What is home equity and how do you calculate it?

Home equity is the stake you have in your property. Over time, you build up equity in your home as you make payments on your mortgage or your home’s value rises. If you have built a substantial amount of equity in your home, you can take out a home equity loan. Home equity loans are installment loans that allow you to borrow a percentage of your home equity, typically up to 85 percent. Unlike with 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). To calculate your home equity, subtract your current mortgage balance from the appraised value of your home. Check out Bankrate’s home equity calculator to estimate how much you can borrow.

Where can I get a home equity loan?

Banks, credit unions and other types of lenders offer home equity loans. Here’s an overview: Banks: A bank can offer a competitive rate for a home equity loan, provided you meet requirements for the lowest possible APR and set up automatic payments. Credit unions: Credit unions can also offer competitive home equity loan rates, but all of their products, including home equity loans, are only available to members. Many credit unions have very flexible membership requirements, however, so it might be easier to join one than you think. Non-bank lenders: Non-bank lenders are typically online-only operations with streamlined processes that translate to fast funding. They might offer higher or lower rates than a bank, so compare options. If you have an existing relationship with a bank, it may be best to start your search there, but it’s always a good idea to shop around with a few lenders to compare rates, fees and loan terms. A good way to do this is by taking advantage of prequalification forms, which let you see your potential rates and eligibility with a lender without impacting your credit score. Be sure to confirm this with your lender, however; some prequalifications do in fact involve a hard credit pull, which affects your score slightly.

Are home equity loan rates higher than mortgage rates?

Home equity loan rates are typically higher than first mortgage rates because home equity loans are considered second mortgages. In the event of a foreclosure, the lender of a second mortgage will be paid only after the lender of the first mortgage has been paid in full. To make up for this risk, lenders offering second mortgages will charge higher interest rates. Since home equity loan rates are higher than first mortgage rates as a baseline, as of early October 2022, you can expect to find home equity loan rates starting around 7 percent.

What is the three-day cancellation rule?

Unlike other loans, such as personal loans, home equity loans must go through a closing period. During this period, all home equity loans are legally subject to a three-day cancellation rule, which states that you have the right to cancel your home equity loan until midnight of the third business day after you sign your contract. Changes to the contract, as well as funds disbursement, cannot occur during this time.

What is the difference between a home equity loan and a cash-out refinance?

Home equity loans and cash-out mortgage refinances are both potential ways to get money for home renovations or unexpected expenses. That said, both options have their pros and cons. While a home equity loan is a "second mortgage" that allows you to borrow additional funds for nearly any purpose, a cash-out refinance replaces your existing mortgage. With a cash-out refinance, you'll take out a new mortgage for more than your outstanding loan balance, and then withdraw the difference in cash. Because of this, a home equity loan is typically best if you already have a good rate and terms on your current mortgage. A cash-out refinance only makes sense if you can qualify for a better interest rate on your mortgage and you don't mind resetting your repayment term.

How fast can I get a home equity loan?

Because home equity loans typically require appraisals, it can take longer to get a home equity loan than a personal loan. From application to funds disbursement, the process typically takes two to four weeks — although some new online lenders are trying to shorten that process.

How much equity can I borrow from my home?

The exact amount you can borrow varies depending on the lender, but you can generally borrow up to 80 or 85 percent of your home’s appraised value.

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Best home equity loan rates for December 2023

Q: What is a home equity loan?

A home equity loan is an installment loan based on the equity of the borrower's home. Most home equity lenders allow you to borrow a certain percentage of your home equity, typically up to 85 percent. Unlike with 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).

Q: What are the minimum requirements?

Many lenders have fixed LTV ratio requirements for their home equity loans, meaning you'll need to have a certain amount of equity in your home to qualify. Lenders will also factor in your credit score and income when determining your rate and eligibility. Minimum requirements generally include a credit score of 620 or higher, a maximum loan-to-value ratio of 80 percent or 85 percent and a documented source of income.

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Updated December 10, 2023

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How to choose the best home equity loan

Many lenders have fixed loan-to-value (LTV) ratio requirements for their home equity loans, meaning you'll need to have a certain amount of equity in your home to qualify. Lenders will also factor in your credit score and income when determining your rate and eligibility. Minimum requirements generally include a credit score of 620 or higher, a maximum loan-to-value ratio of 80 percent or 85 percent and a documented source of income.

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, but definitely 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.

How to choose the best home equity loan for you:

Compare your credit score to lender requirements. Some lenders accept applications from borrowers with credit scores in the 600s, others don’t.
Weigh each lender’s combination of interest rates and fees. Both can range widely from one lender to another. The annual percentage rate (APR) on a loan reflects the combined impact of rates and fees.
Figure out how much home equity you have. Some lenders let you tap up to 90 percent of your home’s value. Others cap that amount at 80 percent.
Determine your debt-to-income ratio: all your current monthly obligations divided by your monthly gross income. Lenders look at this ratio to measure your ability to repay the loan, and some allow a larger ratio than others.
Determine how much you need to borrow. Some lenders offer home equity loans as big as $500,000, others have a max of $100,000.

- Identification or Social Security Number
- Employment history and employer’s contact information
- Evidence of your income for the past two years, typically through your tax returns
- Last two W-2 statements
- Most recent pay stub
- Proof of ownership of the home
- Home insurance declarations page

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

LOAN TYPE	AVERAGE RATE	AVERAGE RATE RANGE
Home equity loan	8.92%	8.60% – 10.00%
10-year fixed home equity loan	9.07%	7.97% – 9.94%
15-year fixed home equity loan	9.09%	8.07% – 10.73%

To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. The rates shown above are calculated using a loan or line amount of $30,000, with a FICO score of 700 and a combined loan-to-value ratio of 80 percent.

Note: The above APRs are current as of December 6, 2023. The exact APR you might qualify for depends on your credit score and other factors, such as whether you're an existing customer or enroll in auto-payments.

National home equity loan interest rate trends

Home equity loan rates remain steady

Home equity loan rates remained steady as of Dec. 6, with the 15-year, $30,000 home equity loan averaging 9.09 percent, down from 9.11 the previous week, according to Bankrate’s national survey of large lenders. The 10-year $30,000 loan averaged 9.07 percent, the same as the previous week.

Rising home prices have put home equity levels close to the 2022 peak, according to ICE’s latest Mortgage Monitor. This puts homeowners in a strong position to borrow if rates drop.

Unlike home equity lines of credit (HELOCs), equity loan rates are fixed. Once you close your loan, your rate will stay the same whether market rates rise or fall (unless you refinance).

Best home equity loan rates in December 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.

LOAN TYPE	LOAN AMOUNT	LOAN TERM	STARTING APR	BEST FOR
Discover	$35,000–$300,000	10 to 30 years	7.74% (1st lien)	Competitive Rates
BMO Harris Bank	$25,000–$150,000	5 to 20 years	8.84%	Different loan options
KeyBank	$25,000–$250,000	1 to 30 years	9.78% (1st lien)	Homeowners with limited equity
Spring EQ	Up to $500,000	Not specified	Not disclosed	Fast funding
Flagstar Bank	$10,000–$1,000,000	10 to 20 years	8.04%	Flexible loan terms
U.S. Bank	$15,000–$750,000	Up to 30 years	8.25%	Low fees at a national bank
Third Federal Savings and Loan	$10,000–$200,000	5 to 20 years	6.99%	Customer service
Frost Bank	Starting at $2,000	7 to 20 years	7.99%	Low fees at a regional bank
Connexus Credit Union	Starting at $5,000	5 to 20 years	5.99%	Branch network
Regions Bank	$10,000–$250,000	7 to 20 years	6.75%	Customer experience

Note: The above APRs are current as of November 1, 2023. The exact APR you might qualify for depends on your credit score and other factors, such as whether you're an existing customer or enroll in auto-payments.

Discover: Best home equity loan lender for competitive rates

4.3

Bankrate Score

Overview

Discover is well known for its rewards credit cards, but this national bank also offers a full lineup of banking services, such as checking and savings accounts, personal loans and student loans. We chose this bank as the best for low rates because of its national reach (Discover is available in 48 states — the exceptions being Maryland and Iowa — and Washington D.C.).

Lender: Discover
APR starting at: 7.74% (1st lien)
Loan Amount: $35,000 to $300,000
Max LTV Ratio: 90%
Max Debt-to-income ratio: 43%
Min. Credit Score: 620
Term Lengths: 10 to 30 years
Fees: None
Available Nationwide: Available in 48 states (not in Maryland or Iowa)
Average days to close: Six-eight weeks

Its APRs start at 6.24 percent.
Discover’s home equity loans allow you to borrow up to $300,000 against your home equity. You can choose a loan term of 10, 15, 20 or 30 years. Plus, borrowers won’t pay origination fees, application fees, home valuation fees or cash at closing. It’s a solid option that’s available to most borrowers across the country.
The best rates go to customers with excellent credit, so if your credit score needs work, you may want to look elsewhere. Also, borrowers who pay their loans off within 36 months may have to repay closing costs covered by Discover (max $500).

BMO Harris Bank: Best home equity loan lender for different loan options

3.9

Bankrate Score

Overview

BMO Harris Bank has more than 600 branches spread across Arizona, Florida, Illinois, Indiana, Kansas, Minnesota, Missouri and Wisconsin, but customers nationwide can access BMO’s online banking resources. Its home equity loans come with low loan minimums, few fees and a variety of term options.

Lender: BMO Harris Bank
APR starting at: 8.84%
Loan Amount: $25,000 to $150,000
Max LTV Ratio: Not Specified
Max Debt-to-income ratio: Not Specified
Min. Credit Score: 700
Term Lengths: 5 to 20 years
Fees: None
Available Nationwide?: Available in all states except for Texas and New York
Average days to close: 35-40 days

Loan amounts range from $25,000 to $150,000, with terms of five to 20 years. With so many ways to tailor your loan to your needs, a home equity loan from BMO Harris can be ideal for just about any financial need.
Borrowers have plenty of options when it comes to loan terms and amounts on BMO’s home equity loans. Plus, there are no application fees and you get a 0.5 percent discount when you set up autopay with a BMO Harris checking account.
You can start your application online, but you may have to speak with a banker to get final approval.

KeyBank: Best home equity loan lender for homeowners with limited equity

4.2

Bankrate Score

Overview

You can borrow up to 90 percent of your home’s value. KeyBank’s terms are also flexible — lasting up to 30 years — making this bank a solid choice.

Lender: Keybank
APR starting at: 9.78% (1st lien)
Loan Amount: $25,000–$250,000
Max LTV Ratio: 90% Combined LTV
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths:: 1 to 30 years
Fees: There’s a $295 origination fee, and you may have to pay costs of appraisal, title, flood insurance and mortgage tax if you repay and terminate the loan within 36 months.
Available Nationwide?: Available in 48 states (not Alabama or Texas)
Average days to close: 42 days

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 you borrow up to 90 percent of your home’s value in a first and second mortgage if you qualify.
You can get a 0.25 percent rate discount if you have a KeyBank checking account and a KeyBank savings account.
As a regional financial institution, KeyBank offers home equity loans in only 15 states. Plus, a $295 origination fee applies, and you may have to pay for title insurance, closing fees and mortgage taxes. KeyBank’s loan details vary by location; the information here applies to the 80013 zip code.

Spring EQ: Best home equity loan lender for fast funding

4.3

Bankrate Score

Overview

If you have an average credit score and you’ve built equity in your home, Spring EQ can help you tap into that equity with flexible loan terms to fit most borrower profiles.

Lender: Spring EQ
APR starting at: Not disclosed
Loan Amount: $10,000 to $1 million
Max LTV Ratio: 90%
Max Debt-to-income ratio: 50%
Min. Credit Score: 680
Term Lengths: Not Specified
Fees: Spring EQ does not disclose its fees, but you may be on the hook for an administration fee, credit report and flood certification fees, document prep fees, title report fees, notary or title fees, recording fees and an appraisal fee.
Available Nationwide?: Available in 48 states (not Maryland or Iowa)
Average days to close: Not disclosed

If you’re approved for a home equity loan, you could get your loan funds in as few as 11 days once Spring EQ receives your required documents.
You can borrow as much as 90 percent of your home equity. Spring EQ’s minimum credit score is 680, and its maximum DTI ratio is 50 percent, which is a draw for people with tight finances. Plus, applicants typically aren’t required to provide proof of assets.
Self-employed borrowers may need to provide more proof of income. Additionally, the option to borrow 90 percent of your home's value requires you to have a credit score of at least 740.

Flagstar Bank: Best home equity loan lender for flexible loan terms

Bankrate Score

Overview

Established in 1987 and with 150 branches spread across California, Indiana, Michigan, Ohio and Wisconsin, Flagstar Bank consistently gets high marks for customer satisfaction and offers a full lineup of banking services.

Lender: Flagstar
APR starting at: 8.04%
Loan Amount: $10,000 to $1 million
Max LTV Ratio: Not Specified
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths: 10 to 20 years
Fees: There’s no prepayment penalty and no bank-imposed closing costs. However, borrowers are responsible for prepaid interest, all state- and government-specific charges and taxes and lender’s title insurance.
Available Nationwide?: Available in nine states: Michigan, Indiana, Ohio, Wisconsin, California, Florida, New York, New Jersey and Arizona
Average days to close: 48 days

Terms range from 10 to 20 years on loans from $10,000 to $500,000.
Flagstar gives borrowers a 0.25 percent rate discount for making automatic payments.
Flagstar’s home equity loans are available only in bank branches. It’s a good bet if you can meet qualifications and live near a branch; otherwise, you may need to look elsewhere. Additionally, loan details vary by location — loan details presented here are based on the 49546 ZIP code.

U.S. Bank: Best home equity loan lender for low fees at a national bank

Bankrate Score

Overview

With roots that trace back to 1863, U.S. Bank is now the fifth-largest bank by assets in the country, with about 3,000 branch locations in 27 states. It’s a solid option for low fees at a nationwide lender.

Lender: U.S. Bank
APR starting at: 8.25%
Loan Amount: $15,000 to $750,000 (Up to $1 million for California properties)
Max LTV Ratio: Not Specified
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths: Up to 30 years
Fees: None
Available Nationwide?: Available in 47 states (not in Delaware, South Carolina, or Texas)
Average days to close: 15.5 days

There are no closing costs on U.S. Bank’s home equity loans, which could save you thousands of dollars.
U.S. Bank offers rates starting at 6.1 percent APR on 10- and 15-year home equity loans. These low rates include a 0.5 percent discount for those who make automatic payments from U.S. Bank checking or savings accounts.
U.S. Bank tends to have stricter credit requirements, so the best interest rates go to people with credit scores around 730 or higher. If your credit needs work or the loan terms don’t fit your needs, you might want to try another lender.

Third Federal Savings and Loan: Best home equity loan lender for customer service

4.4

Bankrate Score

Overview

Third Federal (ThirdFed) offers a wide array of banking and financial products, including home equity loans and lines of credit, mortgages and deposit accounts. The bank is known for its dedication to helping customers achieve their financial goals through offering low rates and little fees.

Lender: Third Federal Savings and Loan
APR starting at: 6.99%
Loan Amount: $10,000 to $200,000
Max LTV Ratio: 80%
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths: 5 to 30 years
Fees: The only fee charged is an annual fee of $65, which is waived the first year.
Available Nationwide?: Has branches in Ohio and Florida; home equity loans also available in Kentucky, California, Pennsylvania, New Jersey, Virginia and North Carolina
Average days to close: Not disclosed

The bank scores an impressive A- on the Better Business Bureau and is known for providing its customers with helpful tools, like a mobile app and home equity calculators.
U.S. Bank offers rates starting at 6.1 percent APR on 10- and 15-year home equity loans. These low rates include a 0.5 percent discount for those who make automatic payments from U.S. Bank checking or savings accounts.
It doesn't disclose eligibility requirements like a minimum credit score or income amount before you apply. Plus, in order to qualify, you must have at least 20 percent equity in your home.

Frost Bank: Best home equity loan lender for low fees at a regional bank

4.5

Bankrate Score

Overview

Established in 1868 and with 130 branches spread across Texas, Frost is a full-service bank that offers checking and saving accounts, personal loans, insurance, investment products and more. Frost’s customer service is also consistently highly rated.

Lender: Frost
APR starting at: 7.99%
Loan Amount: Starting at $2,000
Max LTV Ratio: 80%
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths: 7 to 20 years
Fees: There are no prepayment penalties, no application fees and no annual fees. There are also no closing costs on loans from $2,000 to $500,000.
Available Nationwide: You’ll need to show proof of homeowners insurance, bring your government-issued photo ID and provide your Social Security number.
Average days to close: 30 days

Frost doesn’t charge prepayment penalties, application fees or annual fees on its home equity loans, and there are no closing costs on loans from $2,000 to $500,000.
Frost is a great option if you live in the Lone Star State. It’s a good fit for people who just need to borrow a small amount, as loans range from as little as $2,000 to $500,000 or more. Frost offers a 0.25 percent discount for those who set up an automatic payment from a Frost checking or savings account.
This bank only has branches in Texas, so if you’re looking for in-person service and live elsewhere, you'll need to look to a different lender.

Connexus Credit Union: Best home equity loan lender for branch network

4.1

Bankrate Score

Overview

Established in 1935, Connexus offers auto loans, personal loans, student loans, credit cards, banking products and more. Connexus’ home equity loan rates are on par with those of other financial institutions on this list.

Lender: Connexus
APR starting at: 5.99%
Loan Amount: Starting at $5,000
Max LTV Ratio: 90%
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths: 5 to 20 years
Fees: Borrowers won’t pay an annual fee, but they will be responsible for closing costs that can range from $175 to $2,000, depending on the property location and loan terms. The credit union also charges a returned loan payment fee of $15, a convenience fee of $9.95 for paying by debit or credit card online ($14.95 by phone) and a forced place insurance processing fee of $12.
Available Nationwide?: All states except Maryland, Texas, Hawaii, and Alaska
Average days to close: Not disclosed

While some banks and credit unions are localized in one state or region, Connexus serves all 50 states through a co-op shared branch network of more than 6,000 locations throughout the U.S.
Borrowers can bank in person or apply for home equity loans online or by phone. You’ll have to join the credit union, but membership options are flexible enough that just about anyone can find a way to join.
Borrowers won’t pay an annual fee but will be responsible for closing costs that can range from $175 to $2,000, depending on the property location and loan terms.

Regions Bank: Best home equity loan lender for customer experience

4.1

Bankrate Score

Overview

Established in 1971 and with a presence in 15 states, Regions offers a full lineup of personal banking services, including checking and savings accounts, credit cards, mortgages, student loans, personal loans, auto loans and home equity loans and lines of credit.

Lender: Regions Bank
APR starting at: 6.75%
Loan Amount: $10,000 to $250,000
Max LTV Ratio: 89%
Max Debt-to-income ratio: Not Specified
Min. Credit Score: Not Specified
Term Lengths: 7 to 20 years
Fees: Regions Bank will pay all closing costs, but borrowers may be responsible for over-limit fees of $29, a late fee of 5% of the payment amount (limits apply) and a returned check fee of $15. There’s no annual fee.
Available Nationwide?: Available in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas
Average days to close: 25 days

Regions Bank made our list because it consistently earns high marks from various consumer rating agencies.
Home equity loans come with low interest rates, no annual fee, flexible repayment terms and no closing costs. Borrowers may also qualify for a rate discount by setting up autopay from a Regions Bank checking account.
The property securing your home equity loan will have to be located in a state where Regions has a branch, and you’ll need to close on the loan at a branch location. You’ll need at least $10,000 in equity. Additionally, borrowers are on the hook for a few fees, including late fees of 5 percent (with a minimum of $29 and a maximum of $100 in most states). There’s also a returned check fee of $15 for all states.

Methodology

Bankrate’s experts regularly research, review and rate home equity lenders to help you objectively compare and choose a lender that fits your needs. To determine a home equity lender’s Bankrate Score, Bankrate rates lenders on a scale of one to five stars — with five the highest rating — based on a variety of factors relating to the lender’s products and services. To assign our ratings, we assessed each home equity lender across three core areas-

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
Borrower experience: Online application availability, online account access, customer support options, auto-payment and app availability.

View our full methodology here.

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. Like other installment loans, 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). 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.

Calculating your home's equity

Home equity is the stake you have in your property – the percentage of the home you own outright. Over time, you build up equity in your home as you make payments on your mortgage or your home’s value rises. To calculate your home equity (and how much you may be able to borrow), subtract your current mortgage balance from the appraised value of your home.

For (a simplified) example, say you owe $200,000 on a home worth $400,000. This means that you have 50 percent equity in your home. If your lender lets you take out up to 85 percent of your home’s value ($340,000), you could borrow $140,000 through a home equity loan. A home equity calculator (like Bankrate’s) can estimate how much you can borrow.

Pros and cons of home equity loans

Because the proceeds from a home equity loan come in one lump sum, home equity loans are best suited for homeowners who have a set budget. They’re a good option for those who want to use the funds for home renovations – the interest can be tax deductible if the money is used for certain repairs, expansions or improvements. 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 not deductible.

Another benefit of home equity loans is that they have competitive interest rates, which are usually much lower than those of personal loans and cash-out refinances. Compare lenders’ rates for the best deal available.

However, if you need money quickly, a home equity loan may not be the way to go. It can take longer to receive the funds from a home equity loan than a personal loan. Additionally, you may be subject to expensive closing costs and a more drawn-out application process.

PROS

Lower interest rates than those of unsecured debt such as credit cards or personal loans.
High borrowing limits.
Fixed monthly payments.
Interest may be tax deductible.

CONS

Potentially expensive closing costs.
Risk of losing your home if you are unable to make the payment or end up underwater on your mortgage if the home value drops.
Longer application/funding timeline than that of personal loans.

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.

HELOC vs. Home equity loan

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.

	HOME EQUITY LOANS	HELOCS
Interest Rates	Fixed	Variable
APRs	Slightly higher	Slightly lower
Funds disbursement	Lump sum	Line of credit
Repayment terms	10-30 years of fixed payments	First 5-10 years: Interest-only payments Last 10-20 years: interest and principal
Best for	Debt consolidation, large home improvement projects, major purchases	Ongoing home improvement projects, college tuition payments, medical expenses

Home equity loan vs. cash-out refinance

When mortgage rates were at historic lows, cash-out refinances were a no-brainer. A homeowner could tap equity in their home while locking in a rock-bottom mortgage rate. But now that mortgage rates have risen, a cash-out refi no longer seems like the best answer. Getting a home equity loan instead — a simpler, if slightly more expensive type of financing — might be the better choice.

Say you have a $200,000 mortgage at 3 percent and you want to tap $50,000 of your home equity. A cash-out refi would require you to pay off the old loan and take a new loan for $250,000 at a much higher rate. But a home equity loan lets you keep the low-rate mortgage. And while it’ll probably be at a higher interest rate, it’ll be charged on only $50,000.

	HOME EQUITY LOANS	CASH-OUT REFIS
Interest Rates	Fixed	Fixed
APRs	Slightly higher	Slightly lower
Funds disbursement	Lump sum	Lump sum
Repayment terms	10-30 years of fixed payments	30 years of fixed payments
Best for	Debt consolidation, large home improvement projects, major purchases	Ongoing/long-term home improvement projects, college tuition payments, medical expenses

FAQs about home equity loans

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.
If you have poor credit, you may have a harder time getting approved for a loan, but it is still possible. The first step is to shop around: 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. And there are in fact reputable financial institutions that cater to the credit-challenged.

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.
Banks, credit unions and other types of lenders offer home equity loans. Here’s an overview:
- Banks: A bank can offer a competitive rate for a home equity loan, provided you meet requirements for the lowest possible APR and set up automatic payments.
- Credit unions: Credit unions can also offer competitive home equity loan rates, but all of their products, including home equity loans, are only available to members. Many credit unions have very flexible membership requirements, however, so it might be easier to join one than you think.
- Non-bank lenders: Non-bank lenders are typically online-only operations with streamlined processes that translate to fast funding. They might offer higher or lower rates than a bank, so compare options.
If you have an existing relationship with a bank, it may be best to start your search there, but it’s always a good idea to shop around with a few lenders to compare rates, fees and loan terms.

A good way to do this is by taking advantage of prequalification forms, which let you see your potential rates and eligibility with a lender without impacting your credit score. Be sure to confirm this with your lender, however; some prequalifications do in fact involve a hard credit pull, which affects your score slightly.
Home equity loan rates are typically higher than first mortgage rates because home equity loans are considered second mortgages. In the event of a foreclosure, the lender of a second mortgage will be paid only after the lender of the first mortgage has been paid in full. To make up for this risk, lenders offering second mortgages will charge higher interest rates. Since home equity loan rates are higher than first mortgage rates as a baseline, as of January 2023, you can expect to find home equity loan rates averaging 7.7 percent, within a range of 6.93 - 9.44 percent.
Unlike other loans, such as personal loans, home equity loans must go through a closing period. During this period, all home equity loans are legally subject to a three-day cancellation rule, which states that you have the right to cancel your home equity loan until midnight of the third business day after you sign your contract. Changes to the contract, as well as funds disbursement, cannot occur during this time.
Home equity loans and cash-out mortgage refinances are both potential ways to get money for home renovations or unexpected expenses. While a home equity loan is a "second mortgage" that allows you to borrow additional funds for nearly any purpose, a cash-out refinance replaces your existing mortgage.

You'll take out a new mortgage for more than your outstanding loan balance, and then withdraw the difference in cash. Because of this, a home equity loan is typically best if you already have a good rate and terms on your current mortgage. A cash-out refinance only makes sense if you can qualify for a better interest rate on your mortgage and you don't mind resetting your repayment term.
Because home equity loans typically require appraisals, it can take longer to get a home equity loan than a personal loan. From application to funds disbursement, the process typically takes two to four weeks — although some new online lenders are trying to shorten that process.
The exact amount you can borrow varies depending on the lender, but you can generally borrow up to 80 or 85 percent of your home’s appraised value.

Home equity lenders reviewed by Bankrate

Why trust Bankrate?

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.

Best home equity loan rates for December 2023

How to choose the best home equity loan

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

National home equity loan interest rate trends

Home equity loan rates remain steady

Best home equity loan rates in December 2023

Discover: Best home equity loan lender for competitive rates

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BMO Harris Bank: Best home equity loan lender for different loan options

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KeyBank: Best home equity loan lender for homeowners with limited equity

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Spring EQ: Best home equity loan lender for fast funding

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Flagstar Bank: Best home equity loan lender for flexible loan terms

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U.S. Bank: Best home equity loan lender for low fees at a national bank

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Third Federal Savings and Loan: Best home equity loan lender for customer service

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Frost Bank: Best home equity loan lender for low fees at a regional bank

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Connexus Credit Union: Best home equity loan lender for branch network

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Why we think Connexus Credit Union offers the best home equity loan for a branch network:

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Regions Bank: Best home equity loan lender for customer experience

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Methodology

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

Calculating your home's equity

Pros and cons of home equity loans

PROS

CONS

Best uses for a home equity loan

Alternatives to a home equity loan

HELOC vs. Home equity loan

Home equity loan vs. cash-out refinance

FAQs about home equity loans

What are the costs of a home equity loan?

Can you get a home equity loan with bad credit?

Where can I get a home equity loan?

Are home equity loan rates higher than mortgage rates?

What is the three-day cancellation rule?

What is the difference between a home equity loan and a cash-out refinance?

How fast can I get a home equity loan?

How much equity can I borrow from my home?

Home equity lenders reviewed by Bankrate

Why trust Bankrate?