Home Equity Loans: A Complete Overview
What is a home equity loan?
A home equity loan is a second mortgage that allows you to borrow cash from your home’s equity, which is the difference between the home’s value and the remaining mortgage balance. Most lenders allow a combined loan-to-value ratio of up to 85%, meaning you usually need to retain at least 15% equity in your home. However, some lenders may allow higher amounts. 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 drop soon.
The last Federal Reserve meeting ended on July 29, 2026, when central bankers voted to leave the federal funds rate unchanged. The next meeting is Sept. 15-16, 2026.
Current prime rate — last changed Dec. 2025 | Prime rate last week | Prime rate in the past year — low | Prime rate in the past year — high | Projected median prime rate for 2026 |
|---|
6.75% | 6.75% | 6.75% | 7.5% | 6.8% |
We calculated a projected median prime rate by adding three percentage points (300 basis points) to the median federal funds rate forecasted by Federal Reserve board members and Federal Reserve bank presidents in the most recent Summary of Economic Projections. This summary is updated four times a year.
How to get the best home equity loan rate
Lenders will calculate your interest rate based on the current prime rate, along with factors such as your credit score, income, debts and how much you want 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. Focus on the 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 usually mean higher monthly payments, but less interest paid overall. Longer terms typically have lower monthly payments but cost more in interest over time.
Fees: Compare lender fees, as they can sometimes offset the benefit of a lower interest rate.
Qualification requirements: Some lenders will post their loan requirements, such as minimum credit scores and limits on existing debt. The stronger your application is relative to these requirements, the lower the rate you’re likely to be offered.
Calculate your home equity loan amount and payments
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 will affect your payments. For example, a 15-year loan will have higher monthly payments than if you had gotten a 30-year loan, though you’ll pay less overall because you’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-
Typically offer lower interest rates compared to personal loans.
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Fixed interest rates provide predictable, consistent monthly payments, unlike variable-rate HELOCs.
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The interest paid may be tax-deductible.
Cons-
Interest rates are higher than those for primary mortgages.
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Less flexibility compared to a line of credit.
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You risk losing your home to foreclosure if you can’t keep up with payments.
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 only pay interest 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
Personal loans
DATA: What's the Homebuying Climate this month?
NerdWallet's Homebuying Climate Index puts a familiar weather label on how favorable conditions are for home buyers.
For August, our analysis puts the Climate Index at 53.2 out of 100, keeping the index in Partly Cloudy territory for the 49th straight month as most variables hold relatively steady.
Read more about the factors affecting this month's index to gauge how they might affect your homebuying plans.
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.
