Best Home Equity Loans: Where to Find Them & How They Work

When your home goes up in value, you make a large down payment, or you pay down your mortgage, you build equity in your home. Home equity is the difference between the value of your home and what’s owed on it.

Home equity loans allow you to borrow against the equity in your home, so can access the cash tied up in your house. Home equity loans often have lower interest rates compared to other types of debt because the loans are secured by your house. But you can qualify only if you have sufficient equity.

Different lenders have different interest rates, eligibility requirements, and loan repayment periods associated with their home equity loans. We used the weighted average of eight data categories to rank and rate the banks, online lenders, and credit unions that let you borrow against the equity in your house. This guide will help you determine which lenders offer the best deal for you.

On this page:

• Current Average Low Home Equity Rate
• Compare Home Equity Loans
• Best Home Equity Loan Reviews
• Home Equity Loan Uses
• Pros & Cons of Home Equity Loans
• How to Find the best Home Equity Loan Rates
• Fixed vs. Variable Rates: Which is Better?
• Home Equity Borrowing Limits

Current Average Lowest Home Equity Rate

4.93%

Based on the lowest fixed rates of 9 lenders, as of September 20, 2019

Compare Home Equity Loans

Best Home Equity Loan Companies

Below you will find reviews for our choices for the best home equity loans. You can click a link below to jump down to that lender’s review:

1. TD Bank
2. Spring EQ
3. Discover
4. PenFed
5. Regions Bank
6. PNC
7. Navy Federal
8. Citizens Bank

1) TD Bank Home Equity Loan

TD Bank operates in Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington D.C. Some of the key features of home equity loans from TD Bank include the following.

• LendEDU Rating: 5/5
• Interest rates: Starting at 4.79%
• Loan limits: $25,000 to $500,000
• Loan repayment terms: 5 to 30 years
• Maximum loan-to-value: 80%
• Fees: $99 origination fee

2) Spring EQ Home Equity Loan

Spring EQ operates in 33 states as well as Washington D.C. The lender promises fast funding for qualified borrowers, but only home equity loans are available. Some of the key things to know about Spring EQ include the following.

• LendEDU Rating: 4.72/5
• Interest rates: Starting at 6.51%
• Loan limits: $2,000 to $500,000
• Loan repayment terms: 5 to 30 years
• Maximum loan-to-value: 100%
• Fees: Origination fee of $700 to $2,000

3) Discover Home Equity Loan Review

Discover makes home equity loans available to borrowers with credit scores of 620 or higher who have verifiable employment and income as well as sufficient home equity. Here are some of the key things that you should know about home equity loans from Discover.

• LendEDU Rating: 4.66/5
• Interest rates: Starting at 4.99%
• Loan limits: $35,000 to $150,000
• Loan repayment terms: 10 to 30 years
• Maximum loan-to-value: 95%
• Fees: None

4) PenFed Home Equity Loan

PenFed offers loans across the United States, but you must be a credit union member to qualify for a home equity loan. Some of the key things to know about the credit union’s home equity loans include the following.

• LendEDU Rating: 4.64/5
• Interest rates: Starting at 5.34%
• Loan limits: $10,000 to $400,000
• Loan repayment terms: 5 to 20 years
• Maximum loan-to-value: 90%
• Fees: None

5) Regions Bank Home Equity Loan

Regions Bank provides loans to customers in the South, Midwest, and Texas where the bank operates local branches. If you are a Regions customer already and are enrolled in Relationship Rewards, you can earn points for opening a home equity loan with Regions. Some of the key things to know about Regions Bank home equity loans include the following.

• LendEDU Rating: 4.56/5
• Interest rates: Starting at 4.125%
• Loan limits: $10,000 to $250,000
• Loan repayment terms: 7 to 15 years
• Maximum loan-to-value: 89%
• Fees: None

6) PNC Home Equity Loan

PNC operates in 2,400 locations in 21 states as well as in the District of Columbia. It offers home equity loans, as well as a home equity rapid refinance product. Here are some key details you need to know about PNC Bank home equity loans. 

• LendEDU Rating: 4.55/5
• Interest rates: Starting at 3.74%
• Loan limits: $1,000 to $150,000
• Loan repayment terms: 5 to 30 years
• Maximum loan-to-value: 89.9%
• Fees: $12 to $250 origination fee may be required

7) Navy Federal Credit Union Fixed-Rate Equity Loan

Navy Federal Credit Union provides home equity loans to credit union members. You must be a member of the military, a veteran, or a family member to qualify for a home equity loan with Navy Federal Credit Union. Here are some of the key features to be aware of.

• LendEDU Rating: 4.38/5
• Interest rates: Starting at 5.75%
• Loan limits: $10,000 to $500,000
• Loan repayment terms: 5 to 20 years
• Maximum loan-to-value: 100%
• Fees: None

8) Citizens Bank Home Equity Loans Review

Citizens Bank is the third largest retail bank in the U.S. It operates in 11 states in the New England, mid-Atlantic, and Midwest regions and offers home equity loans. Here are some key features of Citizens Bank home equity loans.

• LendEDU Rating: 3.92/5
• Interest rates: Starting at 5.24%
• Loan limits: $10,000 to $400,000+
• Loan repayment terms: 10 to 20 years
• Maximum loan-to-value: 80%
• Fees: None

How We Chose the Best Home Equity Loans

To find the best home equity loans, our Editorial Team spent over 40 hours researching and analyzing home equity loan lenders. We based our rankings on the weighted average of eight data categories, including:

Home Equity Loan Uses

Home equity loans can be used for many purposes, but some of the most common uses include:

• Home renovations: Home equity loan interest should be tax deductible if you borrow for home improvement, provided you itemize your deductions and your total mortgage debt doesn’t exceed allowable limits. Using a home equity loan to renovate your home can also help you to boost your home’s value.
• Managing debt: You can repay higher interest debt using a home equity loan, which allows you to both consolidate and refinance that debt to make repayment cheaper. Just be aware there’s a risk of converting unsecured debt (such as credit card debt) to secured debt. If you don’t pay, the home equity lender could take your home as compensation.
• Large purchases: Many people use home equity loans to pay for purchases they couldn’t otherwise afford, such as vacations, making a down payment on investment real estate, or buying a boat. Just be aware you’re making your purchase more expensive compared to paying with cash due to the interest on the loan. You’re also putting your home at risk, so avoid borrowing against your equity to fund unnecessary purchases.

Pros & Cons of Home Equity Loans

There are both advantages and disadvantages to taking out home equity loans. Here are some of the key pros and cons to consider before you decide if this is the right type of loan for you.

Pros of Home Equity Loans

• Lower interest rates: The rates on home equity loans are typically lower than rates on other types of debt, such as credit card debt and personal loan debt.
• Easier qualification requirements: Provided you have enough equity in your home, a home equity loan can be easier to qualify for than most unsecured debt, especially if you’re house rich but have an imperfect credit history. That’s because the home acts as collateral, securing the loan and reducing the risk to the lender.
• Large borrowing limits: If you have enough equity, you can often qualify to borrow a much larger lump sum of money with a home equity loan than with most other types of debt.
• Tax-deductible interest: If you use your home equity loan to improve your home, you itemize your tax deductions, and your total mortgage balance doesn’t exceed allowable limits, you can take a tax deduction for interest paid on your home equity loan.
• Fixed interest rates: Many home equity loans come with fixed interest rates, which means your interest costs and payment won’t charge during the life of the loan.

Cons of Home Equity Loans

There are also downsides to home equity loans, including the following:

• You could end up owing more than your home is worth: When you take equity out of your home, your total home debt gets closer to the current value of the property. If property values fall or you borrow too much, you could end up underwater—owing more than your home is worth. This makes selling your home or refinancing your mortgage difficult or impossible unless you can repay the difference between what you owe and your home’s current value. Because of this risk, you should be cautious about borrowing very large home equity loans.
• You may have to pay high fees and closing costs. For large loan amounts, you may have to pay for an appraisal to determine the value of your home. Some home equity loans also come with other costly fees, including maintenance fees, closing costs, documentation fees, application fees, and more.
• Your home is on the line. If you don’t repay your loan as promised, you could lose your house.
• They’re not ideal for ongoing expenses. If you’re trying to finance a project or expense that will require a little money each month over a longer draw period, a home equity line of credit may be a better choice than a one-time home loan.
  

How to Find the Best Home Equity Loan Rates

When shopping for a home equity loan, you should always take steps to try to find the best interest rate possible. This will keep your costs down. Some tips to find the best rates include the following:

• Monitor changing interest rates: Interest rates can change over time, either because of economic conditions or because financial institutions change the special promotions they offer. Be sure to monitor trends in interest rates and see how rates change over time.
• Improve your credit before applying: Borrowers with high credit scores are offered loans at more favorable interest rates. Work to improve your credit score by paying down debt, paying bills on time, correcting mistakes on your credit report, and avoiding opening too many new types of credit before getting your home equity loan. (Find out how to qualify for a home equity loan with bad credit)
• Shop around: There’s often a lot of variation in rates from one lender to another. Compare rates from multiple lenders to find the best deal for your situation. Try to get at least three quotes, but look for lenders that do soft credit checks rather than putting a hard inquiry on your credit report. Too many hard inquiries could hurt your credit.

>> Read More: Home Equity Loan and HELOC Requirements

Fixed vs. Variable Rates: Which is Better?

There’s no one right answer to whether you should opt for a fixed or variable rate home equity loan.

• Variable rate loans are loans with the interest rate tied to a financial index. The rate usually starts below what a fixed rate loan charges, but could go up or down over time. As the rate changes, your interest payments will change.
• Fixed rate loans have the same rate over the life of the loan. While this may be higher than the starting rate on variable rate options, you don’t have to worry about it increasing over time. These loans provide stability and certainty as you’ll know the required monthly payments and other costs up front.

If you think interest rates could go down in the future, you may opt for a variable rate loan—but you run the risk of your rate going up and payments potentially becoming unaffordable. Variable rate loans could also be a good option if you plan to sell your home soon after borrowing as you could benefit from the introductory low rate and sell before rates go up. However, if you aren’t able to sell the home, you could end up with unaffordable payments.

If you want certainty and to know your costs up front, a fixed rate loan is a safer option.

Home Equity Borrowing Limits

Most banks and lenders do not allow you to borrow 100% of the value of your home. Your combined loans against your home, including mortgages and home equity loans, typically can’t exceed 80% to 90% of the value of your home. This is known as your Loan-to-Value ratio (LTV).

To determine your current home value, banks will want a recent appraisal. You can then borrow a percentage of that market value. If your home appraises for $200,000 and you owe $140,000, the equity in your home is currently worth $60,000.

You can’t borrow the full $60,000, though. If you’re allowed to borrow up to 90% of your home’s value, your total combined loan balances can’t exceed $180,000 (90% of the home’s total value). Since you already owe $140,000, you could only borrow another $40,000.

Lenders may also have maximum or minimum loan balances for their home equity loans, which could limit the amount you’re allowed to borrow as well.

Additional Resources:

• How to Calculate Home Equity
• Home Equity Loan Calculator
• Second Mortgage vs. Home Equity Loan
• Alternatives to Home Equity Loans
• How to Get a Small Home Equity Loan
• Non-Recourse vs. Recourse Loans
• Home Equity Loan vs. HELOC