Best Home Equity Loans

Home equity loans and fixed-rate home equity lines of credit (HELOCs) can provide ready cash to cover home improvements, debt consolidation, and other expenses. Home equity loans provide a hefty lump sum, and HELOCs offer access to a revolving credit line.

We reviewed home equity lenders to narrow down the top choices. Keep reading for the best home equity loans and fixed-rate HELOCs on the market.

Reviews of the best home equity loans

We considered interest rates, loan amounts, funding speed, credit score requirements, and more to find the best home equity loans. Read more about our picks below.

What are the different types of home equity loans?

The two main types of home equity loans are fixed-rate home equity loans and home equity lines of credit. Both types have unique benefits.

Fixed-rate home equity loan

With a fixed-rate home equity loan, you’ll get a stable rate for the term of your loan. Your monthly payments are the same each month, which makes it easier to budget.

A fixed-rate home equity loan may be ideal for large expenses, such as renovating a home, paying a major medical bill, or consolidating high-interest debt. You might be able to deduct the interest on your home equity loan when you file taxes if you use the money to improve your house.

Home equity line of credit (HELOC)

A HELOC differs from a home equity loan because instead of a lump sum, you get a line of credit similar to a credit card. You can use money as needed and pay down the balance to create more space for other expenses. 

Remember that most HELOCs have variable rates, so your payments are inconsistent. 

Many HELOCs allow interest-only payments during the draw period, typically lasting five to 10 years. So you can complete a long renovation project and make small interest-only payments at first. Once the draw period is over, your monthly payments will be larger.

How to get the best rates for home equity loans

Finding the best home equity loan rates involves improving your financial picture before applying and applying strategically. Try to wait to apply for a home equity loan until you’ve done the following:

• Reviewed your credit reports: You can pull your credit reports for free once a week. When you do, check for errors and dispute any you find. Make note of high balances, and work to reduce those as soon as possible.
• Lowered your DTI: Paying down your debt will reduce your overall DTI. Showing lenders that you manage debt well and don’t carry much debt can boost your approval odds.
• Monitored your credit score: Ask your bank or credit card issuer whether it offers free credit score reporting. Check your score as often as possible, and start prequalifying when it’s high enough to qualify for decent rates (often 640 or above).
• Checked your rates with multiple lenders: You should compare rates with at least four lenders. Many let you see your rates with a soft credit check. Hold off on a full application until you’ve found rates that suit your budget.

If you’re unhappy with the rates you see during the prequalification process, wait a few weeks and try again. Home equity loans aren’t funded overnight anyway, so there’s no harm in extending the process to ensure the most savings.

Your LTV is also a consideration. Use our home equity loan calculator to estimate your LTV and how much of your equity you can borrow. If your LTV is above 85%, work on reducing your mortgage balance or increasing your property value before you apply for a home equity loan.

Do I qualify for the best home equity loans?

Home equity loan limits and rates vary by lender and by borrower. The best home equity loan is the one that gives you the lowest rate, best repayment terms, and highest borrowing amount for your credit profile.

Lenders determine your eligibility and interest rate by reviewing your credit score, income requirements, property types, and your desired LTV limit.

Credit scores

The higher your credit score, the easier it may be to get approved and qualify for the lowest rates. However, some lenders won’t approve borrowers below a certain minimum credit score. For example, Figure requires a credit score of 680 or above, and Spring EQ requires a minimum credit score of 640.

If you want to improve your credit score, the two largest contributors are your payment history and your debt-to-credit ratio. Your payment history makes up 35% of your score, so it’s crucial to ensure you make all of your payments on time.

Paying down your debt will lower your debt-to-credit ratio, which is 30% of your score, and you’ll see your score improve. This part of your score shows you have enough financial restraint to not use all the available credit, which indicates to lenders that you’re a responsible borrower.

Home equity

Home equity lenders typically allow borrowers to take out a loan up to 80% of their loan-to-value (LTV).

To access more cash, you can work on building your home equity before applying for financing. You build equity every time you make a mortgage payment and whenever you make home improvements.

Some home improvements increase your home equity more than others, so before you decide which project to tackle next, make sure to choose one that will benefit your home’s overall value.

Prequalify and compare

Another way to ensure you get the best home equity loan rates is to prequalify with three to five different lenders. Prequalifying enables you to review several different offers from lenders. Once you receive offers, compare rates, terms, fees, and other costs.

Other considerations

In addition to considering rates and fees, it also helps to weigh the following when trying to get the best possible home equity loan.

• Property type: Some lenders only allow you to take out home equity loans for specific property types.
• Borrowing amounts: Do you need a small home equity loan or a larger one? Does your lender have a set minimum loan limit? Prioritize loans that let you borrow enough without forcing you to take on more debt than necessary.
• Added fees: Will you need to pay origination fees or annual fees? What about closing costs? Home equity loan fees can increase your borrowing cost, so prioritize lenders that minimize these extra charges.
• Funding times: How soon do you need your loan? Are you willing to sacrifice a lower rate for faster funding? If not, can lenders offer digital or drive-by appraisals that shorten the underwriting period and allow faster access to cash?
• Income: Potential lenders like to see that you have a steady income and have been in your job for at least one year.

Because loan offers are subjective, the best home equity loan for you may not be the best for someone else. Wait to apply until your credit and DTI are healthy, and then prioritize home equity loans and HELOCs that best meet your individual needs.

Is a home equity loan my best option?

To decide whether a home equity loan is your best option, consider your reason for withdrawing money, the tax implications, and your personal risk tolerance.

What is the money for?

Most people use a home equity loan for major expenses, including renovations, educational expenses, or debt consolidation. This is often advantageous because interest rates tend to be lower than other options, such as credit cards.

The main drawback of using a home equity loan for major expenses is that it comes with the risk of foreclosure if you can’t make your payments. Therefore, only take out a home equity loan if you’re confident you can repay it.

Tax implications

According to the IRS, you can deduct the interest on your home equity loan if you use it to “buy, build, or substantially improve” your home. This works for borrowers who itemize deductions, not those who take the standard deduction. So if you plan to use your loan to improve your house, consider the potential tax benefits.

As a precaution, always check with a certified financial planner or accountant first to make sure you avoid common pitfalls and maximize all potential tax advantages. 

How do home equity loan rates compare to HELOCs?

Home equity loans and HELOCs both turn your home equity into cash. The primary difference between them is that home equity loan funding is one and done, while HELOCs give you ongoing access to credit.

Interest rates vary between each financing product. Home equity loan rates tend to be fixed, and HELOC rates are often variable. Every now and then, you’ll find a lender—Figure, for example—that offers borrowers the best of both worlds with fixed-rate HELOCs.

Home equity loan and HELOC alternatives

Home equity loans and fixed-rate HELOCs aren’t the only ways to borrow money when you need it. If you’re unsure which is right for you, it may be beneficial to compare these financing tools to variable-rate HELOCs, personal loans, or credit cards. 

• Cash-out refinance: With a cash-out refinance, you replace your first mortgage with a larger one and pocket the difference in cash. The upside to cash-out refinancing is that you only make one payment instead of two, as you would with a home equity loan or HELOC. The downside is that you extend your mortgage term.
• Personal loan: Like home equity loans, personal loans allow you to borrow a lump sum, but personal loans don’t require you to offer your home as collateral. Personal loan rates can be as low as home equity loan rates, but it’s not unusual to see rates in the 10% to 30% range.
• Credit card: If you don’t need to borrow much, you might consider using a credit card to cover expenses. Credit cards could allow you to earn substantial rewards or cash back, but rates can be much higher than those on home equity loans and HELOCs. Be careful if you don’t think you can pay down your balance quickly.

Responsible debt management

Regardless of your financing option, aim to manage your debt responsibly. You can do that by minimizing the amount of debt you take on and comparing interest rates to ensure you get the best possible rate. Estimate your monthly payments before choosing your financing type.

Consider the pros and cons before taking out a loan or line of credit using your home as collateral. Some expenses, such as renovating your home and improving its value, can be worthwhile, especially considering the tax advantages. 

However, if you’re concerned about your ability to make payments, it’s best to wait until you’re ready. This will help you avoid losing your home to foreclosure.

How does a home equity loan work?

A home equity loan works by allowing you to borrow a lump sum using your home’s equity as collateral. You can calculate your home equity by taking the current market value of your house and subtracting the amount of money you still owe on your mortgage. 

According to the Federal Trade Commission, most lenders will let you borrow up to 80% of this number. Once you choose a lender, apply for a home equity loan, and get approved, you’ll get the money as a lump sum in your bank account. Then you’ll pay back the loan with interest in equal monthly payments for the term of your loan. 

Home equity loans are also known as second mortgages. Like a primary mortgage, a lender can foreclose on your home if you don’t make your monthly payments on time. 

How to apply for a home equity loan

Applying for a home loan isn’t much different from applying for a primary mortgage. Knowing what to expect can make the process smooth. 

These are the steps to apply with most lenders.

1. Compare rates. Before submitting a home equity loan application, it’s wise to shop around and see what rates lenders offer. Look for lenders that allow you to get a rate quote without affecting your credit score.
2. Choose a lender. Once you’ve compared rates and loan terms, it’s time to choose a lender. If you’re weighing a bank against an online lender, remember that online lenders may offer a streamlined application process and faster funding. 
3. Organize your documents. You’ll need certain documents to apply for a home equity loan, including recent pay stubs, bank statements, and last year’s tax forms. Getting these together before you apply can save time later. 
4. Submit the application. Many lenders will allow you to apply for a home equity loan online. You must include information about your home, mortgage, income, debts, and assets. The same applies if you’re applying for a home equity loan in person at a bank.
5. Complete the appraisal if necessary. Your lender will let you know whether it requires an appraisal for a home equity loan. If so, the lender will tell you what kind of appraisal it wants, when the appraiser will schedule it, and what you’ll pay for it. 
6. Review loan terms. If you’re approved for a home equity loan, you’ll have a chance to review the terms before signing off. This is your opportunity to ask questions or get clarification before committing to the loan. 
7. Close on the loan. If you accept the loan terms, the final step is signing the closing paperwork. Once your paperwork is complete, the lender can release the loan funds to you. If you’re looking for a fast home equity loan, it’s wise to check funding speeds before choosing a lender.

How have lenders used new technology to offer the best home equity loans?

The home equity loan industry has transformed in recent years. Now, many online lenders use technology and apps that make the loan process easier and more streamlined for consumers.

A benefit of using online lenders and digital applications is its convenience. Online lenders tend to distribute funds faster than traditional banks, and because they don’t have significant overhead, rates are competitive too.

The drawbacks include not getting the same personal interaction you would get at your local bank. If you value a longstanding reputation in your lenders, some online lenders are brand-new without the established reputations of many major banks.

Other new technologies

Other new technology includes blockchain, which helps to improve the speed of loan approvals and disbursements. It’s also much more secure and keeps borrowers’ private information safe.

With the emergence of AI in recent years, algorithms can instantly process consumer data to approve loans. AI can help lenders make more personalized offers than ever before.

FAQ

What’s the average home equity loan rate today?

As of July 2024, home equity loan rates averaged 8.59%, and HELOC rates around 9.71%. Pinning down an apples-to-apples comparison to your home equity loan rate is difficult because rates vary from lender to lender, loan to loan, and state to state.

When comparing home equity loan rates, a rule of thumb is to look at 30-year fixed-rate mortgages. Home equity loan rates are often higher than primary mortgage rates because they present more risk to lenders.  

How do I know whether I got a good home equity loan rate?

The easiest way to gauge whether you have a good home equity loan rate is to shop around. Reviewing rates for home equity loans with similar terms at other lenders can give you a framework for understanding where your rate falls in the range. 

Do interest-rate hikes affect my home equity loan rate?

Interest rate hikes can affect variable-rate loan products. A rate hike won’t trigger an increase if your home equity loan has a fixed interest rate. However, if you choose a variable-rate home equity loan or HELOC, rate hikes could make your loan more expensive. 

Are there limitations to how I use a home equity loan?

Most lenders allow for flexibility in using a home equity loan or line of credit. Common uses for home equity loans include debt consolidation, home repairs or improvements, emergencies, large purchases, and major expenses, such as a wedding. 

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

The waiting period to get funding once approved for a home equity loan can vary by lender. Online lenders, for example, may provide funding in a few business days. At traditional banks and credit unions, you might wait a few weeks for loan funds to be disbursed. 

What bank has the best home equity loan?

Choosing where to borrow a home equity loan is personal, so you must first determine which qualities or features you deem most important. Potential evaluation factors include customer service accessibility, the appraisal process, product options, and funding speed.

These elements work together to cultivate your lending experience, and they all play a role in helping you select the right bank or lender. You’ll also want to consider these standout features from our recommendations to help you decide:

Lender	Features
Figure	Digital appraisal process
Spring EQ	95% LTV limit
Navy Federal Credit Union	Exclusive member perks and discounts

How we chose the best companies for home equity loans

Since 2018, LendEDU has evaluated home equity companies to help readers find the best home equity loans and HELOCs. Our latest analysis reviewed 850 data points from 34 lenders and financial institutions, with 25 data points collected from each. This information is gathered from company websites, online applications, public disclosures, customer reviews, and direct communication with company representatives.

These data points are organized into broader categories, which our editorial team weights and scores based on their relative importance to readers. These star ratings help us determine which companies are best for different situations. We don’t believe two companies can be the best for the same purpose, so we only show each best-for designation once.

Higher star ratings are ultimately awarded to companies that create an excellent borrower experience. This includes offering online eligibility checks, cost transparency, competitive interest rates with no fees, flexible repayment plans, and unique benefits that support borrowers throughout repayment.