6 Best Home Equity Loans of 2022

·24 min read
Money; Shutterstock
Money; Shutterstock
  1. Best for Competitive Rates

    Discover

    Our Partner

    • Loan Amount:

      $35,000 - 300,000

    • APR:

      4.99% - 12.99%

    • Loan Term:

      10, 15, 20 and 30 years

    • Minimum Credit Score:

      620

    Get Started

  2. 100% Online Application

    Figure

    Our Partner

    • Loan Amount:

      $15,000 - $400,000

    • APR:

      3.24% - 11.66% (fixed rates)

    • Loan Term:

      3.24% - 11.66% (fixed rates)

    • Minimum Credit Score:

      620

    Get Started

  3. An Affordable Way to Tap Into Your Home Equity

    Unison

    Our Partner

    • Loan Amount:

      Up to $500,000 or 17.5% of your home value

    • APR:

      N/A -- Unison co-invests in your primary residence by giving you a portion of your equity in cash

    • Loan Term:

      5 to 30 years

    • Minimum Credit Score:

      620

    Get Started

  4. Best Fixed-Rate HELOC

    Truist

    Our Partner

    • Loan Amount:

      $15,000 - $500,000

    • APR:

      5.15% - 11.29%

    • Loan Term:

      5, 10, 15 and 20 years

    • Minimum Credit Score:

      620

    Get Started

  5. Best for Borrowers with Good Credit

    US Bank

    Our Partner

    • Loan Amount:

      $15,000 - $750,000

    • APR:

      From 5.90%

    • Loan Term:

      10, 15 and 30 years

    • Minimum Credit Score:

      730

    Get Started

  6. Best for Flexible Loan Amounts

    Citizens Bank Home Equity Loans

    Our Partner

    • Loan Amount:

      $10,000 - $200,000+

    • APR:

      4.00% (with AutoPay) to 21%

    • Loan Term:

      10 to 20 years

    • Minimum Credit Score:

      Not Disclosed

    Get Started

Home equity loans are a popular way to get money for home improvements, education expenses or consolidate debt. This type of loan typically offers homeowners lower interest rates than most credit cards and can be repaid in fixed monthly payments.

Read on to see which banks are offering the best home equity loan options and some great ways to tap into your home equity.

Our Top Picks for Home Equity Loans of 2022

  • Discover– Best for Competitive Rates

  • Regions Bank – Best for Flexible Repayment Terms

  • Truist – Best Fixed-Rate HELOC

  • U.S. Bank – Best for Borrowers with Good Credit

  • Citizens Bank – Best for Flexible Loan Amounts

  • PenFed – Best for Non-owner Occupied Properties

Best Home Equity Loan Company Reviews

Pros

  • No appraisal, application fees or mortgage taxes due at closing

  • CT, NC, NY, OK and TX residents are exempt from early payment penalties

Cons

  • Prepayment penalty of up to $500 applicable for 36 months after closing

  • No information regarding discounts

HIGHLIGHTS

APR
4.99%-12.99%
Loan amounts
$35,000-$300,000
Terms
10 to 30 years
Approval time
1-2 weeks

Online bank Discover makes our list for its low fees — unlike most banks, it doesn’t charge any application, origination or appraisal fees. It also doesn’t require an upfront cash payment at closing.

Discover’s home equity loans have fixed interest rates that range from 4.99% to 9.99% for first liens, and from 6.49% to 12.99% for second liens. You can borrow between $35,000 and $200,000 and choose a repayment term between 10 and 30 years.

Eligibility requirements

With Discover, you can see if you qualify for a home equity loan by providing some basic information before you formally apply. To qualify, you should have a credit score of at least 620 and sufficient equity — usually between 10% to 20% — in your home.

As with most loans, the amount you can borrow will depend on your creditworthiness. Only borrowers with a credit score over 700 may qualify for loans over $150,000.

Once you’re ready to submit your application, you’ll be assigned a banker who will help you throughout the process. Like many banks, Discover has an eClosing feature that allows borrowers to sign many of the closing documents before the physical closing.

Pros

  • Introductory rate of 0.99% for the first six months of a HELOC

  • Rate discount of 0.25% to 50% when you enroll for auto-pay

  • HELOC can be converted into a fixed-rate loan

  • No closing costs

Cons

  • Property tied to the loan must be in a state with a bank branch

  • Branches only in AL, AK, FL, GA, IL, IN, IA, KY, LA, MS, MO, NC, SC, TN, and TX

HIGHLIGHTS

APR
From 4.5% with AutoPay or 4.75% -12.50%
Loan Amounts
$10,000-$250,000
Terms
7 to 20-year terms
Approval time
Not disclosed

Regions Bank offers fixed-rate home equity loans with no closing costs and APR rates of 4.75% or 4.50% for borrowers who enroll in auto-pay. Loan amounts range from $10,000 to $250,000 with 7, 10, 15, or 20-year repayment terms.

In addition to home equity loans, Regions Bank offers home equity lines of credit (HELOCs). These start at $10,000 and go up to $500,000, with a 10-year draw and 20-year repayment period. HELOCs have a fixed introductory rate of 0.99% for the first six months, after which it shifts to an adjustable rate between 4.50% and 11.375% APR.

Regions Bank will cover full closing costs for credit lines of $250,000 or less. If your line of credit exceeds $250,000, Regions Bank will contribute up to $500. However, if a line of credit is terminated within the first 24 months of the opening date, the bank will transfer these costs to the borrower. Closing costs may range from $150 to $2,000.

Region’s website suggests the lender will not accept loan-to-value (LTV) ratios higher than 89% for first and second mortgages for primary residences, and 75% for secondary residences.

Eligibility requirements

To be eligible for its home equity products, your property must be located in a state where Regions has a branch. The bank currently has physical branches in 16 states: Texas, Tennessee, South Carolina, North Carolina, Louisiana, Mississippi, Missouri, Kentucky, Illinois, Indiana, Iowa, Georgia, Florida, Arkansas and Alabama.

Pros

  • Fixed-rate repayment options may be available

  • Covers appraisal fee

  • Flexible repayment options

Cons

  • Prepayment penalty for terminating a line of credit within 36 months

  • Annual fee for residents in AL, FL, GA, IN, KY. NJ and OH

HIGHLIGHTS

APR
5.15%-11.29% (or state maximum)
Loan Amounts
From $5,000
Terms
5, 10, 15, 20 and 30 years
Approval Time
30 - 35 business day

Truist offers home equity lines of credit with three repayment options: interest-only, fixed and variable-rate repayments with zero-cost closing options.

Truist variable rates range from 5.15% to 11.29% APR, although it may vary by state. For instance, the maximum APR for properties in North Carolina is 16%. The minimum amount you can request for HELOCs is $5,000; the maximum you can borrow, however, will depend on your creditworthiness and how much home equity you have available.

Fixed-rate HELOCs have repayment terms of 5, 10, 15 and 20 years and may be subject to a $15 set up fee. Variable-rate lines of credit, on the other hand, have a 10-year draw period and a 20-year repayment period.

Bear in mind that prepayment penalties on lines of credit may apply if the account is closed within 36 months of opening. This also means you’ll have to pay back any origination or closing costs covered by Truist, which can go all the way up to $10,000. In addition, Truist may cover closing costs for loans under $500,000, however this may result in higher APR rates.

Eligibility requirements

Like other banks, Truist will look at your income, credit score, employment, collateral information and both debt-to-income and loan-to-value ratios when determining your eligibility. The bank will also conduct an employment verification and ask you for information on financial debts and assets.

Pros

  • No closing costs, although initial escrow-related costs may apply

  • Interest rate will never exceed 18% APR, subject to applicable state law

  • 0.50% interest rate discount with automatic payment option

Cons

  • Interest-only payment may be unavailable for lines of credit

  • Early closure fee of 1% or up to $500 applicable during the first 30 months

  • Lines of credit only up to $1,000 in New York

HIGHLIGHTS

APR
From 5.90%
Loan amounts
$15,000-$750,000 (up to $1 million in California)
Terms
10 to 30-year terms
Approval time
Undisclosed

U.S. Bank offers home equity loans and HELOCs without closing costs. Home equity loan rates start at 5.90% APR for both 10 and 15-year term repayment periods, while HELOC rates begin at 4.20% APR and go up to 9.35% APR.

Home equity loans feature fixed rates and a repayment term of up to 30 years. Loan amounts start at $15,000 and go up to $750,000 (or $1 million for properties located in California).

While HELOCs feature variable rates, you have the option to convert a portion or the total amount of your balance to a fixed rate during the initial draw period, which is 10 years. During that time, minimum monthly payments are either 1% or 2% of the balance, but qualifying borrowers may have the option to make interest-only payments.

Lines of credit have an annual fee of $90, which you can waive for the first year by opening a checking account package with the bank. You may borrow from your line of credit by visiting a local branch, using checks, ATMs or with a Visa Access Card.

Eligibility requirements

You’ll need a credit score of 730 or higher, and a U.S. Bank checking or saving account to get the best APR rates and set up automatic payments. Do note, home equity loans aren’t available for properties held in a trust in Hawaii, Louisiana, New York, Oklahoma and Rhode Island.

Pros

  • No appraisal fees or closing costs

  • 0.25% off with AutoPay if using a Citizens Checking account

  • Choose full or interest-only payments during 10-year draw period

Cons

  • Only for properties in CT, DC, DE, FL, IL, IN, MA, MD, ME, MI, NH, NJ, NY, OH, PA, RI, VA or VT

  • $50 annual fee after the first year on standard HELOCs

HIGHLIGHTS

APR
4.00% (with AutoPay) to 21%
Loan Amounts
$10,000-$200,000+
Terms
10 to 15-year terms
Approval time
Not disclosed

Citizens Bank offers two home equity products: a standard home equity line of credit and their Citizens GoalBuilder HELOC.

Both products have a 10-year borrowing period and a 15-year repayment term and variable interest rates starting as low as 4.25% and going up to 21%. Clients who enroll in automatic monthly payments from a Citizens Bank checking account can get a 0.25% rate discount.

The main difference between both HELOC products is the minimum and maximum amount you can borrow. The standard HELOC has a $17,500 borrowing minimum, while the Citizens GoalBuilder HELOC offers credit limits from $5,000 to $25,000.

Another difference is that clients with a GoalBuilder HELOC don’t have to pay annual fees, whereas those with a standard HELOC pay $50 after the first year.

Clients can access funds using the Citizens Bank Mobile app, online banking or supplied checks.

Eligibility requirements

Citizens Bank does not disclose its credit requirements for home equity products. All products are subject to approval based on credit score, LTV and DTI ratios.

Eligible properties include owner-occupied 1- to 4-family properties or condominiums. Investment properties (non-owner occupied), co-ops, mobile homes, manufactured homes or properties on sale are ineligible. Additionally, property or flood insurance may be required.

Pros

  • Covers most closing costs

  • Lines of credit for owner-occupied and non-owner-occupied properties

  • $99 annual fee waived if you paid $99 in interest over 12 months

  • 0.99% introductory APR for the first six months

Cons

  • Residents of FL, LA, MD, MN, NY, TN, or VA are responsible for any city, county or state taxes

  • Does not offer lines of credit for certain types of properties

  • Properties must be fully livable and have no safety issues to be eligible

HIGHLIGHTS

APR
4.25%-18%
Loan amounts
$25,000- $1,000,000
Terms
10-year draw period and 20-year repayment period
Approval time
Not disclosed

Pentagon Federal Credit Union, or PenFed, once exclusively served members of the military and government employees, but now is open to everyone. It operates in all 50 states, the District of Columbia, Guam and Puerto Rico.

As a PenFed member, you’ll have access to competitive interest rates starting at 4.25% for home equity lines of credit. Loan amounts range from $25,000 to $1,000,000. The max you can borrow, however, will depend on your combined loan-to-value ratio, location and creditworthiness.

You can switch from a variable to a fixed rate — or vice versa — during draw periods.

PenFed covers most closing costs, which generally range from $500 to $8,500 depending on the credit line. Do note, however, that these have to be paid back if you close the line within 36 months of opening it. There’s also an early termination penalty if you pay off your account before that.

PenFed’s home equity lines of credit also have a $99 annual fee, however, this can be waived if you pay at least $99 in interest within the first year.

Eligibility requirements

To apply for a PenFed HELOC, you must be a member of the credit union, which you can do by paying a small fee — $5 to open a savings account. Once you become a member, your eligibility will depend on your credit, debt-to-income (DTI) and loan-to-value (LTV) ratio.

If your credit score is over 720, you can borrow up to 80% of your current equity for a condo and 90% for a single-family home (except in Texas, where the limit is 70%). If you have a credit score below 720, you can borrow up to 75% for a condo and 80% for a single-family home (except in Texas, where the limit is 75%).

Other companies we considered

The following lenders may have a higher complaint ratio with the CFPB, lacked price transparency or weren’t featured in J.D. Power’s 2021 Primary Customer Satisfaction Study, and so they didn’t make our top list. Nevertheless, they may have other features worth considering, especially if you’re interested in a home equity line of credit.

PNC

Pros

  • Switch between fixed and variable rates

  • Potential home renovation tax benefits when renovating for medical purposes or installing energy efficient equipment

Cons

  • $100 transfer fee if switching to fixed rate

  • In Texas, only applicants with primary residences and LTVs under 80% are eligible

Bank of America

Pros

  • 0.25% rate discount if you enroll in AutoPay using a BoA checking or savings account

  • Up to 1.50% rate discount for initial withdrawals (0.10% for every $10,000)

  • Up to 0.375% rate discount for Preferred Rewards clients

Cons

  • APRs can be as high as 24%

  • Minimum draw of $25,000 is higher than many other HELOCs

Figure

Pros

  • 100% online application can be approved in 5 minutes

  • Up to 0.50% rate reduction with credit union membership

  • 0.25% rate reduction for enrolling in Auto-Pay

Cons

  • Origination fee of up to 4.99% of your initial draw, depending on your state

  • Minimum loan amount $15,000, higher than most competitors

KeyBank

Pros

  • 0.25% rate discount with KeyBank checking or savings account

  • Borrow up to 90% of your home's value

  • Flexible payment options including principal and interest, interest-only or fixed

Cons

  • APRs for their home equity loans not disclosed

  • Only services AK, CO, CT, ID, IN, MA, ME, MI, NY, OH, OR, PA, UT, VT and WA

Flagstar

Pros

  • Lines of credit from $10,000 to $1,000,000

  • 1 to 4-unit properties, modular homes, planned unit developments and warrantable condominiums eligible

  • 0.50% rate discount with automatic payments

Cons

  • $75 annual fee after the first year

  • FHA, VA or USDA mortgages are not eligible

BMO Harris Bank

Pros

  • APR always under 18% or the maximum permitted by your state

  • 0.50% AutoPay discount

  • Fixed-rate options for HELOCs

Cons

  • $75 fee each time you convert HELOC from a variable to a fixed rate

  • Not all transactions are eligible for remote closing

  • $75 annual fee each year during the draw period

Home Equity Loans Guide

Home equity loans and home equity lines of credit (HELOCs) let homeowners borrow money by using their home equity as collateral.

Along with home improvement loans and refinancing, these types of loans are some of the most popular ways to finance home renovations. Both home equity loans and HELOCs are tax-deductible as long as funds are used for home renovations.

Read on for a step-by-step guide on how to get a home equity loan and the different options available.

What is home equity?

Home equity refers to the difference between your mortgage balance (what you owe) and the current market value of your home. It can increase over time as you pay down the principal and the value of your property goes up.

Types of home equity loans

There are several ways to tap into your home’s equity: home equity loans, home equity lines of credit (HELOC) or cash-out refinance loans.

These loans all require that you have sufficient equity in your home (generally between 15 and 20%), and your approval will depend on your credit report, combined loan-to-value ratio, debt-to-income ratio and employment.

Home equity loans

A home equity loan is a fixed-term loan that uses the equity you’ve accumulated in your home as collateral. Often called a second mortgage, it allows borrowers to obtain a lump-sum amount that must be paid back in installments. The first mortgage remains as the primary loan on a property.

The loan amount depends on several factors, including your debt-to-income ratio (DTI), standard loan-to-value (LTV) ratio and combined loan-to-value ratio (CLTV). Typically, home equity loans are for 80% to 90% of the property’s appraised value. Loan terms include a fixed interest rate and fixed monthly loan payments.

Home equity loans can have lower interest rates than even the best credit cards or personal loans provided you have a good credit score, but it puts you at risk of losing your home if you were unable to make payments.

Home equity lines of credit (HELOC)

A home equity line of credit, or HELOC, is a credit line that gives borrowers access to a certain amount of funds based on the accumulated equity in their home.

Funds can be withdrawn during a so-called draw period — during this time, you can choose to pay only interest or make payments to the principal as well. Draw periods often last about 10 years and are followed by a 20-year repayment period. You can pay the borrowed amount plus interest during repayment as either a lump sum or in installments.

Most HELOCs feature a variable interest rate, although some lenders offer the option of converting to a fixed rate.

If you’re interested in borrowing for a one-time expense, getting a home improvement loan, personal loan or a credit card could be a better alternative than a HELOC. However, keep in mind that personal loans meant for home renovations aren’t tax-deductible, while home equity loans, HELOCs and home improvement loans are. (If you’d prefer the latter, check out our guide on how to get a home improvement loan.)

Cash-out refinance

A cash-out refinance replaces your old mortgage with a new one for a larger amount than the current balance. The difference between the old mortgage and the new one is paid out to you in cash.

Cash-out refinances sometimes have more favorable terms than traditional refinance loans, and you can then use the cash for home improvements, college tuition, debt consolidation or just about any other purpose. With this option, you would still have only one mortgage, but the loan application process could take longer and there may be additional fees and closing costs.

Home equity loan vs HELOC

Home Equity Loan

HELOC

Most have a fixed interest rate.

HELOCs typically have a variable interest rate, which can increase or decrease over time.

Access to funds is through a single upfront lump sum.

Allows you to withdraw funds as needed up to a preset credit limit for an established period of time (draw period).

How to choose the best home equity option for you

Understand all of the costs involved

Regardless of which option you choose, make sure you understand all the costs involved with your loan or line of credit.

If it’s an adjustable-rate loan, do keep in mind that your monthly payments will fluctuate with interest rates. While mortgage rates remain low, your monthly payments will be low. However, those interest rates may start to go up at some point, which means your monthly payments will also increase.

Check whether you need to cover closing costs and if there are any additional fees. For instance, many banks agree to cover closing costs, with the caveat that if you pay off your loan in full earlier than expected — in most cases, within three years — some closing costs must be reimbursed. Other banks may also charge account annual fees and processing fees.

Get professional advice before making a decision

While the idea of having ready access to $50k or even $100k might be tempting, you need to make sure it’s the right move, especially during times of financial uncertainty. If you’re unsure how to proceed or which option is best for you, seek an unbiased expert opinion.

What credit score do you need to get a home equity loan?

While most lenders require a minimum credit score of 620 for home equity loans, some may require a higher score. As with most loans, the higher your credit score, the lower your interest rate. A credit score of 740 or higher will get you the best rates.

How much can you borrow with a home equity loan?

First, it’s important to keep in mind that you can only borrow against 80 to 85% of the equity in your home, as you’re required to keep at least 20% of equity in the home. The amount you can borrow will also depend on your income, credit and finally your loan-to-value ratio or LTV.

This ratio takes into account the equity you have in your home and is an often-used measure of risk for lenders. The lower the LTV, the less of a risk you present to lenders.

To calculate your LTV, you need to divide your mortgage’s outstanding balance by your home’s current market value and turn that into a percentage.

The formula looks like this:

(Mortgage’s outstanding balance ÷ Home’s current market value) x 100 = LTV %

You’ll want to obtain 0.8 (which is 80%) or less which is what most lenders require to be able to qualify for a home equity loan.

Let’s say your current mortgage loan balance is $175,000 and that your home is appraised at $250,000. Applying the formula we get:
($175,000 / $250,000) = 0.7 x 100 = 70%

This means you have a loan-to-value ratio of 70% and your total equity is 30%

Now, because you’re required to keep at least 20% of equity in the home, you’ll only be able to borrow against 10% of your equity. Multiply your home’s current value ($250,000) by 10% and it gives you $25,000. This is the amount you’ll be eligible to borrow.

Another (simpler) way to calculate how much you can borrow is to multiply your home’s current value by 80% and subtract what you still owe from the total. Like this:

(Home current value x 0.8) – Mortgage balance = how much you may qualify for

Continuing with the example above, you need to multiply the home current value by 80% ($250,000 x .8) which gives you $200,000. Now subtract the mortgage’s outstanding balance from the result ($200,000 – $175,000) and you obtain the amount you can qualify for — $25,000.

Best Home Equity Loans FAQ

How does a home equity loan work?

Home equity loans work as a second mortgage, allowing you to take out a loan against your property's value. As with your primary mortgage, your home is at risk of foreclosure if you can't make payments. Contrary to home equity lines of credit, home equity loans provide a one-time lump sum amount at a fixed interest rate. The maximum amount you're allowed to take depends on the value of your property and your credit history. Banks, credit unions and online lenders all offer home equity loans.

How does a home equity line of credit work?

Home equity lines of credit, or HELOCs, are lines of credit based on your property's equity and your FICO score. Once approved, you may draw from that line of credit during a draw period, usually 10 years, after which you'll have to repay the withdrawn amount, plus interest. Contrary to home equity loans, which give you a one-time lump sum payout, HELOCS allow you to draw funds as needed. Say you take out a $40,000 HELOC and use $10,000 for a home repair. You'll pay interest only on the $10,000 and keep $30,000 available. Once you pay down the $10,000, you'll again have $40,000 available.

Which is better -- a home equity loan or a line of credit?

The choice between a home equity loan and a HELOC will depend on your financial needs, the equity in your property and your ability to repay debt. If you're looking for a lump sum amount of cash, home equity loans could give you access to more money than a HELOC would. On the other hand, HELOCs can give you borrowing flexibility and you would only pay interest on the funds you draw, much like a credit card.

How long are home equity loans?

Home equity loan terms can go from 5 to 30 years. HELOCs are usually structured to provide draw periods of up to 10 years and repayment periods of up to 20 years.

Is it worth getting a home equity loan?

If you need to consolidate your debt or are looking to make costly home improvement projects, home equity loans can be worth it -- if you have the means to keep up with payments. Home equity loans use the borrower's home as collateral, so there is considerable risk involved. However, home equity loan rates can be lower than credit card rates, which -- on average -- carry an annual percentage rate (APR) of 14.65%.

How We Chose The Best Home Equity Loans

To narrow down our list of best home equity loans, we vetted each mortgage lender by evaluating them on the following criteria:

  • Loan features: We evaluated the types of loans offered, minimum and maximum loan amount, interest rates, loan terms and credit score requirements for each lender.

  • Price transparency: We preferred lenders that openly disclose loan costs, discounts, fees and other charges on their website.

  • Application process: We checked eligibility requirements and approval times. In addition, we compared application and evaluation fees, and whether application services were available online, by phone and/or in person.

  • Reputation and customer satisfaction: We looked into two main data sources: J.D. Power’s 2021 U.S. Primary Mortgage Servicer Satisfaction Study and complaint data as reported by the Consumer Financial Protection Bureau (CFPB).

Summary of Money’s Best Home Equity Loans of 2022

  • Discover – Best for Competitive Rates

  • Regions Bank – Best for Flexible Repayment Terms

  • BB&T – Best Fixed-Rate Borrowing Option

  • U.S. Bank – Best for Borrowers with Good Credit

  • Citizens Bank – Best for Flexible Loan Amounts

  • PenFed – Best for Non-Owner Occupied Properties

© Copyright 2021 Ad Practitioners, LLC. All Rights Reserved.
This article originally appeared on Money.com and may contain affiliate links for which Money receives compensation. Opinions expressed in this article are the author's alone, not those of a third-party entity, and have not been reviewed, approved, or otherwise endorsed. Offers may be subject to change without notice. For more information, read Money’s full disclaimer.