Home Equity Loan Rates: Compare Top Lenders in December 2024
A home equity loan is a type of second mortgage that lets you borrow against your home's value. It's a fixed-rate loan that you repay over an agreed-upon period. See national and regional lenders that offer home equity loans.Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners and here's how we make money.
- Offers a wide variety of purchase and refinance mortgages with an emphasis on helping underserved communities.
- Its home equity line of credit can be used for an owner-occupied or second home.
- Offers a program to enable buyers to make cash offers.
- Mortgage origination fees tend to be on the high end, according to the latest federal data.
- No closing costs
- Easy-to-join credit union.
- Fixed introductory rate is below the prime rate.
- Must pay back closing costs if the line is open for three years or less.
- Offers loans in terms of 5, 10, 15 and 20 years.
- No penalty for early repayment.
- Offers a high borrowing limit compared to other lenders.
- Home equity loans aren’t available for investment properties or second homes.
- Rates and fee information aren't published online.
- Specializes in HELOCs.
- The initial balance and any additional draws have a fixed interest rate.
- Closing may be available in just five days.
- HELOCs are available for second homes.
- Short draw period of two to five years.
- Requires a $15,000 minimum initial draw.
- Lender charges origination fees up to 4.99%.
- No application fee.
- Borrowers can apply within the lender’s mobile app.
- Home equity loans are available for second homes and investment properties.
- Home equity loan rates are not posted online.
- Home appraisal is required.
- CLTV borrowing limit over 80%.
- The initial balance and any additional draws have a fixed interest rate.
- Offers paths for rate discounts.
- No information about annual fees.
- Full amount (minus origination fee) must be drawn at closing.
- No annual fee.
- HELOCs with fixed-rate repayment.
- Fully digital application process.
- Draw period of only five years.
- Closing costs will apply.
- Not available for second homes or investment properties.
What is a home equity loan?
A home equity loan is a second mortgage that allows you to pull cash from your home’s equity (the value of your home, minus your remaining mortgage balance). Most lenders will allow for a combined loan-to-value ratio up to 85%, meaning you must retain at least 15% equity. However, some lenders will allow you to borrow more.
You’ll receive the cash as a lump sum, to be paid back at a fixed interest rate.
Today’s home equity loan rates
Current rate trends
Most home equity loan rates are influenced by a base rate called the “prime rate,” as well as the federal funds rate set by the Federal Reserve. The prime rate represents one of the lowest rates that lenders will offer to their most attractive borrowers.
When the Fed votes to raise the federal funds rate, you can expect that the prime rate will go up as well, and home equity loan rates will follow. When the Fed votes to lower the federal funds rate, borrowers who are shopping for a home equity loan can expect that rates will soon drop.
The last Federal Reserve meeting ended on Nov. 7, 2024, when central bankers voted to lower the federal funds rate by 0.25 percentage points. The next meeting is Dec. 17-18, 2024.
Current prime rate | Prime rate last week | Prime rate in the past year — low | Prime rate in the past year — high |
|---|---|---|---|
7.75% | 8% | 7.75% | 8.50% |
How to get the best home equity loan rate
Lenders will calculate a rate offer based on the current prime rate, along with factors such as your credit score, debts, and income, as well as how much you’re trying to borrow.
Your credit score is a major factor influencing your mortgage interest rate. While the minimum credit score accepted by many lenders is 620, You're more likely to be approved for a home equity loan with a credit score of 680 or higher. The lowest rates tend to go to borrowers with credit scores in the mid-700s or higher.
Lenders also consider your debt-to-income ratio — the percentage of your monthly gross income that goes towards paying debts — when determining your rate offer. Typically, lenders like to see a DTI of 43% or less.
Some lenders will offer a discount on a home equity loan's interest rate if you have another account with the bank.
How to choose a home equity loan lender
You’ll want to shop around multiple home equity loan lenders to find the best offer. In addition to looking for the lowest rate, some other factors you may consider include:
Borrowing limits. Some lenders have minimum or maximum borrowing limits, so you’ll want to narrow your search to lenders that will allow you to borrow what you need, and no more.
Terms. Review the term options offered by your potential lenders and consider what works best for you. Shorter terms, for instance, will require higher monthly payments, but will result in less interest paid overall. Longer terms will accrue more interest, but will have smaller monthly minimum payments.
Fees. You’ll want to compare any lender fees, which can potentially offset lower rate offers.
Qualification requirements. Some lenders will post their loan requirements, such as their minimum accepted credit score and the amount of existing debt a borrower can have. The stronger your application is relative to these requirements, the lower the rate you’re likely to be offered.
How to calculate your home equity loan payments
In addition to your interest rate and the amount that you borrow, the terms of your loan term will affect your payments. For example, a borrower with a 15-year loan will have higher monthly payments than if they had gotten a 30-year loan, though they will pay less overall because they’re making fewer payments.
How to apply for a home equity loan
Before you apply for a home equity loan, you’re going to need to gather documentation such as:
Current and previous addresses.
Current and previous employer information.
Your social security number.
A government-issued ID.
Your most recent pay stubs and two years of W2s or tax returns.
It’s best to apply with multiple lenders so you can compare rate offers. NerdWallet’s roundup of the top home equity loan lenders can help you narrow your selection.
Best reasons to get a home equity loan
The money you receive from tapping your equity is yours to use as you see fit. However, since the loan is secured by your home and you risk losing it if you cannot pay, it’s wise to prioritize expenses that will add to the value of the home and help further grow your equity. Many borrowers use their home equity loan to execute a renovation project, or to repair some part of the home.
When you use a home equity loan to buy, build or substantially improve a home, the interest may also be tax-deductible. This is a unique benefit of home equity loans and HELOCs; if you were to finance the same project with, say, a home improvement loan, it’s unlikely that you would be eligible for a tax deduction.
Pros and cons of home equity loans
Pros
- Interest rates are lower than those for personal loans.
- Because home equity loans have fixed interest rates, payments are more predictable than with variable-rate HELOCs.
- The interest paid may be tax-deductible.
Cons
- Less flexibility compared to a line of credit.
- You risk losing your home to foreclosure if you can’t keep up with payments.
- Interest rates are higher than those for primary mortgages.
Alternatives to home equity loans
There are other ways to access equity without selling your home.
HELOCs
A home equity line of credit, or HELOC, is a variable-rate credit line, similar to a credit card. You may borrow against your equity, up to a limit. When you repay all or some of it, you may borrow again, up to the credit limit. You pay interest only on the amount you borrow.
Usually, the initial interest rates on HELOCs are lower than for home equity loans. But HELOCs often have variable rates, which may rise or fall periodically, while home equity loans have fixed rates. If you want to take advantage of the flexibility of a HELOC but prefer the predictable payments of a home equity loan, you could consider going with a lender that offers a fixed-rate HELOC.
Cash-out refinances
A cash-out refinance replaces your current home loan with a new mortgage for more than you owe, and you take the difference in cash. See the pros and cons of a home equity loan versus a cash-out refinance.
Personal loans
Personal loans typically have higher rates than home equity loans, because they aren’t backed by an asset. They’re also less risky, since home equity loans carry the danger of losing your home to foreclosure if you can’t make required payments. See the pros and cons of a home equity loan versus a personal loan.
NerdWallet’s home equity loan lender reviews
If you’re considering a home equity loan, NerdWallet’s reviews are a good place to start your search.
Frequently asked questions
- How much does it cost to get a home equity loan?
Like a first mortgage, home equity loans often come with closing costs. These are often between 2% and 5% of the total loan amount, and includes factors like the origination fee, appraisal fee and credit report fee, among others. However, some lenders don’t charge closing costs at all.
- How long does it take to get a home equity loan?
While it can take minutes to fill out an application, it can take a few weeks, or longer, to actually receive the cash from your home equity loan. Discover Home Loans, for example, says that borrowers wait an average of about 55 days between the application and the payout.