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By Edgar J. Nieves and Ruben Ramos
Updated: April 20, 2021 12:18 PM ET | Originally published: April 7, 2021
Small House Inside Of A Wallet Filled With Cash
Money; Shutterstock

Equity is the current market value of your home minus what you still owe on your mortgage. If you’ve been paying down your mortgage for years, you might have a nice chunk of equity in your home. Learn about the best home equity loans to help you obtain extra money to pay down high-interest debt, make home improvements, or cover unexpected medical costs.

Our Top Picks for Best Home Equity Loans 2021

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Best Home Equity Loans Reviews

Discover Home Loans Review

Pros Cons
Access from $35,000 to $200,000 of home equity Loans repaid within 36 months must reimburse closing costs
Repay terms from 10 to 30 years Doesn’t offer HELOC
Fixed interest rates starting at 3.99%
No appraisal, origination or application fees
Apply online, with help available 7 days a week

Discover Home Loans makes our list for its commitment to transparency when it comes to home equity loan fees. This means no surprise charges for borrowers.

With Discover Home Loans, interest rates are fixed and start at 3.99% going as high as 8.99% for first liens and 11.99% for second liens. You can easily see if you qualify by providing some basic information before you formally apply for a home equity loan.

You should have good credit and adequate equity in your home before applying for a Discover home equity loan. Once you do, you’ll get assigned a banker who will help you through the application process. Closing on your loan won’t be a problem either, as Discover’s eClosing feature enables electronic signing for many closing-related documents prior to the physical closing.

Regions Bank Review

Pros Cons
Rates starting at 3.00% APR with autopay Property tied to the loan must be in a state with a bank branch
HELOC can be converted into a fixed-rate loan Branches only in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, and Texas.
Introductory rate of 0.99% for the first six months of a HELOC
Rate discount of 0.25% to 50% when you enroll for automatic payments
No closing costs

Regions Bank offers home equity loans starting at 3.00% APR when subscribed to autopay. Loans are offered with fixed interest rates and no closing costs. In addition to home equity loans, Regions Bank offers HELOCs with a fixed introductory rate of 0.99% for the first six months. Loans are available for 7-, 10-, 15- or 20-year terms.

Rates shift to adjustable after the introductory period, with interest between 3.75% and 10.75%. Loans are for a 30-year term composed of a 10-year draw and a 20-year repayment period.

Additionally, Regions Bank’s HELOC is a Loan in a Line option, which allows you to convert part or all of your remaining adjustable rate loan balance into a fixed rate loan.

BB&T Review

Pros Cons
Fully amortizing fixed monthly payments $50 Fixed Option setup fee for HELOCs
Appraisal fee paid by the bank May need to reimburse closing costs if you repay a HELOC loan within 36 months
Flexible repayments and no prepayment penalty Property insurance and flood insurance may be required
May take up to three simultaneous HELOCs of up to $5,000

BB&T offers both home equity loans and HELOCs. We value it as one of our top picks due to the great perks. For example, there is no prepayment penalty if you want to pay back your loan early.

BB&T offers fixed interest rates, flexible repayment terms, and will also pay the appraisal fee for you to get your house’s current value, a benefit that could save you several hundred dollars. The company also has many different options for HELOCs, including both fixed-and variable-rate loans and no-closing-cost options.

Figure Review

Pros Cons
100% online application can be approved in 5 minutes Only offers HELOC loans
Rates from 2.88% APR Charges an origination fee
Up to 0.50% APR rate reduction with select options Minimum loan amount of $15,000
Up to $250,000 with a one-time origination fee
Online video notary and support

Figure is a new mortgage company that offers mortgage refinance loans as well as HELOCs. However, at this time, it does not provide home equity loans.

You can apply for a HELOC in five minutes and receive same-day approval. You can obtain funding in as little as five days as well. Aside from quick turnaround times, the lender offers an online notary feature to facilitate the process and make it entirely online. Keep in mind that speed doesn’t always mean the lowest rates. Figure does have some fees that other lenders don’t, a tradeoff for its quick approval time.

Interest rates will start at 3.49% for borrowers with excellent credit, plus a 4.99% origination fee.

US Bank Review

Pros Cons
Funds available after closing in three business days Not all loan programs nor amounts are available in all states
Fixed interest rates starting at 3.80% APR An early repayment fee of 1% applies if the loan is paid off within the first 30 months
No closing costs on home equity loans or HELOC Annual fee of up to $90 may apply after the first year
0.50% interest rate discount with automatic monthly payment option
Apply online or request a call from a loan officer

US Bank offers home equity loans and HELOCs, both without any closing costs. Equity loan rates start at 3.80% APR for both 10 and 15-year term repayment periods, while HELOC rates start at 3.45% APR, up to a maximum of 7.00%APR.

Home equity loans are offered with fixed rates, with a repayment term of up to 30 years. Loan amounts start from $15,000 and go up to $750,000, with up to $1 million for properties located in California. HELOCs have variable rates but include converting the total amount of your loan or a portion into a fixed rate option. You may borrow from your line of credit by visiting a U.S. Bank branch, using checks, ATMs, or with a Visa Access Card.

The draw period on these loans is 10 years, during which the minimum monthly payment is either 1% or 2% of the balance. Flexible repayment options include interest-only payment for those who qualify.

COVID-19 and Home Equity

Since the beginning of the pandemic, homeowner’s relief options have become limited as many major banks have stopped accepting new applications for cash-out refinance loans.

With unemployment numbers still almost double than in pre-pandemic times, lenders are requesting multiple employment verifications — some as late as the same day of closing — to ensure a borrower’s creditworthiness. Other changes include increasing the required minimum credit score, requiring a higher down payment, and placing caps on the amount of money the bank is willing to refinance.

HELOCs have also been affected by these stricter loan requirements. Not only are banks increasing credit score requirements, but they’re also limiting the amount of money they will lend for a home equity loan as well as lowering the percentage of the home’s equity.

Home Equity Loans Guide

What is Home Equity?

Home equity refers to the difference between the mortgage you owe and the current market value of a property. It can increase over time as you pay down the principal of your mortgage and if the value of your property jumps.

Types of Home Equity

Aside from selling your home, you can access your home equity in three ways:

  • Home equity loans
  • Home equity lines of credit
  • Cash-out refinance loans

Each of these loan options requires that you have equity in your home, but they all have different strengths and weaknesses. Carefully consider all three options before making a decision.

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 equal installments. The first mortgage is the primary loan on a property.

The loan amount you can borrow is based on several factors, including debt-to-income ratio, standard loan-to-value (ltv) ratio, and the combined loan-to-value ratio. Typically, home equity loans are given for 80% to 90% of the property’s appraised value. Loan terms include a fixed interest rate and fixed monthly loan payments.

Home equity loan rates are typically lower than those for a credit card or personal loan if you have a good credit score, but it puts you at risk of losing your home should you default or go into non-payment.

Home Equity Loan Pros & Cons

Pros Cons
Fixed rates and repayment terms It is a second mortgage to pay on top of your primary mortgage payments
A better option if you need a large lump sum to cover a specific debt or need While primary mortgages have insurance and other federal guarantees, second mortgages don’t
It can be used to pay off high interest debt, converting into a lower interest loan
An extended repayment period makes for a lower monthly payment

HELOC

A home equity line of credit, or HELOC, is a type of credit line that allows a borrower to access funds based on the accumulated equity in their home, up to a predetermined sum. HELOC’s are offered with fixed or variable interest rates.

Funds can be withdrawn during a draw period when you typically make interest-only payments. It is possible, however, to also make payments to the principal during the draw period. After the draw period comes the repayment period. You pay the borrowed amount plus interest during repayment, either as a lump-sum balloon payment or through a loan amortization schedule.

Most HELOCs feature a variable interest rate, although some lenders offer to convert into fixed-rate loans.

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HELOC Pros & Cons

Pros Cons
Typically offers lower interest rates Payments can be variable and unpredictable
Easy to get if you have a good credit history and adequate equity in your home You need to make sure you can pay back within a reasonable time
Offers flexibility and a reusable pool of money Some lenders charge annual HELOC fees
Only pay interest on the funds you withdraw
Total balance available once borrowed amounts are repaid (during draw period)

Cash-Out Refinance

A cash-out refinance replaces your old mortgage with a new one with a larger amount than owed on the previous existing loan, with the difference paid out in cash.

Cash-out refinances typically have more favorable terms than your current mortgage, and you can then use the cash on home improvement, college tuition, debt consolidation, or just about any other purpose. With this option, you wouldn’t have two mortgages, but getting this loan requires a more time-intensive process and could involve more fees and closing costs.

Cash-Out Refinance Pros & Cons

Pros Cons
New loans can lower your mortgage rates or loan terms New mortgage balance would be higher than your existing loan’s balance
A good choice if you need a large amount of cash By extending the term of your mortgage, you may end up paying more in interest over the life of the loan
The interest you pay on cash-out refinancing is tax-deductible
You could save on interest in your monthly payments and over the life of the loan
As a primary mortgage, you can find government-subsidized loans such as FHA and VA options which can offer better rates or relaxed underwriting criteria in many cases
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What Type of Home Equity Option is Right for You

Determine the Best Choice For Your Needs

According to Eddie Wilson, president of the American Association of Private Lenders, the answer to how to best use your home equity will depend on your situation. “It really comes down to how you’re going to use the money, how much of the money you’re going to use, that actually determines what method to use,” he said.

It’s essential to study all alternatives before choosing how to use your equity.

Understanding All the Costs

Regardless of which option you choose, make sure to understand all the costs associated with the loan or line of credit. If it’s an adjustable-rate loan, know that your monthly payments will change with current 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 go up.

You need to afford those higher payments, so it’s crucial to find out about your loan’s rate increase caps before signing on.

Get Professional Advice Before Making Any Decision

The Best Home Equity Advice: Get Advice

“Don’t try to sort it through yourself,” said Troy Molitor, founder of Molitor Financial Group. “The best advice that I would say to people is to get advice.”

Home equity loans aren’t one-size-fits-all products. Their variables go beyond loan amounts, interest rates, and loan terms. Your new loan options may depend on your current mortgage. The idea of accessing $50k or $100k in home equity is alluring, but you need to make sure it’s the right move to make, especially during uncertain financial times.

If you’re unsure how to proceed or which option is best for you, seek an expert opinion.

“Don’t go where you feel like you’re being sold,” said Molitor. “Look for someone that’s going to educate you, give you options, and then you get to make a decision based on the information.”

Important Points To Know About Home Equity Loans

A home equity loan is a lump-sum payment, while a HELOC is a pool of money that can be drawn down incrementally as needed.

  • HELOCs usually have a variable interest rate, while home equity loans typically have a fixed interest rate.
  • Lenders may allow you to borrow up to 85 to 90% of your equity.
  • You need to own at least 20% of your home outright to be considered for most home equity loans.
  • You might wind up owing more than your home is worth.
  • Your home is used as collateral when you get a home equity loan or a HELOC.
  • A home equity loan is debt, and using a HELOC is debt.
  • There could be tax benefits to a home equity loan if you use it to improve your home.
  • Home equity loans and HELOCs usually have competitive interest rates.
  • You can use funds from a home equity loan or a HELOC for anything.

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, using it as collateral. This means that your home is at risk of foreclosure if you can’t make payments. Contrary to home credit lines of credit, home equity loans provide a one-time lump sum amount at a fixed interest rate. The maximum loan amount you’re allowed to take is determined by your property’s value as well as your credit history. Home equity loans are available at banks, credit unions, and online lenders.

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, amounts withdrawn from HELOC can be taken as needed. Once repaid, the balance is again made available to you during the draw period. For example, say you take out a $40,000 HELOC and use $10,000 for a needed home repair. You’ll pay interest only on the $10,000 while keeping $30,000 available. Once you pay down the $10,000, you’ll once again have the $40,000 available.

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

Both home equity loans and HELOCs can be useful. It depends on what better fits 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 will be able to give you access to more money than a HELOC would. On the other hand, HELOCs can be used as an extension to your cash-borrowing capabilities, much in the same way as a credit card. This gives you spending flexibility, and you only pay interest on the money you draw.

What is the current interest rate on a home equity line of credit?

Rates for HELOCs are based on the WSJ Prime Rate calculated by The Wall Street Journal, representing the rate consensus for “at least 70% of the 10 largest U.S. banks.”The current prime rate is 3.25%, the lowest since 2008. As of March 23, 2021, HELOC rates currently average 4.41% APR, with rates going from 1.99%APR to 7.24%APR.

You can check the Federal Reserve’s current release of selected interest rates to have a more accurate idea of the latest averages.

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, with up to 20 for the repayment period.

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

While most lenders verify your credit report to make sure that you have a minimum credit score of no less than 620 to qualify for a home equity loan, some may impose higher minimums. As with most loans, the higher your credit score, the lower your interest rate. To obtain the best rates, you should aim to have a credit score of 740 or higher.

Is it worth getting a home equity loan?

For those in need of debt consolidation or looking to make costly home improvements, equity loans can be worth it. Home equity loans make sense for homeowners as they are secured debt. Additionally, the interest rate is typically lower for equity loans than that of the average credit card, which has an average annual percentage rate (APR) of 14.65%.

How We Chose the Best Home Equity Loans

Not every mortgage lender offers home equity loans and HELOCs, so our first step was identifying which lenders carried one or both of these types of products.

Other factors we considered were client satisfaction, customer service, variety of loan offerings, perks, price transparency, and overall customer experience.

Here’s why these qualities are essential in a lender:

Price Transparency

When you take out a HELOC or home equity loan, you’re taking out a second mortgage. That means paperwork and fees.

Some banks roll many of these fees into your loan, so you might not notice them or feel their impact as much. However, it’s still important to know about them so you can adequately compare lenders. That’s why we value home equity lenders that are upfront about their fees and clearly state what they charge.

Client Satisfaction

Going through the process of getting a home equity loan can involve a lot of work. However, lenders can go a long way to ensure their clients are satisfied. They can also ensure excellent customer service and make the process as smooth as possible. The lenders who made this list all put significant effort into customer satisfaction.

Customer Perks

Banks constantly compete against each other regarding interest rates and other perks, such as convenient account access, competitive fixed interest rates, and no prepayment penalty options. We selected those that provide the most customer-friendly service advantages.

Summary of Money’s Best Home Equity Loans of 2021

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