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Published: Feb 28, 2024 36 min read
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Cash-Out Refinance 

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Flexible terms, redraw up to 100%, borrow up to $400K

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eClosing allows customers to close electronically, greatly speeding the process

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Since 2016, Money’s editorial team has been researching and vetting all the major players in the home equity loan space. Our analysis considers loan features, price transparency, the ease of application and company reputation. Discover, Connexus and Navy Federal Credit Union are three of the nine companies we selected as top picks in our lender reviews.

Money’s Main Takeaways

  • Home equity loans generally provide homeowners with low rates and fixed monthly payments. However, they also present a risk since they use the home as collateral.
  • Home equity loans are secured by the value of your home; the amount you can borrow is the based on the equity you’ve built up in your property

Why Trust Us?

Our editors and writers evaluate home equity loan and HELOC providers independently, ensuring our content is precise and guided by editorial integrity. Read the full methodology to learn more.

  • Reviewed 38 providers
  • 1,000+ hours of research
  • Based on 14 data points, including APRs, loan limits and approval time

Our Top Picks for Best Home Equity Loans

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Best Home Equity Loan Lenders Reviews

Pros
  • No origination, appraisal or application fees or mortgage taxes due at closing
  • Connecticut, Minnesota, North Carolina, New York, Oklahoma and Texas residents are exempt from early payment fees
  • Full online application process
Cons
  • Prepayment penalty of up to $500 applicable for 36 months after closing
  • No information regarding discounts
HIGHLIGHTS
Annual Percentage Rate (APR)
7.99% - 13.99%
Loan amounts
$35,000 - $300,000
Terms
10 to 30 years
Max. Loan-to-Value (LTV)
90%

Why we chose this company: Discover makes our top home equity loans list because its fees are lower than most of its competitors.

Discover doesn’t charge any application, origination or appraisal fees. It also doesn’t require an upfront cash payment at closing or mortgage taxes.

Discover’s home equity loans have fixed interest rates, and are available for first and second liens. You can borrow between $35,000 and $300,000 and choose a repayment term between 10 and 30 years.

Additionally, Discover’s eClosing features let you review, sign and submit closing documents online.

Eligibility requirements

  • Property type - primary residence (single-family residences, condos and townhomes)
  • Credit score - minimum of 620
  • Amount of equity available - usually between 10% to 20%
  • Regional availability - Nationwide

Read Discover Home Equity Loans Review

See rates on Discover's Secure Website >>

Pros
  • Loan amounts from $5,000
  • 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 Maryland, Texas, Hawaii and Alaska
HIGHLIGHTS
Annual Percentage Rate (APR)
8.74% - 15.90%
Loan Amount
From $5,000
Terms
5 to 15 years
Max. Loan-to-Value (LTV)
80%

Why we chose this company: Connexus Credit Union offers flexible repayment terms, including interest-only HELOCs.

Connexus’ interest-only HELOC allows you to make payments on the accrued interest during the drawing period of the loan instead of principal and interest payments. This option may be convenient if you need to make smaller payments now, but can commit to larger payments later.

The company’s traditional HELOC and interest-only HELOC both 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.

Eligibility requirements

  • Property type - primary home (single-family homes, 2-4-unit condominiums, owner-occupied duplexes, or townhouses)
  • Credit score - not disclosed
  • Amount of equity available - minimum 20%
  • Regional availability - Home equity loans not available in Maryland, Texas, Hawaii and Alaska.

Read Connexus Credit Union Home Equity Loan Review

See rates on Connexus's Secure Website >>

Pros
  • Line amounts of up to $1 million
  • 0.25% 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, Puerto Rico or the U.S. Virgin Islands
  • HELOANs are only available in states with a branch office
HIGHLIGHTS
Annual Percentage Rate (APR)
8.49% - 21.00%
Loan Amount
$10,000 - $1,000,000
Terms
10-year draw period, 20-year repayment
Max. Loan-to-Value (LTV)
85%

Why we chose this company: Flagstar offers lines of credit of up to $1 million, which makes it the best HELOC option for large loans.

Flagstar’s home equity line of credit is available for amounts ranging between $10,000 to $1 million and has variable interest rates.

A 0.25% interest rate discount is available for customers who 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

  • Property type - primary residences, including 1-to-4 unit residential homes and modular homes.
  • Credit score - not disclosed
  • Amount of equity available - not disclosed
  • Regional availability - not available in Texas, Puerto Rico or the U.S. Virgin Islands

Read Flagstar Home Equity Loans Review

See rates on Flagstar's Secure Website >>

Pros
  • Rates starting at 6.75% APR
  • 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 Regions retail branch
  • Branches only in AL, AK, FL, GA, IL, IN, IA, KY, LA, MS, MO, NC, SC, TN, and TX
HIGHLIGHTS
Annual Percentage Rate (APR)
6.75% to 14.125%
Loan Amounts
$10,000 – $250,000
Terms
10, 15 or 20 years
Max. Loan-to-Value (LTV)
85%

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. Loan amounts range from $10,000 to $250,000.

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 a 20-year repayment period.

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.

Eligibility requirements

  • Property type - primary or secondary residence
  • Credit score - not disclosed
  • Amount of equity available - not disclosed
  • Regional availability - Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas

See rates on Regions Bank's Secure Website >>

Pros
  • Multiple fixed-rate repayment options may be available
  • Covers appraisal fee
  • HELOC with no annual fee in most states
Cons
  • Only offers HELOC
  • Prepayment penalty for terminating a line of credit within 36 months
  • $15 service fee
HIGHLIGHTS
Annual Percentage Rate (APR)
9.52% – 16.00% (or state maximum)
Loan Amounts
From $5,000
Terms
5, 10, 15, 20 and 30 years
Max. Loan-to-Value (LTV)
Not disclosed

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. The minimum amount you can request for HELOCs is $5,000.

Fixed-rate HELOCs 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

  • Property type - single family, primary residence, second home or condominium occupied by the owner
  • Credit score - not disclosed
  • Amount of equity available - not disclosed
  • Regional availability - Available in Alabama, Arkansas, California, Florida, Georgia, Tennessee, South Carolina, Virginia, Maryland, Washington DC, West Virginia, Indiana, Kentucky, New Jersey, Ohio, Pennsylvania, North Carolina and Texas.

Read Truist Home Equity Review

See rates on Truist's Secure Website >>

Pros
  • 100% online application can be approved in 5 minutes
  • 0.25% rate reduction with AutoPay
  • No prepayment penalty
Cons
  • HELOC not available in Delaware, Hawaii, Kentucky, New York and West Virginia
  • Origination fee of up to 4.99% of your initial draw, depending on state
  • Minimum loan amount $20,000, higher than some competitors
HIGHLIGHTS
Annual Percentage Rate (APR) Range
Not disclosed
Loan Amount
$20,000 - $400,000
Terms
5, 10, 15 and 30 years
Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company: Figure offers a completely online application process, quick approval times and funding in as little as five days.

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 $20,000 to $400,000 with fixed interest rates and 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.

Eligibility requirements

  • Property type - single family residences, townhouses, urban developments and condos
  • Credit score - minimum 640 for primary residences and 680 for investment or non-owner occupied properties
  • Amount of equity available - not disclosed
  • Regional availability - not available in Delaware, Hawaii, Kentucky, New York, and West Virginia

See rates on Figure's Secure Website >>

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 payments deducted from a U.S. Bank account
Cons
  • $75 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 Hawaii, Louisiana, New York, Oklahoma and Rhode Island if property is held in a trust
HIGHLIGHTS
Annual Percentage Rate (APR)
From 8.40% (HELOAN) 8.95% - 13.10% (HELOC)
Loan amounts
$50,000 - $99,999
Terms
10 to 30 years
Max. Loan-to-Value (LTV)
60%

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.

You’ll also need to have a U.S. Bank checking or saving account and set up automatic payments to get the best APR rates.

The company’s home equity loans and HELOCs do not have closing costs. Home equity loans have repayment terms of up to 30 years. Loan amounts start at $50,000 and go up to 60% of your home equity or $99,999.

While HELOCs feature variable rates, you have the option to convert a portion or the total amount of your balance to a fixed rate for up to 20 years. In addition to the fixed-rate payment option, any balance you don’t convert into a fixed-rate will continue to have a minimum payment and variable rate.

Eligibility requirements

  • Property type - primary residence, single-family home
  • Credit score - minimum 660
  • Amount of equity available - not disclosed
  • Regional availability - not available in Hawaii, Louisiana, New York, Oklahoma and Rhode Island if property is held in a trust

Read U.S. Bank Home Equity review

See rates on U.S. Bank's Secure Website >>

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 certain states
  • $50 annual fee after the first year on standard HELOCs
HIGHLIGHTS
Annual Percentage Rate (APR)
8.50% to 21.00%
Loan Amounts
$5,000 - $25,000
Terms
10 to 15 years
Max. Loan-to-Value (LTV)
Not disclosed

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.

In 2023, Citizens Bank ranked in the top ten of J.D. Power’s U.S. Mortgage Servicer Satisfaction Study, obtaining 632 points out of 1,000. The study considered overall customer satisfaction based on factors such as customer interaction, communications and new customer orientation.

In terms of home equity offerings, Citizens Bank has two 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. 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.

Eligibility requirements

  • Property type - owner-occupied 1- to 4-family properties or condominiums
  • Credit score - not disclosed
  • Amount of equity available - not disclosed
  • Regional availability - available in Alabama, Arkansas, Connecticut, Washington DC, Delaware, Florida, Georgia, Iowa, Illinois, Indiana, Kentucky, Massachusetts, Maryland, Maine, Michigan, Minnesota, North Carolina, Nebraska, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Virginia and Vermont

See rates on Citizens Bank's Secure Website >>

Pros
  • No application, origination, annual or inactivity 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
  • Membership limited to the military and their families
HIGHLIGHTS
Annual Percentage Rate (APR)
From 6.640% (HELOAN) 8.750% - 18.00% (HELOC)
Loan Amount
$10,000 - $500,000
Terms
5 to 20 years
Max. Loan-to-Value (LTV)
95%

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 with repayment terms of five, 10, 15 and 20 years.

However, with a HELOC you can borrow up to 95% of your home’s equity at a variable rate. Navy Federal offers a longer than average 20-year drawing period, in comparison to the typical 10-year term most competitors offer. The company also covers closing costs, which can range from $300 to $2,000 for loans of up to $250,000.

Eligibility requirements

  • Property type - primary residence, single family home
  • Credit score - not disclosed
  • Amount of equity available - not disclosed
  • Regional availability - HELOCS not available in Texas

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.

See rates on Navy Federal Credit Union's Secure Website >>

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Other home equity loan companies we considered

While solid contenders, the following home equity loan lenders 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 Bank

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

PNC offers fixed rate home equity lines of credit for balances of $5,000 or more and a 0.25% rate discount when you enroll in autopay. However, interest rates aren’t readily displayed on its website and it charges an annual fee of $50. In addition, its home equity products are not available in Louisiana, Mississippi, Nevada, South Dakota, Alaska and Hawaii.

Read PNC Home Equity Review

See rates on PNC Bank's Secure Website >>

PenFed

Pros
  • Loan amounts from $25,000 up to $500,000
  • Covers most closing costs
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

PenFed only offers home equity lines of credit with a 10-year draw period and a 20-year repayment period. Loan amounts range from $25,000 to $500,000. However, to apply you need to become a credit union member and have a minimum credit score of 680. It also charges an annual fee during the draw period.

See rates on PenFed's Secure Website >>

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 BofA checking or savings account
  • Up to 1.50% rate discount for initial withdrawals or $150k or more (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

Bank of America is another contender that offers home equity lines of credit. In addition, it features introductory rates and multiple rate discounts, such as 0.25% if you enroll in autopay and up to 0.750% for customers with a Preferred Rewards account. However, it doesn’t offer home equity loans nor does it readily disclose the maximum APR customers could pay.

Read Bank of America Home Equity Review

See rates on Bank of America's Secure Website >>

KeyBank

Pros
  • 0.25% rate discount for having a KeyBank checking or savings account
  • Borrow up to 80% 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

KeyBank offers both home equity loans and lines of credit of up to 80% of your home’s value. Home equity loans are available from $25,000 to $500,000, whereas the minimum loan amount for HELOCs is $10,000. Like most banks, KeyBank also offers a 0.25% rate discount. However, its products are only available in Alaska, Colorado, Connecticut, Idaho, Indiana, Massachusetts, Maine, Michigan, New York, Ohio, Oregon, Pennsylvania, Utah, Vermont and Washington.

See rates on KeyBank's Secure Website >>

Spring EQ

Pros
  • 640 minimum score for home equity loans
  • Offers access to up to 95% of your home value
  • Relatively fast funding, between 14 to 21 days
Cons
  • Doesn't disclose information about fees and rates

Spring EQ is a mortgage lender that specializes in home equity products. It only offers home equity loans, home equity lines of credit and refinance loans. With Spring EQ you can access up to 95% of your home equity and borrow up to $500,000.

Loan terms range from five to 30 years. The loan application process is completely online, providing instant qualification in most cases and funding between 14 to 21 days. However, it didn’t make our top picks as current fees and rates are not openly available on their website.

Read Spring EQ Home Equity Review

See rates on Spring EQ's Secure Website >>

BMO Harris Bank

Pros
  • 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

BMO Harris Bank offers both home equity loans and HELOC, which are available for customers with a minimum credit score of 700 or between 650 and 680, respectively. While BMO Harris home equity line of credit rates are competitive, it mainly operates in only eight states: Arizona, Illinois, Florida, Kansas, Indiana, Minnesota, Missouri and Wisconsin.

Read BMO Harris Bank Home Equity Review

See rates on BMO Harris Bank's Secure Website >>

Frost

Pros
  • No application or annual fee charges
  • 0.25% rate discount with automatic payment
  • APR rates for HELOANs, starting at 6.78%
  • No prepayment penalty for HELOC
Cons
  • Available in Texas only

Frost Bank features competitive home equity loan and HELOC products, with terms up to 20 years. Home equity loans and HELOCs are available starting from $2,000 and $8,000, respectively. Frost's main drawback is that it’s only available in Texas, however, if you live in this state it may be an option worth considering.

See rates on Frost's Secure Website >>

Unison

Pros
  • Lets you convert up to 15% of your home equity into cash
  • Single-family homes, townhouses and condominiums are eligible
  • Doesn't impact creditworthiness 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

Unison is a home equity loan alternative that offers home co-investing. Basically, the company lets you borrow up to 15% of your home value in cash in return for a share of your home’s future value. Although you don’t have to pay them back up to 30 years or until you sell your house, this alternative has several potential drawbacks. For instance, you may not be able to refinance your home, and if you don’t sell your home you must pay back the original co-investment plus four times the percentage invested.

See rates on Unison's Secure Website >>

Home Equity Loans Guide

Home equity loans and home equity lines of credit are some of the most popular ways to finance home renovations. In this section we’ll explore how a home equity loan works, typical home equity rates, loan requirements, how to choose a lender and more.

You can also read our read our comprehensive guide to learn about how to get a home equity loan, the different options available, how they work and key factors to consider when considering home equity lending.

What is a home equity loan?

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.

Home equity loans can have lower interest rates than 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.

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.

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 for up to 30 years.

Current home equity loan rates

Home equity loan interest rates are typically on par with mortgage loan rates. HELOC rates, on the other hand, are variable and can be somewhat higher depending on the bank and the prime rate.

As of February 2024, average home equity loan interest rates range from 7.75% - 10.20%. The average HELOC interest rate stands between 9% and 10.5%. There continues to be disagreement among experts as to whether the Fed will cut or raise rates in the coming year.

Check out our reviews for the best home equity loans to see what rates banks are currently offering.

How to calculate home equity

Home equity refers to the difference between your mortgage balance (what you owe) and the current market value of your home.

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.

To calculate your equity, you need to:

  • Determine the current market value of your home. (In most cases, a certified real estate appraiser can help you obtain an official valuation.)
  • Deduct your remaining mortgage balance (if you have one) from 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. The result is your equity, and it gives you a rough idea of how much you may be able to borrow.

If you’ve already paid your mortgage, then your equity is the full value of your home.

Home equity loan requirements

When determining if you qualify for a home equity loan, lenders will typically check if you meet the following requirements:

  • At least an 80% loan-to-value ratio, or the equivalent of 20% equity
  • A low debt-to-income ratio, preferably under 43%
  • A minimum credit score of 620 or higher
  • Own a qualifying home, such a single family home, townhouse or condo
  • Be employed, self-employed or retired and have a steady income
  • Supporting documentation, such as pay stubs, tax returns and W2s

Naturally, the higher your home equity, the more you’ll be able to borrow. If you don’t have that amount yet though, focus on building equity first. One way to do this is by making additional mortgage payments to your principal. Check our guide on how to build equity in a home for more actionable steps.

Pros and cons of home equity loans

Here are some advantages and disadvantages to consider when deciding whether a home equity loan is the best option for you.

Pros
  • You get a fixed interest rate
  • Predictable payments for the life of the loan
  • Money can be used for any purpose (debt consolidation, paying for tuition, etc.)
  • Interest may be tax-deductible, if the loan is used for home improvement
Cons
  • Must use your home as collateral
  • You'll have a second mortgage if you're still paying the primary mortgage
  • You may have to pay closing costs, depending on the lender
  • You need significant equity on your home, typically between 15% and 20%

How to choose a home equity loan

When looking for a home equity loan, consider the following steps.

1. Understand your options

There are two different types of home equity loans: traditional home equity loans and home equity lines of credit. Traditional HELOANs give you a lump sum, whereas HELOCs work much like a credit card. Read the section on differences between home equity loans and HELOCs for more information.

2. Compare loan terms and repayment options

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.

3. Calculate how much you can borrow with a home equity loan

To know how much equity you can borrow, you must calculate your loan-to-value ratio (LTV.) To do this, divide your mortgage’s outstanding balance by your home’s current market value and turn that into a percentage. Let’s say your current mortgage loan balance is $175,000 and your home is appraised at $250,000. This means you have a loan-to-value ratio of 70% and 30% equity.

Because most lenders require you to keep at least 20% of equity in the home, you would only be able to borrow against 10% of your equity — in this case, $25,000. (The home’s current value ($250,000) by 10%, gives you 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.

4. Check closing costs for home equity loans

Just like with primary mortgages, home equity lenders may charge closing costs. These can range anywhere from 2% to 5% of your loan total. Lenders may also charge fees for loan origination, appraisals, title search and attorneys. There are, however, no appraisal home equity loan lenders as well.

However, many lenders don’t charge some of these fees and may even be willing to waive closing costs altogether, on the condition that you won’t pay off the loan before a certain period of time (typically three years). If you close the loan before then, you must then pay back all the costs the lender covered.

Some lenders may also offer somewhat higher interest rates in exchange for reducing or covering closing costs or fees.

How to get a home equity loan

Once you’ve chosen your home equity lender, you will typically need to follow these steps:

1. Get a professional home appraisal

A professional appraisal will give you an accurate idea of how much your home is currently worth in the market. This will let you determine whether you have enough equity to apply for a HELOAN or HELOC.

Keep in mind that lenders typically require you to have at least 15% to 20% of equity in your home.

(For a more in-depth explanation on how home equity works and how to calculate it, check out our article How Much Equity Do I Have in My Home.)

2. Check minimum credit score requirements and your credit report

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

You should also check your credit report and look for any discrepancies in your personal information, associated credit accounts or public records. If you find mistakes on your credit report, make sure to correct them before applying for a loan.

3. Shop for home equity loan quotes

Different home equity lenders offer different interest rates, fees, and terms. By obtaining quotes from multiple companies, you can compare the total costs associated with each loan option and choose the one that offers the most favorable terms.

Sometimes, a large online lender may offer the best deal. But it could also be the case that a local bank or credit union will give you a better offer, so it’s wise to get quotes from both.

Additionally, having multiple quotes gives you leverage when negotiating with lenders. You can use competing offers to negotiate for better terms or to encourage lenders to waive certain fees.

4. Gather documentation

Prepare the necessary documentation to support your home equity loan application. Commonly required documents include:

  • Proof of income (pay stubs, W2s, tax returns)
  • Recent bank statements
  • Utility bills to confirm your address
  • Current mortgage statements

4. Apply and submit your home equity loan application

Once you pick a lender, fill out the loan application. You can apply online, in person, or work with a mortgage broker. Be ready to provide any additional information or documentation the lender may require.

Check out our guide on how to get a home equity loan for more information.

How to use a home equity loan

A home equity loan can add value beyond the property. Whether you want to improve the home itself, consolidate loans, invest in your future or prepare for emergencies, using your home equity can help you achieve your goals.

  • Home improvement - A popular use of home equity loans is for remodeling your home. It doesn’t matter if you remodel your kitchen or add a pool. Doing so not only makes your home more comfortable or enjoyable, but also increases its value.
  • Debt consolidation - You can also use this loan to consolidate your debts and possibly take advantage of a better interest rate. This frees up money you usually used to pay debts so you can put it towards savings or any other project.
  • Education - Another way you can use your home equity is to fund your or your child’s education. If it’s for you, getting a degree may mean improved job prospects or getting a promotion at your current job.
  • Unexpected expenses - Taking out a home equity loan is a way of covering expenses in case of an emergency or when one of your appliances breaks down. Investments - You can also use your home equity to start your own business or invest in a venture. By leveraging the value of your home you could potentially generate gains in other areas.

Alternatives to home equity loans

Aside from home equity loans, there are several ways to tap into your home’s equity: home equity lines of credit (HELOC), cash-out refinance loans and home co-investing.

Most of these loan options require equity in your home, but they all have different characteristics and qualification requirements.

Home equity lines of credit (HELOC)

A home equity line of credit, or HELOC, is a credit line that gives homeowners 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.

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.

Personal loan

A personal loan can also be an option if you don’t have enough equity or don't want to use your home as collateral. With a personal loan it’s possible to get funding faster too, typically within a week or even the same day. Since you’re not using your home equity, these loans don’t require a home appraisal, and you can avoid closing costs. Additionally, most personal loans don’t require collateral, unlike home equity loans or lines of credit. This means your home or other valuable assets will not be at risk if you were to default.

Keep in mind, though, that some personal loans feature origination fees and higher interest rates than home equity loans.

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.

Home equity loan vs. cash-out refinance

Although both home equity loans and cash-out-refinances are a way to get cash for home improvements or debt consolidation using some of your home equity, there are some differences to consider:

Home Equity Loan

Cash-out refinance

Gives you a lump sum in exchange of your home equity, creates a second mortgage on the property.

Pays you part of your home equity in cash, and replaces your existing mortgage with a new one.

The terms of the original mortgage won't change. Instead, you'll have two loans.

You may refinance at a lower interest rate, if available.

Interest rates are typically somewhat higher than mortgage rates.

Interest rates are typically lower because they're based on current mortgage rates.

Tax deductible if the funds are used to improve your home.

Interests on the principal are tax deductible as any other mortgage. You may also deduct the cash-out portion if used for home improvements.

Home equity loan vs. personal loan

A personal loan can be a viable option to a home equity loan for some. When choosing between the two, keep these key differences in mind.

Home Equity Loan

Personal Loan

Home serves as collateral, so rates are lower

Typically unsecured, as a result rates tend to be higher

Borrowing limits are generally higher, and are determined by the amount of equity in the borrower's home.

Borrowing limits are lower, and based on the borrower's creditworthiness, income, and other factors.

Interest paid can be tax deductible if the funds are used to improve your home.

Generally not tax-deductible, regardless of how the funds are used.

Carries the risk of losing your home if you default

Lenders cannot seize assets if the borrower defaults, but can still damage the borrower's credit score

Latest News About Home Equity Loans

  • If you want to learn more about the difference between home equity loans and HELOCs, check out our HELOC vs. Home Equity Loan guide. It will show you the benefits, as well as what you can expect rate-wise from each product.

Best Home Equity Loans FAQs

Is a home equity loan a good idea?

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A home equity loan could work well depending on your financial situation and how you plan to use the money. If you use it to finance home improvements, you’re not just making your place nicer but also boosting its value. A home equity loan might also make sense if the loan’s interest is lower than what you’d get with a personal loan or credit card.

Can you refinance a home equity loan?

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Yes, it's possible to refinance a home equity loan, just as you can refinance a traditional mortgage. Refinancing a home equity loan may be a good idea if you can secure better terms and lower interest rates than you currently have. However, the process and requirements for refinancing a home equity loan can will vary depending on the lender and your personal finances.

How long does it take to get a home equity loan?

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Timing can vary greatly depending on the home equity lender. In most cases, it can take between two and four weeks to close the loan, whereas funding may take a few days after closing.

Can you get a home equity loan with bad credit?

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There are some home equity and HELOC lenders who are willing to consider applicants with credit scores in the 600s. However, expect to pay higher interest rates and be required to have at least 20% equity in your home.

Going with your current mortgage lender could be a good move. If you have a track record of on-time payments and a stable income, they might approve your application even with a less-than-perfect credit score.

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:

  • Price transparency: We evaluated the loan types offered, minimum and maximum loan amount, interest rates, loan terms and credit score requirements for each lender.
  • 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 or in person.
  • Reputation and customer satisfaction: We looked into two main data sources: J.D. Power's 2022 U.S. 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 March 2024