If you’re considering a costly project for your home like an addition, bathroom remodels, or roof replacement, you’re probably trying to figure out how to pay for it. Since most people don’t have all the cash to pay upfront, a home equity loan could be a good option.
A home equity loan can also be used to consolidate high-interest credit card debt, or even send your kid to college. Keep reading to learn more about how home equity loans work and which lenders have the lowest rates.
What is a Home Equity Loan?
With a home equity loan, a bank or lender uses the equity in your home to approve you for a set amount of money in a lump sum. Since this type of loan is similar to a traditional mortgage, it is often referred to as a second mortgage.
Unlike a home equity line of credit (HELOC), the interest rate on a home equity loan is fixed and doesn’t change throughout the life of the loan, which typically ranges from 5 to 15 years. The borrower makes monthly payments of the same amount to pay off the principal amount of the loan plus interest by the pay-off date.
To determine the equity you have acquired in your home, simply take its current assessed value minus any amount you still owe on your first mortgage. This is the amount of equity you may be able to borrow against in a home equity loan. Keep in mind though, that most banks don’t lend out this full amount. Eighty-percent loan-to-value (LTV) is the most common.
What to Know about Interest Rates
When you’re shopping around for the best home equity loan rates, you’ll want to decide how quickly you plan to pay off the loan. The most typical terms are 5, 10, or 15 years. With a 5-year home equity loan, you’ll get a better (lower) interest rate but your monthly payment will be higher. If you don’t have much extra in your monthly budget, you may want to opt for a 15-year loan or longer even though you’ll pay more interest in the long run. Don’t forget that different banks have different annual fees and/or upfront costs, so make you figure this amount into how much you can afford.
Your rate will also be dependent on your credit score. The higher your credit score, the lower your interest rate. When we discuss bank rates below, we assume the best rate the lender is willing to give based on a top tier credit score and a loan amount of $100,000.
Rates can vary based on your credit score, the market, your state, the length of the loan, and your loan amount. Banks typically give the best interest rates the more you take out in a loan because it is the most profitable for them. Keep in mind you’ll actually have to qualify for this amount based on the equity in your home, its value, and your credit score.
Since home equity loans are like mortgages, you’ll see their interest rates listed as an annual percentage rate (APR). Because of new federal regulations, some major banks, like Wells Fargo and Bank of America no longer offer fixed home equity loans and instead push HELOCs with variable interest rates.
Which Bank is the Best for Home Equity Loan Rates?
PNC Banks ranks at the top of our list with an interest rate as low as 4.04%. A|Since lenders have different qualification guidelines and loan limits, we’ve included six good options here to start your search for a home equity loan. These are the rates as of April 1st, 2019:
- 5-year – As low as 4.04% APR
- 10-year – As low as 4.34% APR
- 15-year – As low as 4.59% APR
- Options are also available for 20-year and 30-year loans. Rates are based on a loan amount of $100,000.
- 5-year – As low as 4.40% APR
- 10-year – As low as 4.79% APR
- 15-year – As low as 4.99% APR
- Options also available for 20-year and 30-year loans. Rates are based on a loan amount of $100,000-$499,999.
- 5-year – As low as 4.776% APR
- 10-year – As low as 5.59% APR
- 15-year – As low as 6.06% APR
- Options also available for 20-year loans. This lender lends up to 90% LTV.
- 10-year – As low as 4.89% APR
- 15-year – As low as 5.24% APR
- Rates are based on a loan amount of $50,000-$250,000. This lender only lends up to 70% LTV.
- 5-year – As low as 5.29% APR
- 10-year – As low as 5.49% APR
- Third Federal Saving loans may not be available in every state.
- 5-year – As low as 5.34% APR
- 10-year – As low as 5.59% APR
- 15-year – As low as 5.84% APR
- Rates based on a loan of 80% LTV or less. This lender will loan up to 90% LTV.
Of course, the above rates are subject to change, so it’s best to talk with a lending agent to discuss the most current rates and your specific terms.
If you’re considering using a home equity loan to purchase a second home or investment property, it’s always a good idea to connect with an experienced real estate agent as a first step in the process.