If you’ve built up equity in your home and are looking for a way to access that value, a home equity loan might be the solution you need. Whether you’re planning a major home renovation, paying off debt, or covering education costs, a home equity loan can provide you with the funds you need at a relatively low interest rate. But how do you choose the best one for your needs?
In this guide, we’ll take a closer look at the best home equity loans available, what to consider when applying, and how to get the most out of your loan.
What is a Home Equity Loan?
A home equity loan is a type of second mortgage that allows you to borrow money by leveraging the equity in your home. The amount you can borrow depends on how much equity you’ve built up in your property, which is determined by subtracting the amount you owe on your mortgage from your home’s current market value.
Home equity loans typically come with fixed interest rates and fixed repayment terms, which means your monthly payments will remain the same over the life of the loan. This makes them a great option for homeowners looking for predictable payments and a lump sum of cash.
Benefits of Home Equity Loans
There are several reasons why you might choose a home equity loan:
- Lower Interest Rates: Home equity loans often have lower interest rates compared to unsecured loans or credit cards because they are secured by your home.
- Lump-Sum Payment: Unlike a home equity line of credit (HELOC), which allows you to borrow and repay multiple times, a home equity loan gives you a lump sum of money upfront, which is ideal for large one-time expenses like home renovations or debt consolidation.
- Tax Deductible: In some cases, the interest on a home equity loan may be tax-deductible if the funds are used for home improvement purposes. Be sure to consult with a tax advisor to understand your eligibility.
- Fixed Interest Rates: Most home equity loans come with fixed rates, making them a good option for borrowers who want predictable monthly payments.
Things to Consider Before Applying for a Home Equity Loan
Before you apply for a home equity loan, there are several important factors to keep in mind:
- Loan-to-Value Ratio (LTV): Lenders typically allow you to borrow up to 80% to 85% of your home’s value. The higher your LTV, the more you can borrow, but this also increases the risk for the lender.
- Interest Rates: While home equity loans typically have lower interest rates than personal loans, they can vary depending on your credit score, the lender, and market conditions.
- Repayment Terms: Home equity loans typically offer repayment terms ranging from 5 to 30 years. While longer terms can reduce your monthly payments, they can also increase the total interest you’ll pay over the life of the loan.
- Closing Costs and Fees: Just like with your first mortgage, home equity loans often come with closing costs and fees, such as appraisal fees, origination fees, and title insurance. Be sure to factor these costs into your decision.
- Risk of Foreclosure: Since a home equity loan is secured by your property, failing to repay the loan could lead to foreclosure. It’s important to only borrow what you can afford to repay.
Best Home Equity Loans of 2024
If you’ve decided that a home equity loan is the right option for you, here are some of the best lenders offering competitive rates, flexible terms, and great customer service in 2024:
1. Discover Home Equity Loan
Discover offers competitive rates and a straightforward application process for home equity loans. They don’t charge any origination fees, making them an attractive option for those looking for an affordable loan.
- APR Range: 6.99% – 14.99% (Fixed)
- Loan Amounts: $35,000 – $150,000
- Loan Term: 10 to 30 years
- Fees: No origination fees, but closing costs may apply
- Credit Score Requirements: Minimum 620+
Discover also offers a 30-day satisfaction guarantee, which means you can cancel your loan within 30 days of closing if you change your mind.
2. Chase Home Equity Loan
Chase is one of the largest lenders in the country, and they offer a variety of home equity loan options with competitive rates. With flexible loan amounts and repayment terms, Chase is a good choice for homeowners looking for a trusted, reliable lender.
- APR Range: 6.49% – 9.99% (Fixed)
- Loan Amounts: $25,000 – $300,000
- Loan Term: 5 to 30 years
- Fees: No application fee, but closing costs apply
- Credit Score Requirements: Minimum 620+
Chase offers a range of loan options, and existing customers may benefit from lower rates and additional discounts.
3. U.S. Bank Home Equity Loan
U.S. Bank provides home equity loans with flexible terms and competitive interest rates. They offer both fixed-rate loans and fixed-rate option HELOCs, giving you more flexibility in how you manage your debt.
- APR Range: 6.49% – 8.74% (Fixed)
- Loan Amounts: $25,000 – $300,000
- Loan Term: 5 to 30 years
- Fees: No application fees, but closing costs apply
- Credit Score Requirements: Minimum 620+
U.S. Bank is a good option for borrowers who want the flexibility to choose between fixed-rate or adjustable-rate loans. They also offer competitive rates for those with excellent credit.
4. PenFed Home Equity Loan
PenFed Credit Union offers home equity loans with competitive rates and low fees. Their application process is quick, and they offer excellent customer service, making them a great option for homeowners seeking a reliable lender.
- APR Range: 5.99% – 9.99% (Fixed)
- Loan Amounts: $10,000 – $500,000
- Loan Term: 5 to 30 years
- Fees: No application fee, but closing costs apply
- Credit Score Requirements: Minimum 620+
PenFed is an ideal choice for borrowers with good to excellent credit looking for lower rates and flexible loan amounts.
5. Home Equity Loan from LightStream
LightStream, a division of SunTrust Bank, offers home equity loans with some of the lowest rates available, especially for borrowers with excellent credit. They provide quick funding and flexible repayment terms.
- APR Range: 6.99% – 19.99% (Fixed)
- Loan Amounts: $5,000 – $100,000
- Loan Term: 24 to 144 months
- Fees: No fees (no origination fees or prepayment penalties)
- Credit Score Requirements: 660+
LightStream is a great choice for those with excellent credit who are looking for competitive rates and a fast approval process.
How to Apply for a Home Equity Loan
The application process for a home equity loan is relatively simple, but there are a few things you’ll need to have in place before applying:
- Credit Score: Check your credit score before applying, as it will play a key role in the interest rates and terms you’re offered.
- Home Appraisal: You may need a professional appraisal to determine the value of your home and the equity available for borrowing.
- Debt-to-Income Ratio: Lenders will assess your debt-to-income (DTI) ratio to ensure you can afford the loan. Aim for a DTI ratio of 43% or lower to improve your chances of approval.
- Proof of Income: Be prepared to provide documentation of your income, such as pay stubs or tax returns.
Once you’ve gathered your documents, submit your application online or at your local branch. After approval, the lender will disburse the funds in a lump sum.
Conclusion: Choosing the Right Home Equity Loan
A home equity loan can be an excellent way to access the equity you’ve built in your home, but it’s important to shop around for the best rates and terms. Consider factors like interest rates, fees, loan amounts, and repayment terms when comparing lenders. With the right loan, you can make your home work for you and take care of major financial needs with ease.
For more information on home loans and other financial topics, check out NarkiHub, where we provide up-to-date resources to help you make the best decisions for your financial future.
References:
- Discover Home Equity Loans
- Chase Home Equity Loans
- U.S. Bank Home Equity Loan
- PenFed Home Equity Loans
- LightStream Home Equity Loan