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.

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).

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.

When is a good time to use 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.

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.

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.

Current Home Equity Loan Rates In May 2025

What are the current interest rates for home equity loans?

LOAN TYPE	AVERAGE RATE	AVERAGE RATE RANGE
5-year home equity loan	8.36%	7.37% - 9.79%
10-year home equity loan	8.52%	7.64% - 9.84%
15-year home equity loan	8.42%	7.84% - 10.17%

Comparing home equity loan interest rates

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 May 14, 2025. 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.

Bankrate’s National Average survey incorporates rate information from the 10 largest banks and thrifts in 10 large U.S. markets. Rates are calculated using a loan or credit line amount of $30,000, with a FICO score of 700 and a combined loan-to-value ratio of 80 percent for primary single-family detached homes.

Learn more: Understanding Bankrate’s rate averages

National home equity loan interest rate trends - May 14, 2025

Little change to home equity loan rates this week

Home equity loan rates barely budged this week, with the average rate on a 10-year, $30,000 home equity loan and a comparable 15-year loan rising one basis point to 8.52 percent and 8.42 percent, respectively, according to Bankrate’s survey of large lenders. The 5-year loan was unchanged, holding at 8.36 percent for the fourth week in a row, a low for the year.

Unlike HELOCs, home equity loan interest rates are fixed. Once you close your loan, your rate will stay the same whether market rates rise or fall (unless you refinance). However, interest rates on new home equity loans do shift in response to economic conditions and influences, including Federal Reserve monetary policy.

At its latest meeting in May, the Fed left its benchmark rate unchanged as it continues to take a wait-and-see approach to inflation, tariffs and other economic barometers. The next Fed policy-setting meeting is scheduled for June 17-18.

Greg McBride, CFA, Bankrate's chief financial analyst, forecasts that the Fed could cut rates three times in 2025, setting the stage for home equity loans to average 7.90 percent by the end of the year.

BANKRATE EXPERT FAQ

Ask the experts: Is now the right time to get a home equity loan?

Jeff Ostrowski

Bankrate Principal Reporter, Mortgages

"For homeowners sitting on mortgages with bargain-basement rates, home equity loans remain a good option for tapping the value stored in your property. With a home equity loan, you can keep the low-rate mortgage while paying today's rates on only that amount you need for renovations or other uses."

Factors that determine your home equity loan rate

There are several factors—some personal, some tied to broader economic trends—that affect your home equity loan rate:

Federal Reserve policy: When the Fed raises or lowers the benchmark federal funds rate, it kicks off a chain reaction among interest rates: It first affects the prime rate, which in turn is used to price home equity loans. So when the Fed hikes rates, the cost of new home equity loans often increases, and vice versa. (Existing home equity loan rates remain at their current fixed levels).
Credit score: Lenders use a borrower’s credit score to determine how strong or weak – financially speaking – a loan candidate is. The higher the score, the more creditworthy the borrower — and the lower the interest rate they’ll be offered.
Debt-to-income (DTI) ratio: DTI measures your monthly income relative to your monthly debts. Lenders look for a lower DTI as it shows you are able to manage your obligations, and have much more coming in than going out on a regular basis.
Loan amount and term: How much you are borrowing and for how long can impact the rate the lender offers you. Larger loans tend to charge less interest, because they’re generating more income for the lender overall. Generally, the longer the loan term, the higher the interest rate, because the risk of borrower default is bigger over an extended period.
Market competition: Offering home equity loans is a business like any other. Lenders adjust rates to match what others in the field are doing or to attract borrowers.

How to choose the best home equity loan for you

Whether you want a competitive interest rate, favorable repayment terms, or minimal fees, finding a home equity loan that meets all of your needs can be challenging. Here are five things to look for when selecting the right loan for you:

Figure out how much you need to borrow. Before applying for a home equity loan, you should have a financial goal. How much of an amount do you need – exact sum, plus a cushion – and for what purpose? Some lenders offer home equity loans as big as $500,000, while others have a max of $100,000.
Make sure you have enough equity. Take your home’s current value and subtract it from what you owe on your mortgage. The result is your equity (roughly). Some lenders only let you tap up to 80 percent of your home’s value, while others go up to 90 percent or higher.
Compare your credit score to lender requirements. Before applying, it’s worth checking what credit score minimums the lender sets, especially if your score is on the low side. Some lenders accept applications from borrowers with credit scores in the 600s, while others don’t.
Weigh each lender’s offer. Don’t go with the first offer you come across. Compare offers from at least three lenders, as rates, fees and borrowing limits can vary widely. The annual percentage rate (APR) on the loan is very important to consider, as it reflects the combined impact of rates and fees.
Read the fine print. Before signing the agreement, avoid expensive surprises and make sure you understand all the aspects of the loan, from closing costs to prepayment penalties.

- Tax 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 and/or last two W-2 statements
- Most recent pay stub
- Proof of ownership of the home
- Home insurance declarations page

Pros and cons of home equity loans

When deciding if a home equity loan is the best choice, there are several advantages and disadvantages to consider.

PROS

Lower interest rates than those of unsecured debt such as credit cards or personal loans.
High borrowing limits.
Fixed monthly payments.
Lump-sum payouts.
Tax-deductible interest if funds used for home renovations.

CONS

Need to own at least 15-20% of home outright.
Longer application/funding timeline.
Potentially expensive closing costs.
Additional lien on home/dilutes home’s worth.
Risk of losing your home if you can’t make payments.

Learn more: Pros and cons of home equity loans

How different loan amounts impact your monthly payments

Finding the best interest rate for a home equity loan is important, as even a quarter-point difference can impact your repayments. To demonstrate, here are the amounts you’d owe each month on a $30,000 loan within the current range of rates:

AVERAGE APR	MONTHLY PAYMENT
8.00%	$608.29
8.15%	$610.45
8.30%	$612.61
8.45%	$614.77
9.00%	$622.75
9.15%	$624.94

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 and the stage in your life, one of these options may be a better fit:

Home equity line of credit (HELOC): Like a big credit card, a HELOC allows you to withdraw money at different times, up to a certain limit. You pay interest only on the withdrawals at a variable rate. Generally speaking, if you’ve got a regularly recurring expense or are planning on doing multiple home improvement projects over an extended period, a HELOC may be the better option for you.

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 and up for a Home Equity Conversion Mortgage, the most popular reverse mortgage product, or 55 and up for some proprietary reverse mortgages).

Personal loans: Like home equity loans, personal loans have fixed interest rates and disburse money in a lump sum. However, they are unsecured debt: They don’t use your home as collateral. On the downside, they tend to have higher interest rates, their terms are typically shorter, and the amounts are smaller.

Next steps to getting a home equity loan

Before you start applying for a home equity loan, here are some home equity resources to prepare you for the process:

What is home equity?

Discover what home equity means and how you can tap it to pay for home renovations or pay off debts, and how to get the best rates.

How to calculate your home equity

Follow these steps to calculate how much equity you have in your home and how to tap into it via a home equity loan or line of credit (HELOC).

HELOC and home equity loan requirements

Everything you need to know about HELOC and home equity loan requirements: credit scores, DTI ratios and more.

Where to get a home equity loan: finding the best lender for your needs

Your loan provider makes a difference in the terms, rates, even if you get the loan at all. Here's where to find the best home equity lender.

FAQs about home equity loans

A home equity loan is a lump sum that you borrow against the ownership stake you’ve built in your home. The amount you can borrow depends on how much equity you have, your creditworthiness and your home’s overall market value. Most lenders will let you borrow up to 80 percent to 85 percent of your home equity. Home equity loans have fixed interest rates and five-to-30-year repayment periods.
The Federal Reserve’s interest-rate decisions influence the rates you pay for new home equity loans and for variable-rate home equity lines of credit (HELOCs).

The Fed began cutting its benchmark federal funds rate in 2024, pushing home equity rates to lows not seen in some time. These declines could well continue into 2025, depending on the size and number of Fed cuts. While the central bank left interest rates unchanged at its first two meetings of 2025, in January and March, it did not rule out that additional rate cuts could be in the cards later in the year. However, a return to the rock-bottom rates (4 percent) during the pandemic era is unlikely.
Depending on the lender, borrowers may pay various fees either at closing or throughout the life of the loan. Some common costs include: the origination fee to set up the loan, closing costs, late fees for a delayed monthly payment, and a prepayment penalty for settling the loan before the term ends. Additionally, depending on the lender, the home's location and your state laws, you may have to pay for title insurance, property insurance or flood insurance, if you don’t already have any.
Bad credit or a sketchy credit history doesn’t automatically mean you’ll be disqualified. It does mean you’ll probably have a harder time getting approved – you might have to submit additional documentation as to income, etc. — and will pay a higher interest rate on the loan than a more creditworthy borrower would. Your chances will improve if
- You get a co-signer or co-borrower on the loan
  
  You use a bank where you already do business
  
  You write a lender of explanation, explaining any blots on your credit report or special circumstances
Learn more: How to get a home equity loan with bad credit
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 with a home equity loan. Some HELOCs (home equity lines of credit) allow you to take out as much as 90 to 95 percent of your home’s value.

Meet our Bankrate experts

Written by: Linda Bell, Senior Writer, Home Lending

For more than two decades, I have covered the housing market, including in depth coverage of the 2008 housing market collapse. To increase my knowledge of home equity and HELOCs, I earned a Certified HELOC Specialist designation from the National Association of Mortgage Underwriters (NAMU). Throughout my career, I have won more than two dozen awards, most notably from the National Association of Real Estate Editors (NAREE) and the New York Association of Black Journalists (NYABJ) for an investigative series I produced on minorities and the housing industry.

Current home equity loan rates for May 2025