money9 Best Home Equity Loans of 2022
Best for Quick Approvals
Figure
Our Partner
Company Highlight:
100% loan application process and quick approval times
Loan Amount:
$15,000 - $400,000
APR:
3.99% - 11.5% (with discounts)
Loan Term:
5, 10, 15 and 30 years
Minimum Credit Score:
620
Best for Low Fees
Discover
Our Partner
Company Highlight:
Offers competitive low rates and zero loan-related fees
Loan Amount:
$35,000 - 300,000
APR:
5.99% - 12.99%
Loan Term:
10, 15, 20 and 30 years
Minimum Credit Score:
620
Best Home Equity Loan Alternative
Unison
Our Partner
Company Highlight:
Co-invests in your primary residence in exchange of a portion of your equity in cash
Loan Amount:
Up to $500,000 or 17.5% of your home value
APR:
N/A
Loan Term:
30 years
Minimum Credit Score:
620
Best Fixed-Rate HELOC
Truist
Our Partner
Company Highlight:
Offers three repayment options: interest-only, fixed and variable-rate.
Loan Amount:
$15,000 - $500,000
APR:
6.30% - 16%
Loan Term:
5, 10, 15 and 20 years
Minimum Credit Score:
620
Best Introductory Rates
Connexus
Our Partner
Company Highlight:
Low introductory rates for six months.
Loan Amount:
From $5,000
APR:
4.15% - 15.9%
Loan Term:
5 - 15 years
Minimum Credit Score:
Not Specified
Best for Large HELOCs
Flagstar Home Equity Loans
Our Partner
Company Highlight:
Lets you borrow up to $1 million of your home equity.
Loan Amount:
$10,000 - $1,000,000
APR:
5.49% - 21%
Loan Term:
10-year draw, 20-year repayment
Minimum Credit Score:
680
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 Low Fees
Connexus Credit Union – Best Introductory Rates
Flagstar – Best for Large HELOCs
Regions Bank – Best Flexible Repayment Terms
Truist – Best Fixed-Rate HELOC
Figure – Best for Quick Approvals
U.S. Bank – Best for Borrowers with Good Credit
Citizens Bank – Best for Customer Experience
Navy Federal Credit Union – Best for Military and Veterans
Best Home Equity Loan Company Reviews
Pros
No origination, appraisal or application fees or mortgage taxes due at closing
CT, MN, 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
- Loan amounts
- Terms
- Approval time
Why we chose this company: Discover makes our top home equity loans list because its fees are lower than most competitors’.
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 5.99% to 9.99% for first liens, and from 6.99% to 12.99% for second liens. You can borrow between $35,000 and $300,000 and choose a repayment term between 10 and 30 years.
Eligibility requirements
With Discover, you can check 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 and lower rates.
Once you’re ready to submit your application, you’ll be assigned a banker who will help you throughout the process. In addition, Discover’s eClosing features let you review, sign and submit closing documents online.
Pros
HELOC introductory rates start at 3.57% for six months
No annual fee
15-year draw period available
Cons
A credit union membership is required
Closing costs can range from $175 to $2,000
Home equity loans not available in MD, TX, HI and AK
HIGHLIGHTS
- APR
- Loan Amount
- Terms
- Approval Time
Why we chose this company: Connexus Credit Union offers the best home equity loan introductory rates, with rates starting as low as 3.57%.
Connexus Credit Union stands out for its low six-month introductory rates, which start at 4.15% for its home equity loans and 3.57% for its home equity lines of credit (HELOC)
Connexus offers three different home equity products: home equity loans, HELOCs and interest-only HELOCs. Its home equity loans have fixed interest rates that start at 4.15% and repayment terms of up to 15 years.
The minimum loan amount is $5,000, but borrowers can access up to 90% of their home’s equity, depending on their credit history and loan-to-value ratio (LTV).
Interest rates for both HELOC products range from 4.58% to 15.9%. However, borrowers with good credit may apply for an introductory rate of 3.57% for six months.
Both HELOC options have a $5,000 minimum loan amount and a 15-year repayment term. In addition, Connexus offers a 15-year drawing period, which is longer than the typical 10-year period most competitors offer.
Although Connexus doesn’t charge annual fees, borrowers are responsible for closing costs which can range from $175 to $2,000 depending on the property location, loan terms and the amount borrowed.
Eligibility requirements
Like most banks and credit unions, Connexus considers your credit worthiness and history along with your loan-to-value and debt-to-income ratios to determine your eligibility for a home equity loan. Connexus does not disclose the minimum credit score required.
In addition to the typical eligibility requirements, you have to become a member of Connexus in order to apply for a home equity loan or any of its products. To join you must make a one-time donation of $5 to the Connexus Association or be a member of an affiliated company or community.
Do note that Connexus’ home equity loan products are not available in Maryland, Texas, Hawaii and Alaska.
Pros
Line amounts of up to $1 million
0.50% rate discount with AutoPay
1 to 4-unit properties and modular homes are eligible
Cons
$75 annual fee after first year
Not available in Texas
HIGHLIGHTS
- APR
- Loan Amount
- Terms
- Approval Time
Why we chose this company: Flagstar offers lines of credit of up to $1 million, which makes it the best option for large HELOC loans.
Flagstar’s home equity line of credit is available for amounts ranging between $10,000 to $1 million and variable interest rates starting at 5.74%.
A 0.50% interest rate discount is available for customers that set up AutoPay from a Flagstar deposit account. In addition, it offers a 10-year drawing period and a 20-year repayment term.
Flagstar doesn’t charge closing costs (which typically include appraisal, title, notary and recording fees) as long as you maintain the HELOC open for at least 36 months. However, customers are responsible for paying government taxes and fees at closing and a $75 annual fee after the first year.
Eligibility requirements
Flagstar HELOC is available for primary residences, including 1-to-4 unit residential homes and modular homes.
A combined loan-to value of 80% or lower is recommended. Flagstar will also consider your credit qualifications, lien position, loan amount and the type of property.
As of this writing, Flagstar HELOC is not available in Texas, Puerto Rico or the U.S. Virgin Islands.
Pros
Rates starting at 5.25% APR with auto-pay
HELOC can be converted into a fixed-rate loan
Introductory rate of 0.99% for the first six months of a HELOC
Rate discount of 0.25% to 50% when you enroll in auto-pay
No closing costs
Cons
Property tied to the loan must be in a state with a Regions retail branch
Branches only in AL, AK, FL, GA, IL, IN, IA, KY, LA, MS, MO, NC, SC, TN, and TX
HIGHLIGHTS
- APR
- Loan Amounts
- Terms
- Approval time
Why we chose this company: Regions Bank made our cut as the bank with the most flexible repayment terms because it offers term lengths from seven to 20 years.
Regions Bank offers fixed-rate home equity loans with no closing costs and APR rates of 5.50% or 5.25% 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 5.75% and 12.625% APR.
Regions Bank covers 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 15 states: Texas, Tennessee, South Carolina, North Carolina, Louisiana, Mississippi, Missouri, Kentucky, Illinois, Indiana, Iowa, Georgia, Florida, Arkansas and Alabama.
Pros
Multiple fixed-rate repayment options may be available
Covers appraisal fee
Flexible repayment options
Cons
Only offers HELOC
Prepayment penalty for terminating a line of credit within 36 months
$15 service fee
$50 annual fee for residents in AL, FL, GA, IN, KY. NJ and OH
HIGHLIGHTS
- APR
- Loan Amounts
- Terms
- Approval Time
Why we chose this company: Truist is our choice for the best fixed-rate HELOC because borrowers can choose fixed rate and fixed repayment terms of between five and 20 years.
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 6.30% to 12.74% 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 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.
Truist covers closing costs for lines of up to $500,000, although this may result in higher interest rates. Prepayment penalties on lines of credit may also apply if the account is closed within three years of opening. This 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.
Eligibility requirements
Like other banks, Truist looks at your income, credit score, employment 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
100% online application can be approved in 5 minutes
Up to 0.75% rate reduction with credit union membership and AutoPay
No prepayment penalty
Cons
HELOC not available in DE, HI, KY, MD, NY, SC, TX, UT and WV
Origination fee of up to 4.99% of your initial draw, depending on state
Minimum loan amount $15,000, higher than some competitors
HIGHLIGHTS
- APR
- Loan Amount
- Terms
- Approval Time
Why we chose this company: Figure offers a completely online application process, quick approval times and funding in as little as five days.
Figure is a financial technology company with headquarters in New York and San Francisco, California. It offers home equity lines of credit, refinancing and home loans through a partnership with Homebridge.
This fintech company stands out for its online application process which lets customers check their rate, apply and know if they’ve been approved within minutes. The process includes an eNotary who confirms customers’ identity and reviews mortgage applications and documents electronically. In addition, loans can be funded within five days after approval.
Figure’s loan amounts for HELOCs range from $15,000 to $400,000 with fixed interest rates starting at 4.74% to 12.25%.
However, you could qualify for a combined APR discount of 0.75% if you become a credit union member and enroll in AutoPay, meaning you could get rates even lower rates — from 3.99% to 11.5%. In addition, you can choose loan terms of five, 10, 15 and 30 years.
Figure doesn’t charge maintenance fees, account opening fees or prepayment penalties. It does, however, charge a one-time origination fee of up to 4.99% of the initial draw. This fee can vary depending on your property location and credit experience. It can also be amortized in the payment schedule.
Eligibility requirements
Figure’s HELOC is available for single family residences, townhouses, planned urban developments, condos, investment/secondary properties and vacation homes as long as the applicant’s name appears in the county records as the property owner.
The minimum credit score required is 620 for primary residences and 680 for investment or non-owner occupied properties. Figure also considers factors such as your combined loan-to-value ratio (from 70% up to 95%, depending on your FICO score), employment status and income.
Do note that Figure is currently not available in nine states: Delaware, Hawaii, Kentucky, Maryland, New York, South Carolina, Texas, Utat and West Virginia.
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
$90 annual fee may apply after the first year
Early closure fee of 1% or up to $500 applicable during the first 30 months
Home equity loans not available in NY, HI, LA, OK and RI if property is held in a trust
HIGHLIGHTS
- APR
- Loan amounts
- Terms
- Approval time
Why we chose this company: U.S. Bank has the best home equity loan for borrowers with good credit because it offers highly competitive rates for customers with scores of 730 or more.
U.S. Bank offers home equity loans and HELOCs without closing costs. Home equity loan rates start at 6.10% APR for both 10 and 15-year term repayment periods, while HELOC variable rates begin at 5.70% APR and go up to 10.10% APR (although this may vary with Prime Rate).
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 up to 70% of your home equity.
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 U.S. Bank Platinum checking account. 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 and a U.S. Bank checking or saving account to get the best APR rates and set up automatic payments.
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, KY, 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
- Loan Amounts
- Terms
- Approval time
Why we chose this company: We chose Citizens Bank as the best for customer experience because it has consistently good reviews from customers and received high rankings from third-party consumer research companies.
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 at 5.00% 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.
In addition to offering competitive HELOC products, Citizens Bank stands out for providing an outstanding customer experience. In 2021, it ranked fifth in J.D. Power’s U.S. Primary Mortgage Servicer Satisfaction Study, obtaining 810 points out of 1,000. The study considered overall customer satisfaction based on factors such as customer interaction, communications and new customer orientation.
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
No application, origination or annual fees
Borrows up to 100% of your home equity for HELOANS and up to 95% for HELOCs
Longer 20-year draw period for HELOCs
Cons
Loans of less than $25,000 have a 1.00% rate increase
Membership limited to the military and their families
HIGHLIGHTS
- APR
- Loan Amount
- Terms
- Approval Time
Why we chose this company: Navy Federal Credit Union offers the best home equity loans for military and veterans, with offerings that include loans with no application or origination fees and HELOCs with longer drawing periods than most competitors.
Navy Federal offers both fixed-rate equity loans and home equity lines of credit for loan amounts of $10,000 up to $500,000. In the case of equity loans, Navy Federal lets you borrow up to 100% of your home’s equity at a starting fixed-rate interest of 4.99%. You can also choose repayment terms of five, 10, 15 and 20 years.
However, with a HELOC you can only borrow up to 95% of your home’s equity at a variable rate of 5.00% up to 18%. Navy Federal offers a longer than average 20-year drawing period, in comparison to the typical 10-year term most competitors offer. During this period you can borrow against your home’s equity as needed. You then get a 20-year repayment period.
Navy Federal doesn’t cover closing costs, these can range from $300 to $2,000 for loans of up to $250,000. In addition, Navy Federal doesn’t disclose whether borrowers can choose to make interest-only payments during the drawing periods.
Eligibility requirements
Note that you must be either a duty member of the armed forces, a retiree, a veteran or an immediate military family member in order to qualify for a Navy Federal loan. Their clients include members of the Army, Marine Corps, Air Force, Navy, National Guard, Coast Guard and Space Force. It also applies to DoD reservists, DoD officer candidates and Delayed Entry Program enlisters.
Like most institutions, Navy Federal will evaluate your credit history, your combined loan-to-value ratio, loan amount and property type to determine your eligibility and interest rate.
Other companies we considered
Some companies we evaluated, while solid contenders, didn’t make it to the top of our list.
Nevertheless, they might have features and products that are suited to your particular circumstances.
PNC
Pros
Offers HELOC and fixed and variable rate options
Minimum draw amount in Texas is $4,000
Potential home renovation tax benefits when renovating for medical purposes or installing energy efficient equipment
Cons
$100 transfer fee each time borrowers opt for a fixed rate
In Texas, only applicants with primary residences and LTVs under 80% are eligible
PenFed
Pros
Loan amounts from $25,000 up to $1,000,000
Competitive APRs starting at 5.00%
Covers most closing costs
Annual fee waived if you pay $99 in interest over 12 months
Cons
Only offers HELOCs
Does not offer lines of credit for certain types of properties
Properties must be fully livable and have no safety issues to be eligible
Bank of America
Pros
No fees for converting a variable rate loan to a fixed rate
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)
Cons
Only offers HELOCs
Can't open more than three fixed-rate loans at the same time
Maximum APR is not disclosed
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
Doesn't openly disclose APRs for their home equity loans
Only services 15 states: AK, CO, CT, ID, IN, MA, ME, MI, NY, OH, OR, PA, UT, VT and WA
BMO Harris Bank
Pros
APR will never exceed 18% or the maximum permitted by your state
0.50% AutoPay rate 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
Frost
Pros
No application or annual fee charges
0.25% rate discount with automatic payment
Competitive APR rates for HELOC, starting at 3.74%
No prepayment penalty for HELOC
Cons
Available in Texas only
$15 monthly service charge (waived if you open a Frost Plus checking account)
Unison
Pros
Lets you convert up to 17.5% of your home equity into cash
Single-family homes, townhouses and condominiums are eligible
Doesn't impact credit worthiness nor charges interest rates
No payments for 30 years or until you sell your home
Cons
Five-year restriction period, where Unison won't share in the losses of your home's value, if you sell
May affect your eligibility for refinancing your mortgage
Must pay back the co-investment plus four times the percentage invested after 30 years
Home Equity Loans Guide
Home equity loans (HEL) 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 may be tax-deductible when funds are used for home renovations.
Read our comprehensive guide to learn more about how to get a home equity loan, the different options available, how they work and key factors to consider when choosing a home equity loan.
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. For instance, if your home is worth $300,000 and you owe $175,000 of your mortgage, then your home equity is $125,000.
Your equity can increase over time as you pay down the principal and if the value of your property goes up. It can also decrease if your home value drops.
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 (HEL or HELOANS) is a fixed-term loan that uses the equity you’ve accumulated in your home as collateral. Often called a second mortgage, home equity loans let borrowers obtain a lump-sum payment that can be used for major home renovations, consolidating debts or paying for college tuition. This type of loan offers the option of paying it back in equal installments.
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 for up to 30 years.
Home equity loans can have lower interest rates than the best credit cards or personal loans if you have a good credit score, but it puts you at risk of losing your home if you were unable to make payments. Do note that the first mortgage remains as the primary loan on a property if it still carries a balance.
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. This type of line of credit is a cross between a mortgage and a credit card, letting you tap into your home equity when needed.
Funds can be withdrawn at any time during a 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.
Although most HELOCs feature variable interest rates, some lenders offer the option of converting them to a fixed rate. HELOC interest rates generally range between 3.57% to 21%. While these are typically higher than home equity loan rates, they’re still considerably lower than credit card rates, which can range between 13% and 29.99%.
HELOCs can offer a safety net for homeowners who need funds for home improvements or during an emergency, such as being temporarily unemployed.
However, as with any loan secured with collateral, they also carry a significant risk. Both home equity loans and lines of credit use your residence as collateral and, if you were to fall behind on your payments, there is a chance you could lose your home.
If that seems like too big of a risk to take, getting a home improvement loan or personal loan could be a better alternative to a HELOC. Just keep in mind that personal loans meant for home renovations aren’t tax-deductible while home equity loans and HELOCs often are if used for home improvements.
If you feel a home improvement loan is the better option for you, 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 typically 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 co-investing
Home co-investing is a home equity loan alternative that lets you tap into your home equity without borrowing against it. Instead of acquiring new debt, a home co-investment company (Unison is one example) or investor offers you money in exchange for a portion of your home equity and the option to share in future profits if your home’s value increases over time. They will also share in the losses, if your home decreases in value.
Home co-investing typically involves more lenient conditions than home equity loans and cash-out refinances. For instance, it typically doesn’t impact your credit score and does not require monthly payments. Home co-investing is also interest free.
However, note that eventually you’ll have to either buy the investor out or sell your home at the end of the agreement term. At which point, you have to pay the original investment amount and a percentage of your home’s increased value.
How do home equity loans 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?
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.
Current home equity loan rates
Home equity loan interest rates are typically on par with mortgage loan rates. HELOC interest rates, on the other hand, are variable and can be somewhat higher depending on the bank and the prime rate.
Current home equity loan interest rates range from 4.15% to 13.00% among the banks we reviewed. HELOC interest rates range from 3.57% up to 21%. However, we can expect to see climbing interest rates as the Federal Reserve announces further rate increases.
Home equity loan vs HELOC
When deciding between a home equity loan and a home equity line of credit, keep in mind these key differences:
Home Equity Loan | HELOC |
Most have a fixed interest rate. | HELOCs typically have a variable interest rate, which can increase or decrease over time. (Some banks may let you convert your variable rate into a fixed rate later on) |
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). |
Available with terms from five up to 30-years | Typically has a 10-year draw period and a 20-year repayment period. |
You pay interest plus principal for the determined repayment period. | Options to pay interest only during the draw period are typically available. |
How to choose the best home equity option for you
1. Compare the costs involved between lenders
Regardless of which option you choose, make sure you understand all the costs associated with the loan or line of credit. If it’s a variable or adjustable-rate loan, know 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 you need to be aware of. For instance, many banks agree to cover closing costs, under the contingency 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 for setting a fixed rate plan.
2. Check minimum credit score requirements
While most lenders require a minimum credit score of 620 for home equity loans, some may impose higher minimums. As with most loans, the higher your credit score, the lower your interest rate. Aim to have a credit score of 740 or higher to get the best rates.
3. Calculate how much you can borrow with a home equity loan
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 most lenders require you 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.
4. Get professional advice before making a decision
While the idea of having ready access to $50k or $100k of your home equity 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.
“Don’t go where you feel like you’re being sold,” said Troy Molitor, founder of Molitor Financial Group. “Look for someone that’s going to educate you, give you options and help you make a decision based on information.”
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Best Home Equity Loans FAQ
Which bank has the best home equity loan?
Discover is among the banks with the best home equity loans, it offers low interest rates ranging from 5.99% to 12.99% and charges zero fees for loan origination, appraisals and closing costs. Other options include Connexus Credit Union, Regions Bank and U.S. Bank. Check out our best home equity loans reviews to read more about home equity products, rates and loan terms.
What are the rates for home equity loans?
As of July 2022, current home equity loans interest rates range between 4.00% up to 13.00%, whereas home equity lines of credit (HELOC) rates go all the way up to 21%. Keep in mind rates may vary depending on factors such as the institution, your creditworthiness and loan amount.
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 equity loans?
Home equity loan terms can go from 5 to 30 years. HELOCs are usually structured to provide draw periods of 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 Low Fees
Connexus Credit Union – Best Introductory Rates
Flagstar – Best for Large HELOCs
Regions Bank – Best Flexible Repayment Terms
Truist – Best Fixed-Rate HELOC
Figure – Best for Quick Approvals
U.S. Bank – Best for Borrowers with Good Credit
Citizens Bank – Best for Customer Experience
Navy Federal Credit Union – Best for Military and Veterans
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