve your credit score. It's also important to decide how a loan could impact your credit score in the future because you'll be taking on more debt with both a home equity loan or a HELOC.

FAQs about home equity loans