Home equity loan rates for October 2021

Written by
Hanneh Bareham
Edited By
Aylea Wilkins
Reviewed By
Mark Hamrick
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As of Tue October 19, 2021

A home equity loan is a lump-sum loan that’s secured by the equity in your home. Because they are secured, they can have repayment terms of up to 30 years and fixed interest rates of an average of five percent. If you have good credit, you may be able to get an even lower rate.

Home equity loans can be used for nearly any purpose. You’ll typically need at least 15 percent to 20 percent equity in your home to qualify for a home equity loan. If you are interested in this type of loan for paying high-interest debt, financing home renovations or another purpose, learning what the options are and what current rates are can help you find the best option for your situation.

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The Bankrate guide to home equity loans

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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?

 

Loan Type
Average Rate
Average Rate Range
Home equity loan
5.94%
3.25%–7.94%
10-year fixed home equity loan
5.99%
3.50%–7.94%
15-year fixed home equity loan
6.03%
3.50%–8.04%
HELOC
3.88%
1.74%–6.85%

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.

Best home equity loan rates in October 2021

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.

Lender
Loan amount
Loan term
APR Range
Best for
Discover
$35,000–$200,000
10 to 30 years
3.99%–11.99%
Low rates
BMO Harris Bank
$25,000–$150,000
5 to 20 years
Starting at 4.54% (with autopay)
Different loan options
KeyBank
$25,000–$250,000
1 to 30 years
Starting at 2.10% (with client discount)
Homeowners with limited equity
Spring EQ
Up to $500,000
Not specified
Starting at 5.205%
Fast funding
Flagstar Bank
$10,000–$500,000
10 to 20 years
Starting at 6.53% (with autopay)
Flexible loan terms
U.S. Bank
$15,000–$750,000
Up to 30 years
Starting at 3.8% (with autopay)
Low fees at a national bank
Third Federal
$10,000–$200,000
5 to 20 years
Starting at 3.29%
Customer service
Frost
Starting at $2,000
7 to 20 years
Starting at 4.49% (with autopay)
Low fees at a regional bank
Connexus Credit Union
Starting at $5,000
5 to 20 years
Starting at 3.49%
Branch network
Regions Bank
$10,000–$250,000
7 to 20 years
3.00% (with autopay)
Customer experience

 

Summary: Home equity loans in 2021

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 may 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.

Evaluating your home’s equity

You can calculate how much equity you may be able to borrow by dividing the amount you owe by the value of your home.

For example, say you owe $200,000 on a home worth $400,000. That’s $200,000 / $400,000 = 0.50 or 50 percent loan to value (LTV). This means that you have 50 percent equity in your home. Compare that number to your lender’s maximum LTV ratio to see if you might qualify for a home equity loan.

Next, calculate how much you may borrow by multiplying your home's value by the lender's maximum LTV and subtracting your mortgage balance.

Say your lender allows you to borrow up to 85 percent of your home's value. In this example, that would be $400,000 x 0.85 = $340,000. From there, you would subtract your mortgage balance: $340,000 - $200,000 = $140,000 as the maximum amount you may be eligible to borrow.

Best uses for a home equity loan

While home equity loans can be used for almost anything, taking out a loan for something you can pay for another way or don't need can be expensive in the long run. For that reason, financial experts generally advise being careful with what you use loan money for.

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 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: Although risky, using home equity on investments may increase your financial portfolio over time.

Pros and cons of home equity loans

Home equity loans are best suited for people who know how much they need for a given project, as the funds are distributed in one lump sum. Additionally, they’re a good option for those who want to use the funds for home improvements because the interest borrowers pay is tax deductible if the money is used for renovations.

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 tax law.

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.

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 payments or ending up underwater on your mortgage if home values drop.
  • Longer funding timeline than that of personal loans.

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.

The documents and information you’ll typically need to apply for a home equity loan include:

  • Social Security Number
  • Amount you pay in child support or alimony
  • 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
  • Current mortgage statement
  • Appraisal or valuation of your home
  • Evidence of existing liens on your home

You may also need to pay fees for a loan application, credit check and home appraisal.

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 poor credit scores 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.

Coronavirus and home equity loans

Due to the current state of the economy, home equity loans may be an attractive option to access emergency cash. Bankrate Chief Financial Analyst Greg McBride says that in 2021, McBride says, rising home prices are making lenders more comfortable with increasing the volume of their home equity lending.

“Not only did home prices not go down, but they've actually gone up and homeowners have more equity, and so I expect that, from a loan performance standpoint, things are going to end up looking a lot better than had been initially assumed,” he says.

If you're looking to apply for a home equity loan, take advantage of prequalification offers, especially if your credit score is below average. If you have an existing loan and are experiencing financial hardship, contact your lender to ask about loan relief options during this time.

Details: Best home equity loan rates in 2021

A variety of lenders offer home equity loans that let you borrow against your home’s value. Most are fixed-rate loans, which protect you against payment hikes because the interest rate and monthly payment remain the same over the life of the loan. However, some lenders offer better loan terms, lower rates or fewer fees.

Current home equity loan rates range between 3 percent and 12 percent, depending on the lender, loan amount and creditworthiness of the borrower. Our list of the best home equity loans for 2021 can help you decide which loan might work best for your needs.

Best home equity loan for low rates: Discover

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 all 50 states and Washington, D.C.) and low rates.

Why Discover is the best home equity loan for low rates: Its APRs start at 3.99 percent, which is 1.21 percentage points below the average home equity loan rate as of late June 23, 2021. That’s also lower than six of the other lenders profiled on this page.

Perks: Discover’s home equity loans allow you to borrow up to $200,000 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.

What to watch out for: 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).

Lender Discover
Max LTV Ratio 90%
Max Debt-to-Income Ratio 43%
Min. Credit Score 620
Interest Rates 3.99% to 8.99% APR for first lien and 4.15% to 11.99% APR for second lien
Loan Amount $35,000 to $200,000
Term Lengths 10 to 30 years
Fees None
Additional Qualifications Plan to share your personal details, Social Security number, proof of income, employment information, tax returns and pay stubs when you apply.

Read Bankrate’s expert Discover review

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

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.

Why BMO Harris Bank is the best home equity loan for different loan options: 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.

Perks: 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.

What to watch out for: You can start your application online, but you may have to speak with a banker to get final approval.

Lender BMO Harris Bank
Max LTV Ratio Not specified
Max Debt-to-Income Ratio Not specified
Min. Credit Score 700
Interest Rates Starting at 4.54% (with autopay)
Loan Amount $25,000–$150,000
Term Lengths 5 to 20 years
Fees None
Additional Qualifications Need a Social Security number, proof of income and information about debts and other financial obligations

Read Bankrate’s expert BMO Harris Bank review

Best home equity loan for homeowners with limited equity: KeyBank

Overview: You can borrow up to 90 percent of your home’s value with rates as low as 2.32 percent APR in some states. KeyBank’s terms are also flexible — lasting up to 30 years — making this bank a solid choice.

Why KeyBank is the best home equity loan for homeowners with limited equity: 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.

Perks: You can get a 0.25 percent rate discount if you have a KeyBank checking account and a KeyBank savings account.

What to watch out for: 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.

Lender KeyBank
Max LTV Ratio 90% combined LTV
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates Starting at 2.10% APR in some locations (with client discount)
Loan Amount $25,000–$250,000
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.
Additional Qualifications Borrowers must be 18, provide proof of income and live in one of the states KeyBank serves.

Read Bankrate's expert KeyBank review

Best home equity loan for fast funding: Spring EQ

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.

Why Spring EQ is the best home equity loan for fast funding: 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.

Perks: You can borrow as much as 90 percent of your home equity at rates starting at 5.205 percent APR. 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.

What to watch out for: 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.

Lender Spring EQ
Max LTV Ratio 90%
Max Debt-to-Income Ratio 50%
Min. Credit Score 680
Interest Rates Starting at 5.205% APR
Loan Amount Up to $500,000
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
Additional Qualifications Plan to share your name, verification of credit profile and debt-to-income ratio and the home’s current value.

Read Bankrate’s expert Spring EQ review

Best home equity loan for flexible loan terms: Flagstar Bank

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. APRs start at 6.53 percent in some states.

Why Flagstar Bank is the best home equity loan for flexible loan terms: Terms range from 10 to 20 years on loans from $10,000 to $500,000.

Perks: Flagstar gives borrowers a 0.25 percent rate discount for making automatic payments.

What to watch out for: 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.

Lender Flagstar Bank
Max LTV Ratio Not specified
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates Starting at 6.53% APR (with autopay)
Loan Amount $10,000 to $500,000
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.
Additional Qualifications Property insurance is required, as is flood insurance in some cases. Borrowers must provide proof of income.

Read Bankrate’s expert Flagstar Bank review

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

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.

Why U.S. Bank is the best home equity loan for low fees at a national bank: There are no closing costs on U.S. Bank’s home equity loans, which could save you thousands of dollars.

Perks: U.S. Bank offers rates starting at 3.8 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.

What to watch out for: 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.

Lender U.S. Bank
Max LTV Ratio Not specified
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates Starting at 3.8% APR (with autopay)
Loan Amount $15,000 to $750,000 (up to $1 million for California properties)
Term Lengths Up to 30 years
Fees None
Additional Qualifications Loan approvals are subject to credit approval.

Read Bankrate’s expert U.S. Bank review

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.

Why ThirdFed is the best home equity loan for customer service: 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.

Perks: If you qualify for a lower rate with a different lender or competitor, you may be eligible for a rate match or $1,000. Additionally, you can choose between fixed-rate or adjustable-rate terms.

What to watch out for: 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.

Lender ThirdFed
Max LTV Ratio 80%
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates Starting at 3.29% APR
Loan Amount $10,000 to $200,000
Term Lengths 5 to 30 years
Fees The only fee charged is an annual fee of $65, which is waived the first year.
Additional Qualifications ThirdFed doesn't disclose eligibility requirements on its website, but you will need to provide two months of pay stubs and last year's W-2 forms.

Read Bankrate’s expert ThirdFed review

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

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.

Why Frost is the best home equity loan for low fees at a regional bank: 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.

Perks: 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.

What to watch out for: 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.

Lender Frost
Max LTV Ratio 80%
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates Starting at 4.49% APR (with autopay)
Loan Amount Starting at $2,000
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.
Additional Qualifications You’ll need to show proof of homeowners insurance, bring your government-issued photo ID and provide your Social Security number

Read Bankrate’s expert Frost review

Best home equity loan for branch network: Connexus Credit Union

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, starting as low as 3.49 percent APR.

Why Connexus Credit Union is the best home equity loan for a branch network: 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.

Perks: 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.

What to watch out for: 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.

Lender Connexus Credit Union
Max LTV Ratio 90%
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates Starting at 3.49% APR
Loan Amount Starting at $5,000
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.
Additional Qualifications You must join the credit union to apply for a home equity loan.

Read Bankrate’s expert Connexus Credit Union review

Best home equity loan for customer experience: Regions Bank

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.

Why Regions Bank is the best home equity loan for customer experience: Regions Bank made our list because it consistently earns high marks from various consumer rating agencies.

Perks: 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.

What to watch out for: 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.

Lender Regions Bank
Max LTV Ratio 89%
Max Debt-to-Income Ratio Not specified
Min. Credit Score Not specified
Interest Rates 3.00% APR (with autopay)
Loan Amount $10,000 to $250,000
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.
Additional Qualifications Regions Bank may ask for additional documentation or information, such as income verification and proof of property, wind or flood insurance if necessary

Read Bankrate’s expert Regions Bank review

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 lets you make draws with variable interest rates, like a credit card.

Generally speaking, if you're planning on making 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 loan vs. HELOC for bad credit

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 poor credit is a result of missed 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 and a HELOC.

Frequently asked questions

What is home equity and how do you calculate it?

Home equity is the stake you have in your property, as opposed to the lender's stake. To calculate your home equity, subtract your current mortgage balance from the appraised value of your home. Over time, you build up equity in your home as you make payments on your mortgage. Home equity is one way to measure your personal wealth because you can borrow from your home equity in the form of loans or lines of credit.

You’ll need a substantial amount of equity in your home to qualify for a home equity loan. A home equity calculator can help you figure out 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?

A variety of banks and credit unions offer home equity loans. 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.

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 is the time to lock in your rate. Rates are lower than historical benchmarks, but many banks have tightened approvals, and some have even temporarily suspended their home equity products.

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 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.

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.

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 lets you 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.
  • 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.

Methodology

To select the top lenders that offer home equity loans, Bankrate considered 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.

In addition, the lenders featured here were evaluated for notable features like customer discounts and flexible repayment options.

Home equity tips

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.