Compare Home Equity Loan Offers

What type of property do you have?

Privacy Secured  |  Advertising Disclosures
 

What is a home equity loan?

A home equity loan (HEL) is a second mortgage that allows you to tap a portion of your home’s value in a lump-sum payment. Home equity loans usually have fixed interest rates and are available in terms of five to 15 years.

Why you might want a home equity loan

Common reasons to take out a home equity loan are:

  • Make major improvements to your home.
  • Consolidate high-interest rate credit cards.
  • Pay for college or fund a startup.
  • Buy a rental property.

Use a home equity loan calculator to see what you might qualify for

If you’re considering a home equity loan, a home equity loan calculator may give you an idea of how much you can borrow. You can typically access up to 85% of the value of your home, also known as your loan-to-value ratio (LTV). Some home equity lenders may approve you for a higher LTV, but it’s best to leave some equity in case home values fall or you need to sell your home.

Three pieces of information are needed to use a home equity loan calculator:

  1. An estimate of your home’s value. An online home value estimator can give you a ballpark idea of your home’s worth. However, home equity lenders usually require a home appraisal to get a precise figure.
  2. Your outstanding mortgage balance. You should be able to find this on your monthly mortgage statement, or try calling your current mortgage servicer.
  3. Your credit score. The credit score a lender uses depends on which credit bureau is selected (Equifax, TransUnion and Experian). The three bureaus partnered to create a scoring model called VantageScore, and you can check yours for free through LendingTree.

Home Equity Loan Calculator

As you pay down your mortgage, you’ll build equity in your home. Home equity is the difference between how much you owe on your mortgage and your home’s value.

Once you’ve built a substantial amount of equity, you may want to tap it to fulfill other financial goals. Use our home equity loan calculator to learn how much you could borrow.

Enter the above information into the home equity loan calculator for an estimate of the amount you might be able to borrow.

How to get the best equity loan rates

Whether you’re tapping home equity for a major home improvement or to pay for a college education, these five strategies may help you snag the best home equity loan rates.
  1. Boost your credit score. Pay your credit card balances off monthly, if possible, and don’t be late. You’ll need at least a 740 credit score for a home equity loan offer with the lowest rate.
  2. Pick a shorter term. You may be offered a lower rate for shorter home equity loan terms. A five-year, fixed-rate term will get you the lowest interest rate, as long as you can swing the higher payments.
  3. Watch your debt-to-income (DTI) ratio. A measure of your total debt divided by your gross income, your DTI ratio should be 43% or less to get the best HEL rates. Borrow less of your home’s value. The more equity you leave in your home, the better your home equity loan rate will be.
  4. Borrow less of your home’s value. The more equity you leave in your home, the better your home equity loan rate will be.
  5. Shop around with at least three to five lenders. Some lenders are more competitive than others. Research has shown that comparing home equity loan offers saves consumers thousands of dollars.

How home equity loans work

When you take out a home equity loan, you receive all of the funds in a lump-sum payment. You’ll make fixed-rate, regular monthly payments for a set time period, usually between five and 15 years.

There are no prepayment penalties or annual fees, and you can pay extra every month to reduce the balance faster if you have some extra cash. Home equity loan rates are typically much lower than those for credit cards or personal loans, making these loans more attractive than other financial products when you need a large amount of cash upfront.

Home equity closing costs

Closing costs for home equity loans range from 2% to 5% of your loan amount. Lenders may offer you a number of different closing cost options like discounts on fees, while others may offer a slightly higher rate for lower-cost options. The table below shows the most common home equity loan closing costs.

Type of Fee Amount Why It’s Charged
Loan application fee Varies To set up your loan paperwork
Credit report fee $17 to $75 To check your credit history and FICO Scores
Processing and underwriting $200 to $500 To cover the lender’s costs for processing and approving your loan
Appraisal fee $300 to $400 To pay for an inspection and report that analyzes your home’s value
Tax monitoring and service fee $85 to $100 To verify that your property taxes are paid on time
Flood certification fee $10 to $20 To confirm whether or not the property is in a flood zone
Title search and lender’s title insurance $1,000 to $1,500 To protect the lender against financial loss if there are title claims on your home
Settlement fee $150 to $750 To pay the escrow officer or attorney for preparing and supervising the loan closing
Recording fee $150 to $300 To pay for recording the new lien on your home

Alternatives to home equity loans

If you’re not sure whether a home equity loan is best for your situation, you have a number of different ways to tap your home’s equity. Here are three of them:
  • Home equity line of credit (HELOC)

    A HELOC works similar to a credit card with a revolving line of credit that you can draw on when needed. Because your home is used as collateral to secure the loan, you could lose it if you fail to repay the HELOC.

    Typical features include:

    • A “draw” period (typically 10 years) when the balance can be charged and paid off as needed.
    • Payments based only on how much you draw.
    • Interest-only payment options.
    • May come with annual fees, prepayment penalties and other maintenance fees.
    • Installment payments for the balance due once the draw period ends.
  • Cash-out refinance

    If current rates are low, it may be worth replacing your existing mortgage with a larger loan amount and pocket the difference in cash with a cash-out refinance. As with home equity loans and HELOCs, your home is used to secure a cash-out refi, so you can lose it if you default on the loan.

    Typical features include:

    • Lower interest rates than other types of equity loans.
      Higher closing costs, because the loan balance is higher than a home equity loan.
    • Ability to borrow up to 80% of your home’s value with a conventional or Federal Housing Administration (FHA) cash-out refinance.
    • Ability to tap up to 90% of your home’s value with a cash-out refinance loan backed by the U.S. Department of Veterans Affairs (VA) if you’re an active-duty military service member, veteran or eligible spouse.
  • Reverse mortgage

    Homeowners who are 62 years or older may be eligible for a reverse mortgage, which allows them to convert a portion of their home equity into a lump sum of cash, a line of credit, monthly income or a combination of all of the above.

Home equity loan FAQS

Home equity is the difference between your home’s market value and what you currently owe. As you pay your mortgage balance down and home values increase over time, home equity usually grows, too.

To calculate how much home equity you have, subtract the outstanding loan balance from the value of your home. For example, if your home is worth $200,000 and your mortgage balance is $150,000, you have $50,000 of equity.

Most home equity lenders let you tap up to 85% of your home’s equity. Some lenders may allow you to borrow more.

Home equity loan interest rates change with the financial markets, but are typically lower than other forms of borrowing, such as personal loans or credit cards.

It may take two to four weeks to close on a home equity loan. You may receive the funds at closing or a few weeks later, depending on the lender.

Making late payments on a home equity loan could damage your credit score. If you default on a home equity loan, you could lose your home because your home is the collateral that secures the loan.

Yes, but interest rates will be higher and there will be more LTV restrictions.

If home equity loan funds are used for home improvement, the loan interest can be deducted on your annual tax bill.