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The rapid rise in housing prices weve experienced the last few years isexpected to slow down in 2019, as higher interest rates and other factors temper the housing market. While this is good news for future home buyers, its can complicate things for current homeowners looking to add value to their property. If youre considering taking out a home equity loan or home equity line of credit, its never been more important to do your homework.
Homeowners whove done some preliminary research can start searching for the best home equity rates using online tools from lenders such asChaseCitiMortgage, andLoanDepot.
When you do, youll need to have some basic information ready, which usually includes:
Before jumping right in, though, you might want to take some time to get better informed. Finding the best home equity loan rates is like shopping for any other product the more you know, the better your chances of getting a good deal. The Simple Dollars guide to the best home equity loan rates of 2019 can help you on both fronts.
Before we dive into how home equity rates work and how you can find the best deal, we want to introduce some of the top lenders in this space. The following home equity companies offer low rates and favorable terms for consumers who want to borrow against the value in their homes this year:
Figure Home Equity Lineoffers a unique loan option that is mostly like a HELOC, a little like a home equity loan, and completely online. Loans are available for consumers with a 600+ credit score in amounts from $15,000 to $150,000 with fixed annual percentage rates starting at 4.99%, and borrowers have the option to take additional draws on their loan once theyve paid it down. Figure Home Equity Line has flexible terms, too, ranging from five to 30 years.
The loan application is 100% digitaleven the notary visit and youll know in five minutes if youre approved. Funding occurs in as little as five days. Theres no application fee, closing costs, or annual fee, just a single origination fee.
U.S. Bankoffers high-quality home equity loans with affordable fixed interest rates and fixed monthly payments. Currently, U.S. Bank offers home equity loans with 5.49% APR if you choose a 10-year term and 5.74% APR if you choose a 15-year term. You can also apply for a home equity loan with a term of up to 30 years.
Home equity loans from U.S. Bank are available in amounts up to $750,000, and you can apply easily from the comfort of your home. There are also no application fees or closing costs for a U.S. Bank home equity loan, and the origination fee is optional.
Bank of Americaoffers a home equity line of credit, or HELOC, with introductory rates as low as 3.99% for qualified borrowers. After the introductory period, the rate could reset to a variable APR as low as 5.90% for the duration of the loan (although Bankrate economist Greg McBrideexpects interest rates to rise morebefore flattening out). One big benefit of working with Bank of America is that their HELOCs come with no application fee, no closing costs, and no annual fee.
If youre eager to save money on your loan over the long haul, its also important to note that Bank of America offers a 0.25% discount if you set up automatic monthly payments. Bank of America customers who belong to their Preferred Rewards®program can also qualify for an interest rate reduction of up to 0.375%.
PenFed Credit Unionoffers home equity loans with a wide range of loan terms in amounts up to $400,000. You can repay your home equity loan for up to 240 months (20 years) in some circumstances, and youll get fixed monthly payments for the life of your loan.
The best home equity loan rates and loan terms go to those with loan-to-value ratios of 80% or less, although home equity loans may be available to consumers with LTVs of up to 90%. While its a credit union, you can apply for a home equity loan from PenFed from the comfort of your home, and the lender may even cover some or all of your closing costs if you qualify for their Closing Cost credit.
Chaseis another bank that offers home equity lines of credit, or HELOCs to consumers who want to borrow against their homes value. Chase HELOCs come with a 10-year draw period followed by a 20-year repayment period, and consumers can choose between a variable rate or a fixed rate. Chase HELOCs also have low fees, including a $50 origination fee and $50 annual fee that must be paid each year.
If youre a Chase customer already, you could get up to 0.62% off the standard variable rate with qualified accounts. HELOCs are available in amounts between $50,000 and $500,000 for consumers who qualify.
Home equity loans are a type of loan that involves borrowing against your home and using your property as collateral to secure the loan. It also involves the equity youve built up in your home, a measure of its current market value minus what you still owe on your mortgage. The rate simply means the interest rate charged by the lender.
The process for a home equity loan is similar in some ways to taking out a mortgage, but a lot more streamlined and simplified. Once the application has been approved, the borrower receives a lump sum from the lender upfront, with an agreement to pay back the borrowed money over a fixed term at a fixed interest rate.
Homeowners typically use this kind of loan to pay for large-scale renovation or improvement projects, although they can be used for other purposes, including debt consolidation.
Because borrowers use their homes as collateral, they can count on getting better terms than they would withunsecured personal loansor similar options.
On the other hand, since youre putting up your home as collateral, you could risk losing it if you default on the loan.
Remember the closing costs you paid on your mortgage? The closing costs associated with a home equity loan are typically similar.
To summarize, consider a fixed-rate home equity loan if:
You have enough home equity to borrow against.
You need a one-time loan for a single project.
You want the security of a fixed interest rate, even if that means the rate might be a bit higher.
You want to be able to budget for the same payment each month.
You have a major home improvement that will boost the value of your house.
What Is a Home Equity Line of Credit, or HELOC?
AHELOC, the more flexible siblingof home equity loans, can also be an option to fund your home improvement. HELOCs work kind of like credit cards, in that you can use the funds from your line of credit repeatedly as long as you stay under your borrowing limit. This makes it a compelling choice if youre embarking on a long-term home renovation and you arent sure exactly how much money youll need or when youll need it contrast this with personalhome improvement loansand home equity loans that pay out a lump sum. If you dont manage that money wisely, youre out of luck.
The biggest drawback to a HELOC is the variable APR. Because your interest rate isnt locked in, it could rise substantially, and that can make it tricky to budget for repayment. And while most HELOCs allow you to pay only interest while youre drawing funds from the line (this is called a draw period, commonly 10 years), that means youll be hit with much higher payments down the road. If you dont plan for it, you can get into financial trouble very quickly. And again, like a home equity loan, getting a HELOC assumes you have equity available in the first place.
Some banks and lenders may offer a hybrid of an equity loan and a home equity line of credit that has fixed-rate interest. With this option, you can lock in part of the balance you owe at a fixed rate. However, you may have to pay a rate-lock fee and borrow a minimum amount before you qualify.
The repayment structure makes a home equity line of creditmore flexiblethan an equity loan.
As with any equity loan, putting up your home as collateral involves some risk.
You may have fewer up-front costs than you would with an equity loan.
Paying adjustable interest rates instead of a fixed rate can be problematic, especially if interest rates go up. A lapse in discipline coupled with rising APR on your line of credit could prove expensive.
You have enough home equity to borrow against.
You need ongoing access to funds over a longer period of time.
You are willing to accept the risk that your low interest rate may rise.
You can budget for a steep rise in payments if you pay back only interest during your HELOCs initial draw period.
Both home equity loans and HELOCs allow you to borrow against the equity in your home. However, how you use the funds you receive is really up to you. While many people use home equity loan products to remodel their homes or complete a major renovation project, other people tap into their home equity in order to make important repairs to their property such as adding a new roof or fixing a leaky basement.
Still, there are plenty of other ways to use home equity to your advantage. Here are some possibilities to consider:
Use a home equity line of credit (HELOC) or home equity loan to consolidate high-interest debt at a lower interest rate.
Tap into your home equity to finance college tuition for yourself or a dependent.
Use your home equity to pay down overdue medical bills that are weighing you down.
You can even use home equity to purchase another property in some cases.
Which one should you get? Before deciding, make certain that youunderstand the differencesbetween an equity loan and a home equity line of credit, as well as the various pros and cons.
Ahome equity loanis typically the better choice if you want to pay for a large, one-time expense that youll pay for upfront, such as a major home renovation, a car, a wedding, or a dream vacation.
Ahome equity line of creditwould make more sense if you need to borrow a smaller amount over a longer period of time. For example, you might choose a HELOC to finance an ongoing series of modest home improvement projects.
With most home equity lenders, you could borrow up to 80% of the equity youve built up in your home. The maximum amount, also called the loan ceiling, is typically 85% of your equity.
Some of the factors that affect the terms of the loan or line of credit include:
You can easily get a general idea of your homes equity and the amount you could potentially borrow. Start with your homesestimated market valueand then follow the remaining steps in our Home Equity Loan Worksheet. The results provide a rough estimate of how much you could expect to borrow, plus your loan ceiling.
Sure. In fact, if youre looking into buying a second home, using a home equity loan could make the process easier and less expensive than going the second mortgage route. But a lot would depend on your credit score and the value of your primary residence.
Since your primary home would serve as collateral through a home equity loan, you could benefit by bypassing a lot of the closing costs and insurance fees that mortgages bring. Lenders know youre less likely to utilize the second home as much as the primary one, so your income and credit score heavily influence your interest rate.
If your credit and income are strong, interest rates tend to be lower on your second home through a home equity loan. Otherwise, interest rates could be higher to ensure that lenders are covered if the borrower hits a bump in the road in which case the borrower is much more likely to cease payments on the second home than the first.
If you own your home outright and are interested in using a home equity loan as a down payment for the second, you could have somemore flexible options as well.
The short answer is yes, but you might receive far less than your asking price.
Lets say youre currently repaying a home equity loan or HELOC and you want to sell your home. The good news is that you wont have to repay the loan before putting your home up for sale.
The bad news is the lender will deduct the remainder of your loan from the ultimate sale. This wont affect the sale price of the home, just what you receive. And if you havent built up your equity (and still owe a considerable amount on your mortgage), you may receive even less.
You should take out a home equity loan/HELOC only if you intend to remain in your home for at least a year.
Cash-out refinancingacts much like a home equity loan/HELOC by allowing you to leverage the equity in your home. Rate/term refinancing will only affect the terms of your primary mortgage.
Home equity loans and HELOCS act as secondary mortgages. Youve borrowed against the equity youve built up. The primary mortgage still must be paid off after the home equity loan or HELOC.
Refinancing directly affects your primary mortgage. Rate/term refinances will allow you to alter the rates and terms of your existing mortgage.Cash-out refinancesallow you to take out a higher mortgage and receive the difference in cash.
Dont underestimate the influence of your credit score on your ability to secure the best home equity loan rate.
What kind of credit score do you need for the best rate on a loan or home equity line of credit? It may depend on the lender, your level of home equity, and other factors. In general, though,youll need a credit score above 700to get a lower rate.
The best rates on equity loans typically go to applicants with higher credit scores. However, you dont necessarily need a perfect credit score to qualify for the loan itself. Your lender may be willing to work with you even if your credit has a few minor dings or blemishes.
In some cases, homeowners with bad credit may be able to get a loan or line of credit. However, they almost certainly wont get the best interest rate far from it.
Fortunately, you do have the power toraise your credit score. With some fiscal discipline and the right strategic steps, you could improve your credit score and, by extension, your chances of qualifying for the best home equity loan rate.
While some home equity lenders require minimum credit scores, not all do. It may be possible for some borrowers to get a home equity loan or HELOC with bad credit, but they probably will not get favorable interest rates.
Typically, lenders like borrowers to have a credit score thats anywhere from 620 to 650 at a minimum. When it comes to home equity loans and HELOCs, loan-to-value ratio can be just as important.
A homes loan-to-value ratio (LTV) measures the market value of the home against the amount currently remaining on the loan. In other words, the more of the loan or mortgage youve paid off, the lower your LTV will be.
Lets say youve paid down $40,000 on a $100,000 mortgage. With $60,000 still remaining on the mortgage, youll have a 60% LTV. (This also means you have 40% equity in your home.)
Lenders like to see homeowners with a minimum LTV of 80%. If you have bad credit, but youve still got a minimum 20% equity in your home, some lenders may still consider you for a home equity loan/HELOC.
Its unlikely that home equity lenders will grant the best rates to borrowers with bad credit. And home equity loans/HELOC amounts are typically on the higher end minimum loans usually start around $10,000.
Not to mention that these loans are also secured by your property. You risk losing your home if youre unable to repay.
If you have bad credit, consider one of the alternatives to equity loans. If youre struggling to pay back credit card debt, consider abalance transfer card. If you need to consolidate multiple debts, consider taking out aconsolidation loanor apersonal loan.
Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and itwill not impact your credit score.
While the tax law changes that passed in late 2017 initially left experts believing consumers could no longer deduct interest from home equity loan products on their taxes, we now know this is not the case. According to theInternal Revenue Service (IRS), homeowners can still deduct home equity interest ifthey used the funds to build a home or substantially improve it.
Here is the exact wording used on the IRS website:
The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayers home that secures the loan.
However, that means you cannot deduct interest on a home equity loan that you used to pay for a childs college tuition, for example.
If you have a home equity loan, your best option is to pay down as much of the principal as possible. Reducing the principal will reduce the amount of interest you pay even if the percentage remains the same.
If you have a HELOC already, your best option will vary. If your HELOC includes an interest-only draw period, then the most you can do is make monthly payments in full and on time. Once the repayment period comes, youll be able start paying down your principal.
If your HELOC includes a principal and interest draw period, or if youre currently in the repayment period, treat it as you would a home equity loan. Attack the principal as much as possible, in order to reduce the amount of interest you owe.
There is plenty of good news for homeowners when it comes to interest rates and todays lending environment. For example:
As of early 2019, you could easily find a quote for a home equity loan rate somewhere around 5%. A typical rate for a home equity line of credit could be in the 4% range or even lower, although bear in mind that the variable APR would most likely rise over time.
The real estate website Zillow.com estimated thatU.S. home valueshad risen 7.7% in 2018 and predicted an increase of 6.4% in 2019.
In short, despite somerecent increases, interest rates are still pretty favorable and rising home values could increase your borrowing power. Thats the good news.
The bad news involves last years tax reform bill, which, by doubling the standard deduction and capping deductions of state and local taxes, reduced some of the tax incentives of home ownership. Moodys Analytics expects that, by summer 2019, home prices will be4% lowerthan where they would have been before the tax reform bill passed.
Is now a good time to take out a home equity loan or home equity line of credit? A lot depends on your personal financial situation, your objectives and goals, and your tolerance for risk. Talk to your accountant or financial adviser and your mortgage lender before making a final decision.
Also, make sure to shop around with multiple lenders to see who offers the best home equity loan rates. Comparison shopping could hold the key to finding the best rates.
Debt ConsolidationCredit Card RefinancingHome ImprovementMajor PurchasesCover an Unexpected CostOtherLoan Amount:
Excellent (720+)Good (660-719)Fair (600-659)Poor (Under 599)State:
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