Our Top Picks for Home Equity Loans for September 2021
- Discover – Best for Competitive Rates
- Regions Bank – Best for Flexible Repayment Terms
- BB&T – Best Fixed-Rate Borrowing Option
- SunTrust – Best for Quick Approval
- U.S. Bank – Best for Borrowers with Good Credit
- Citizens Bank – Best for Flexible Loan Amounts
- PenFed – Best for Non-owner-occupied Properties
Best Home Equity Loans Reviews
Discover Bank – Best for Competitive Rates
Home equity loan
APR
3.99%–11.99% (Fixed)
Loan amounts
$35,000–$200,000
APR
3.99%–11.99% (Fixed)
Loan amounts
$35,000–$200,000
APR
3.99%–11.99% (Fixed)
Loan amounts
$35,000–$200,000
- No application or appraisal fees or mortgage taxes due at closing
- CT, NC, NY, OK, TX residents are exempt from early payment fees
- Has around 60,000 no-fee ATMS throughout the U.S.
- Prepayment penalty of up to $500 applicable for 36 months after closing
- No information regarding discounts
Discover makes our list for its commitment to transparency regarding home equity loan fees. The online bank doesn’t charge any application, origination or appraisal fees. It also doesn’t require an upfront cash payment at closing.
Discover’s home equity loans have fixed interest rates that range from 3.99% to 8.99% for first liens, and 11.99% for second liens. You can borrow between $35,000 and $200,000 and choose a repayment term between 10 and 30 years.
Eligibility requirements
With Discover, you can easily see if you qualify for a home equity loan by providing some basic information before you formally apply. To qualify, you should have a good credit score of at least 620 and sufficient equity in your home.
As with most loans, the amount you can borrow will depend on your creditworthiness. Only borrowers with a credit score over 700 may qualify for loans over $150,000.
Once you’re ready to submit your application, you’ll get assigned a banker who will help you through the process. Closing on your loan won’t be a problem either, as Discover has an eClosing feature that allows borrowers to sign many of the closing documents before the physical closing.
Customer satisfaction
- J.D. Power 2021 Consumer Lending Satisfaction Study: 874/1,000 (#2)
- CFPB complaints (2018-2021): 94 complaints
While Discover wasn’t included in J.D. Power’s 2021 Primary Mortgage Satisfaction Study, it was rated second best in their 2021 Consumer Lending Satisfaction Study. Discover also has a low complaint ratio with the Consumer Financial Protection Bureau (CFPB), with only 94 HELoan-related complaints in the last three years.
Regions Bank – Best for Flexible Repayment Terms
Home equity loan
APR
From 3.0% with AutoPay or 3.25%–16% Fixed
Loan Amounts
$10,000–$250,000
Terms
7, 10, 15 or 20-year terms
Approval time
Not disclosed
APR
From 3.0% with AutoPay or 3.25%–16% Fixed
Loan Amounts
$10,000–$250,000
Terms
7, 10, 15 or 20-year terms
Approval time
Not disclosed
APR
From 3.0% with AutoPay or 3.25%–16% Fixed
Loan Amounts
$10,000–$250,000
Terms
7, 10, 15 or 20-year terms
Approval time
Not disclosed
HELOC
Loan amounts
$10,000–$500,000
Terms
10-year draw, 20-year repayment
Approval time
Not disclosed
Loan amounts
$10,000–$500,000
Terms
10-year draw, 20-year repayment
Approval time
Not disclosed
Loan amounts
$10,000–$500,000
Terms
10-year draw, 20-year repayment
Approval time
Not disclosed
- Rates starting at 3.00% APR with autopay
- HELOC can be converted into a fixed-rate loan
- Introductory rate of 0.99% for the first six months of a HELOC
- Rate discount of 0.25% to 50% when you enroll for automatic payments
- No closing costs
- Property tied to the loan must be in a state with a bank branch
- Branches only in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, and Texas
Regions Bank offers fixed-rate home equity loans with no closing costs starting at 3.25% APR or 3.0% APR for borrowers with good credit who enroll in automatic payments. Loan amounts range from $10,000 to $250,000 with 7, 10, 15, or 20-year repayment terms.
In addition to home equity loans, Regions Bank offers HELOCs. Lines of credit start at $10,000 and go up to $500,000, with 10-year draw and 20-year repayment periods. HELOCs have a fixed introductory rate of 0.99% for the first six months, after which it shifts to an adjustable rate between 3.75% and 10.75% APR.
Regions Bank will cover full closing costs for credit lines of $240,000 or less. If your line of credit exceeds $240,000, Regions Bank will contribute up to $500. However, if a line of credit is terminated within the first 24 months of the opening date, the bank will transfer these costs to the borrower. Closing costs may range from $150 to $2,000.
Region’s website suggests the lender will not accept LTV ratios higher than 89% for first and second mortgages for primary residences, and 75% for secondary residences.
Eligibility requirements
To be eligible for its home equity products, your property must be located in a state where Regions has a branch. The bank currently has physical branches in 16 states, including Texas, Tennessee, South Carolina, North Carolina, Louisiana, Mississippi, Missouri, Kentucky, Illinois, Indiana, Iowa, Georgia, Florida, Arkansas and Alabama.
Customer satisfaction
- J.D. Power 2021 Primary Mortgage Satisfaction Study: 809/ 1,000 (Above average)
- CFPB complaints (2018-2021): 17
Regarding customer satisfaction, Regions bank ranked above average in J.D. Power’s 2021 Primary Mortgage Servicer Satisfaction Study. The bank also has a low complaint ratio with the CFPB, with only 17 complaints in the last 3 years.
BB&T – Best Fixed-Rate Borrowing Option
Home equity loan
APR
3.25%–16.0% (or state maximum)
Loan amounts
Not disclosed
Approval time
Not disclosed
APR
3.25%–16.0% (or state maximum)
Loan amounts
Not disclosed
Approval time
Not disclosed
APR
3.25%–16.0% (or state maximum)
Loan amounts
Not disclosed
Approval time
Not disclosed
- Fixed options may be available
- Get up to three simultaneous HELOCs of at least $5,000
- Covers appraisal fee
- Flexible repayment options
- Doesn’t openly disclose information regarding HELOCs.
- May charge prepayment penalty + closing costs for terminating a line of credit within 36 months
BB&T’s offers fixed-rate home equity loans with flexible repayment terms. The bank claims it will also pay your home’s appraisal fee, a benefit that could save you hundreds of dollars.
Current APRs, maximum loan amounts, repayment terms, closing costs and average time to approval may vary by region.
As for BB&T’s home equity line of credit, you can choose between fixed- and variable-rate options with zero-cost closing options. Its variable rates range from 3.25% to 16% APR, or your state maximum. The minimum amount you can request for HELOCs is $5,000, however, the maximum you can borrow will depend on your creditworthiness.
BB&T makes our list because it’s the only lender that allows HELOC borrowers to get up to three loans of at least $5,000 simultaneously at a fixed-rate. They also offered flexible payment options including interest-only payments or 1.5% of the outstanding balance.
Prepayment penalties on lines of credit may apply if the account is closed within 36 days of opening. This could include any closing costs covered by BB&T, which could go all the way up to $10,000.
Eligibility requirements
BB&T does not specify its eligibility criteria for home equity products. Like other banks, it will look at your income, credit score, debt-to-income ratio, employment and loan-to-value ratio when determining your eligibility.
Customer satisfaction
- J.D. Power 2021 Primary Mortgage Satisfaction Study: 778/1,000 (Below average)
- CFPB complaints (2018-2021): 27
With 778 points, BB&T scored just below the national average of 787 in J.D. Power’s 2021 Primary Satisfaction Study. The company had 27 HELOC-related CFPB complaints between 2018 and 2021, which is low compared to other lenders.
BB&T and SunTrust Bank completed a merger in December 2019 and became Truist Bank. For the time being, each bank continues to offer loan products independently. However, BB&T clients can access funds through SunTrust ATMs at zero cost. SunTrust was rated above average in J.D. Power’s 2021 Primary Mortgage Satisfaction Study.
SunTrust – Best for Quick Approval
HELOC
APR
From 1.39% (prime) or 4.64% variable
Loan amount
$10,000–$500,000
Terms
10-year draw, 20-year repayment
Approval time
Within one business day
APR
From 1.39% (prime) or 4.64% variable
Loan amount
$10,000–$500,000
Terms
10-year draw, 20-year repayment
Approval time
Within one business day
APR
From 1.39% (prime) or 4.64% variable
Loan amount
$10,000–$500,000
Terms
10-year draw, 20-year repayment
Approval time
Within one business day
SunTrust Bank does not offer home equity loans, only home equity lines of credit which start at $10,000 and go up to $500,000 with a 10-year draw period and a repayment term of 20 years.
Variable rates start at 4.64% but can go all the way up to 18%. Suntrust allows clients to choose between fixed or variable-rate repayment options for each draw period. Funds up to the approved credit limit can be accessed via variable-rate check, mobile banking, online banking or physical branch.
SunTrust does not charge closing costs as long as your account is open for three years. However, if you pay your balance off early, you’ll have to reimburse SunTrust for any closing costs it incurred, which can average $2,000.
Eligibility requirements
Applying for a SunTrust HELOC is easy and can be completed online, by phone or at a local branch. However, all lines of credit must be closed at a local branch.
SunTrust’s home equity line of credit is available for owner-occupied, single-family primary residences, second homes and condominiums, and only in states where there are physical SunTrust branches.
Branches are located in Alabama, Arkansas, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and the District of Columbia. Investment homes, mobile homes and manufactured homes are ineligible for SunTrust’s HELOC.
While SunTrust Bank doesn’t disclose its eligibility requirements, a credit score of at least 620 and a low debt-to-income ratio are recommended.
Customer satisfaction
- J.D. Power 2021 Primary Mortgage Satisfaction Study: 792/ 1,000 (Above average)
- CFPB complaints (2018-2021): 6
SunTrust ranked as an above-average lender in J.D. Power’s 2021 Primary Mortgage Satisfaction Study. The bank also has a low CFPB complaint ratio for its home equity products, with just 6 complaints between 2018 and 2021.
U.S. Bank – Best for Borrowers with Good Credit
Home equity loan
APR
From 3.80% (with autopay)
Loan amounts
$15,000–$750,000 (up to $1 million in California)
Approval time
Three business days after closing
APR
From 3.80% (with autopay)
Loan amounts
$15,000–$750,000 (up to $1 million in California)
Approval time
Three business days after closing
APR
From 3.80% (with autopay)
Loan amounts
$15,000–$750,000 (up to $1 million in California)
Approval time
Three business days after closing
HELOC
APR
3.45%–8.60% (vary by region)
Loan amounts
$15,000–$750,000 (up to $1 million in California)
Terms
10-year draw (full-term not disclosed)
Approval time
Three business days after closing
APR
3.45%–8.60% (vary by region)
Loan amounts
$15,000–$750,000 (up to $1 million in California)
Terms
10-year draw (full-term not disclosed)
Approval time
Three business days after closing
APR
3.45%–8.60% (vary by region)
Loan amounts
$15,000–$750,000 (up to $1 million in California)
Terms
10-year draw (full-term not disclosed)
Approval time
Three business days after closing
- No closing costs, although initial escrow-related costs may apply
- 0.50% interest rate discount for enrolling in automatic payments
- Interest rate will never exceed 18% APR, subject to applicable state law
- 0.50% interest rate discount with automatic monthly payment option
- Apply online or request a call from a loan officer
- Interest-only payment may be unavailable for lines of credit
- Early closure fee of 1% or up to $500 applicable during the first 30 months
- Lines of credit only up to $1,000 in New York
U.S. Bank offers home equity loans and HELOCs, both without closing costs. Home equity loan rates start at 3.80% APR for both 10 and 15-year term repayment periods, while HELOC rates begin at 3.45% APR and go up to 8.60% APR.
Home equity loans feature fixed rates and a repayment term of up to 30 years. Loan amounts start at $15,000 and go up to $750,000 or $1 million for properties located in California.
While HELOCs feature variable rates, you have the option to convert a portion or the total amount of your balance to a fixed rate during the initial draw period, which is 10 years. During that time, minimum monthly payments are either 1% or 2% of the balance, but qualifying borrowers may have the option to make interest-only payments.
Lines of credit have an annual fee of $90, which you can waive for the first year by opening a U.S. Bank Platinum Checking Package. You may borrow from your line of credit by visiting a U.S. Bank branch, using checks, ATMs or with a Visa Access Card.
Eligibility requirements
U.S. Bank doesn’t disclose credit or income requirements for its home equity products. However, you’ll need a credit score of 730 if you want to get the best APR.
Customer satisfaction
- J.D. Power 2021 Primary Mortgage Satisfaction Study: 805/ 1,000 (Above average)
- CFPB complaints (2018-2021): 81
U.S. Bank ranked above average for customer satisfaction in J.D. Power’s 2021 Primary Mortgage Satisfaction Study. The number of complaints filed against its home equity products with the CFPB is relatively low, with only 18 complaints over the past three years.
Citizens Bank – Best for Flexible Loan Amounts
Home equity loan
Loan amounts
$10,000–$400,000+
Approval time
Not disclosed
Loan amounts
$10,000–$400,000+
Approval time
Not disclosed
Loan amounts
$10,000–$400,000+
Approval time
Not disclosed
HELOC
APR
2.50%–21% (with autopay)
Loan amounts
$17,500 min. or $5,000–$25,000 with GoalBuilder
Terms
10-year draw, 15-year repayment
Approval time
Not disclosed
APR
2.50%–21% (with autopay)
Loan amounts
$17,500 min. or $5,000–$25,000 with GoalBuilder
Terms
10-year draw, 15-year repayment
Approval time
Not disclosed
APR
2.50%–21% (with autopay)
Loan amounts
$17,500 min. or $5,000–$25,000 with GoalBuilder
Terms
10-year draw, 15-year repayment
Approval time
Not disclosed
- No appraisal fees or closing costs
- 0.25% off with AutoPay using a Citizens Checking account
- Choose full or interest-only payments during 10-year draw period
- Property must be located in CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI or VT
- $50 annual fee after the first year on standard HELOCs
Citizens Bank offers three home equity products: a home equity loan, a standard home equity line of credit and Citizens GoalBuilder HELOC. You can get a 0.25% rate discount on home equity loan products if you have a Citizens Bank Checking account and enroll in automatic monthly payments.
Citizens Bank offers 10, 15 or 20-year home equity loan terms. APRs start as low as 3.0% for clients who enroll in automatic monthly payments. Loan amounts range from $10,000 to over $400,000, although amounts may vary by location.
Citizens Bank also offers HELOCs with a 10-year draw period and a 15-year repayment term, and variable interest rates that range from 2.5% to 21% APR. Its standard HELOC has a $17,500 borrowing minimum, while the Citizens GoalBuilder HELOC offers credit limits from $5,000 to $25,000.
With Citizens Bank standard HELOC, lines of $200,000 or more are advertised to have the lowest interest rates with flexibility to draw when needed. You can also choose interest-only payments or principal and interest payments during the draw period.
You can access your funds using the Citizens Bank Mobile app, online banking or supplied checks.
Eligibility requirements
Citizens Bank does not disclose its credit requirements for home equity products. All products are subject to approval based on credit score, LTV and DTI ratios.
Eligible properties include owner-occupied 1- to 4-family properties or condominiums. Investment properties (non-owner occupied), co-ops, mobile homes, manufactured homes or properties on sale are ineligible. Additionally, property or flood insurance may be required.
Customer satisfaction
- J.D. Power 2021 Primary Mortgage Satisfaction Study: 810/ 1,000 (Above average)
- CFPB complaints (2018-2021): 57
Citizens Bank was rated above average in J.D. Power’s 2021 U.S. Primary Mortgage Servicer satisfaction study, ranking fifth among the best lenders in the industry with 810 points out of 1,000. The bank has had a total of 57 CFPB complaints related to home equity products in the last three years.
PenFed – Best for Non-owner-occupied Properties
HELOC
Loan amounts
$25,000– $500,000
Approval time
Not disclosed
Loan amounts
$25,000– $500,000
Approval time
Not disclosed
Loan amounts
$25,000– $500,000
Approval time
Not disclosed
- Covers most closing costs
- Lines of credit for owner-occupied and non-owner-occupied properties
- $99 annual fee waived if you paid $99 in interest over 12-months
- Residents of FL, LA, MD, MN, NY, TN, or VA are responsible for any city, county or state taxes
- Does not offer lines of credit for certain types of properties
- Properties must be fully livable and have no safety issues to be eligible
Pentagon Federal Credit Union, or PenFed, is a private financial institution that once served members of the military and government employees exclusively, but now extends membership to civilians. It operates in all 50 states and the District of Columbia.
As a PenFed member, you’ll have access to competitive interest rates starting at 3.75% for home equity lines of credit. Loan amounts range from $25,000 to $500,000, although the maximum amount you can borrow will depend on your combined loan-to-value ratio, location and creditworthiness.
You can switch from a variable to a fixed rate — or vice versa — during draw periods.
While PenFed covers most closing costs, which generally range from $500 to $8,500 depending on the amount of the credit line, there is an early termination penalty if you pay off your account within 36 months after closing. That means that you’ll have to reimburse PenFed for all of the closing costs they paid on your behalf.
PenFed’s home equity lines of credit also have a $99 annual fee, however, this can be waived if you pay $99 in interest within the first year.
Eligibility requirements
To apply for a PenFed HELOC, you must be a member of the credit union, which you can do by paying a small fee. Once you become a member, your eligibility will depend on your credit, DTI and LTV.
If your credit score is over 720, you can borrow up to 80% of your current equity for a condo and 90% for a single-family home (except in Texas, where the limit is 70%). If you have a credit score below 720, you can borrow up to 75% for a condo and 80% for a single-family home (except in Texas, where the limit is 75%).
Customer satisfaction
- J.D. Power 2021 Primary Mortgage Satisfaction Study: Not rated
- CFPB complaints (2018-2021): 13
While PenFed wasn’t included in JD’s Primary Mortgage satisfaction study for 2021, it’s known to offer competitive rates. According to the CFPB, the financial institution received a total of 67 complaints against mortgages in the last three years, and only 13 were related to home equity lines of credit. As the nation’s second-largest federal credit union, PenFed’s CFPB complaint ratio was low compared to other industry giants.
Despite the pandemic, PenFed had its strongest membership growth and loan volume in 2020. It made our list by putting customers first and offering payment assistance programs for members experiencing hardship, becoming the first Veteran Service Organization to offer a COVID-19 Relief Program.
Other companies we considered
The following lenders may have a higher complaint ratio with the CFPB, lacked price transparency or weren’t featured in J.D. Power’s 2021 Primary Customer Satisfaction Study, which means they didn’t make our top list. Nevertheless, they may have other features worth considering, especially if you’re interested in a home equity line of credit.
PNC
HELOC
Loan amounts
Up to 80% of your home’s value
Approval time
Not disclosed
Loan amounts
Up to 80% of your home’s value
Approval time
Not disclosed
Loan amounts
Up to 80% of your home’s value
Approval time
Not disclosed
- Switch between fixed and variable rates
- Minimum draw amount in Texas is $4,000
- Potential home renovation tax benefits
- $100 transfer fee applies each time borrowers opt for a fixed rate
- In Texas, only applicants with primary residences and LTVs under 80% are eligible
- Texas residents are not eligible for a VISA Choice Access card, only checks
Bank of America
HELOC
APR
1.99% for six months, then 4.7% variable (with autopay)
Loan amounts
$25,000–$1 million
Terms
10-year draw, 20-year repayment
Approval time
Not disclosed
APR
1.99% for six months, then 4.7% variable (with autopay)
Loan amounts
$25,000–$1 million
Terms
10-year draw, 20-year repayment
Approval time
Not disclosed
APR
1.99% for six months, then 4.7% variable (with autopay)
Loan amounts
$25,000–$1 million
Terms
10-year draw, 20-year repayment
Approval time
Not disclosed
- 0.25% rate discount for enrolling in AutoPay if you have a BoA checking or savings account
- Up to 0.75% rate discount for initial withdrawals (0.05% for every $10,000)
- Up to 0.375% rate discount for Preferred Rewards clients
- APRs can reach up to 24%
- Minimum draw of $25,000 is higher than other HELOCs
Figure
HELOC
APR
3.0% (with partner credit union membership + autopay)
Loan amounts
$15,000– $250,000
Approval time
Within 5 business days
APR
3.0% (with partner credit union membership + autopay)
Loan amounts
$15,000– $250,000
Approval time
Within 5 business days
APR
3.0% (with partner credit union membership + autopay)
Loan amounts
$15,000– $250,000
Approval time
Within 5 business days
- 100% online application can be approved in 5 minutes
- Up to 0.50% rate reduction for opting into a credit union membership
- 0.25% rate reduction for enrolling in auto pay
- 0.25% rate reduction for covering the origination fee
- Charges an origination fee of up to 4.99% of your initial draw, depending on state
- Minimum loan amount $15,000
KeyBank
Home equity loan
Loan amounts
Up to 90% of your combined LTV
Approval time
Not disclosed
Loan amounts
Up to 90% of your combined LTV
Approval time
Not disclosed
Loan amounts
Up to 90% of your combined LTV
Approval time
Not disclosed
HELOC
APR
Variable, with 3 options to lock fixed rates
Loan amounts
80.01%–90% of your combined LTV
Approval time
Not disclosed
APR
Variable, with 3 options to lock fixed rates
Loan amounts
80.01%–90% of your combined LTV
Approval time
Not disclosed
APR
Variable, with 3 options to lock fixed rates
Loan amounts
80.01%–90% of your combined LTV
Approval time
Not disclosed
- 0.25% rate discount for having a KeyBank checking or savings account
- Borrow up to 90% of your home’s value
- Flexible payment options including principal and interest, interest-only or fixed
- Doesn’t openly disclose APRs for their home equity loan
- Only services AK, CO, CT, ID, IN, MA, ME, MI, NY, OH, OR, PA, UT, VT and WA
Flagstar
HELOC
Loan amounts
$10,000–$500,000
Approval time
Not disclosed
Loan amounts
$10,000–$500,000
Approval time
Not disclosed
Loan amounts
$10,000–$500,000
Approval time
Not disclosed
- 1 and 2-unit properties, modular homes, planned unit developments and warrantable condominiums eligible
- Accepts debt-to-income ratios as high as 45%
- Mortgage and title insurance are not required
- $250 origination fee
- 3 and 4-unit properties are not eligible
- FHA, VA or USDA mortgages are not eligible
BMO Harris Bank
Home equity loan
APR
4.54%–7.49% (with autopay, varies by state)
Loan amounts
From $10,000 but cannot exceed 80% of your combined LTV
Approval time
Not disclosed
APR
4.54%–7.49% (with autopay, varies by state)
Loan amounts
From $10,000 but cannot exceed 80% of your combined LTV
Approval time
Not disclosed
APR
4.54%–7.49% (with autopay, varies by state)
Loan amounts
From $10,000 but cannot exceed 80% of your combined LTV
Approval time
Not disclosed
HELOC
APR
From 1.79% for six months, then from 3.54% variable
Loan amounts
Starting at $5,000
Terms
10-year draw, 20-year repayment term
Approval time
Not disclosed
APR
From 1.79% for six months, then from 3.54% variable
Loan amounts
Starting at $5,000
Terms
10-year draw, 20-year repayment term
Approval time
Not disclosed
APR
From 1.79% for six months, then from 3.54% variable
Loan amounts
Starting at $5,000
Terms
10-year draw, 20-year repayment term
Approval time
Not disclosed
- APR will never exceed 18% or the maximum permitted by your state
- 0.50% AutoPay discount
- Fixed-rate options for HELOCs
- $75 fee each time you convert your HELOC from a variable to a fixed rate
- Not all transactions are eligible for remote closing
- $75 annual fee each year after the draw period concludes
If your income has taken a hit, a Home Equity Loan may offer less expensive help.
Using a line of credit secured by home equity can aid you in your time of need. Click below to learn more.
Get Started
Home Equity Loans and COVID-19
Over a year into the pandemic, homeowners’ relief options have become limited and many major banks have temporarily stopped accepting new applications for cash-out refinance loans.
With unemployment numbers falling to 5.2% in August, the second all-time low since the start of the pandemic, some lenders are also requesting employment verifications multiple times — even as late as on closing day — to ensure borrowers’ creditworthiness. Others have increased their minimum credit score and down payment requirements and placed caps on the amounts they are willing to refinance.
Home equity loans have also been affected by these changes. Not only are banks increasing credit score requirements, but also limiting the amount of money they will lend for home equity products.
Home Equity Loans Guide
Home equity loans and home equity lines of credit (HELOCs) allow homeowners to borrow money against their home’s equity.
Borrowing against your home equity is one way to finance home renovations instead of using a home improvement loan. Both home equity loans and HELOCs are tax-deductible when funds are used for home renovations. Below we will discuss how to get a home equity loan and the different options available.
What is home equity?
Home equity refers to the difference between what you owe on your mortgage and the current market value of your property. It can increase over time as you pay down the principal and the value of your property goes up.
Ways to tap into your home equity
Aside from selling your home, you can access your home equity through home equity loans, home equity lines of credit or cash-out refinance loans.
For any of these loan options you need to have equity in your home, but they all have different characteristics and qualification requirements. When determining the loan amount you can borrow, most lenders will look at your credit report, combined loan-to-value ratio, debt-to-income and employment.
Home equity loans
A home equity loan is a fixed-term loan that uses the equity you’ve accumulated in your home as collateral. Often called a second mortgage, it allows borrowers to obtain a lump-sum amount that must be paid back in equal installments. The first mortgage is the primary loan on a property.
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.
Home equity loan rates can be lower than even those for the best credit cards or personal loans if you have a good credit score, but it puts you at risk of losing your home should you default or go into non-payment.
Home equity lines of credit
A home equity line of credit, or HELOC, is a type of credit line that allows a borrower to access funds based on the accumulated equity in their home, up to a predetermined sum. HELOCs can have fixed or variable interest rates.
Funds can be withdrawn during a draw period when you typically make interest-only payments. However, it’s also possible to make payments to the principal during the draw period. Draw periods often last 10 years and are followed by a 20-year repayment period. You pay the borrowed amount plus interest during repayment, as either a lump-sum or through a loan amortization schedule.
Most HELOCs feature a variable interest rate, although some lenders offer the option to convert to a fixed rate.
If you’re interested in borrowing for a one-time expense, getting a personal loan or a credit card could be a better alternative to a HELOC. Keep in mind that even the best personal loans are not tax-deductible for home renovations like home equity loans, HELOCs and home improvement loans. However, if you still feel it’s the best option, check out our guide on how to get a home improvement loan.
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.
How to choose the best home equity option for you
Determine the best choice for your needs
According to Eddie Wilson, president of the American Association of Private Lenders, the best way to use your home equity will depend on your situation. “The choice really comes down to how you’re going to use the money and how much of the money you’re going to use,” he said.
Go over the alternatives to access your home equity before making a decision.
Understand all of the costs involved
Regardless of which option you choose, make sure to understand all the costs associated with the loan or line of credit. If it’s an 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.
To afford those higher payments, it’s crucial that you look into your loan’s rate increase caps before you borrow.
Get professional advice before making a decision
“Don’t try to sort it through yourself,” said Troy Molitor, founder of Molitor Financial Group. “The best advice I would give people is to get advice.”
Home equity loans aren’t one-size-fits-all products. Your loan options will depend on your current mortgage, your property and the equity in your home.
And while the idea of accessing $50k or $100k of your home equity might be alluring, you need to make sure it’s the right move, especially during times of financial uncertainty. If you’re unsure how to proceed or which option is best for you, seek an expert opinion.
“Don’t go where you feel like you’re being sold,” said Molitor. “Look for someone that’s going to educate you, give you options and help you make a decision based on information.”
Best Home Equity Loans FAQ
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.
Contrary to home equity lines of credit, home equity loans provide a one-time lump sum amount at a fixed interest rate. The maximum loan amount you’re allowed to take depends on the value of your property and your credit history. Banks, credit unions and online lenders all offer home equity loans.
How does a home equity line of credit work?
Home equity lines of credit, or HELOCs, are lines of credit based on your property’s equity and your FICO score. Once approved, you may draw from that line of credit during a draw period, usually 10 years, after which you’ll have to repay the withdrawn amount, plus interest.
Contrary to home equity loans, which give you a one-time lump sum payout, HELOCS allow you to draw funds as needed.
Say you take out a $40,000 HELOC and use $10,000 for a home repair. You’ll pay interest only on the $10,000 and keep $30,000 available. Once you pay down the $10,000, you’ll again have $40,000 available.
Which is better, a home equity loan or a line of credit?
The choice between a home equity loan and a HELOC will depend on your financial needs, the equity in your property and your ability to repay debt.
If you’re looking for a lump sum amount of cash, home equity loans could give you access to more money than a HELOC would. On the other hand, HELOCs can give you borrowing flexibility and you would only pay interest on the funds you draw, much like a credit card.
How long are home equity loans?
Home equity loan terms can go from 5 to 30 years. HELOCs are usually structured to provide draw periods of up to 10 years and repayment periods of up to 20 years.
What credit score do you need to get a home equity loan?
While most lenders require a minimum credit score of 620 for home equity loans, some may impose higher minimums. As with most loans, the higher your credit score, the lower your interest rate. Aim to have a credit score of 740 or higher to get the best rates.
Is it worth getting a home equity loan?
For those in need of debt consolidation or looking to make costly home improvements, home equity loans can be worth it — if they have the means to keep up with payments. Home equity loans use the borrower’s home as collateral, so there is considerable risk involved. However, home equity loan rates can be lower than credit card rates, which — on average — carry an annual percentage rate (APR) of 14.65%.
How We Chose The Best Home Equity Loans
To narrow down our list of best home equity loans, we evaluated each company based on their loan features, price transparency, customer satisfaction, application process, reputation and other perks.
To vet our list of lenders, we looked into two main data sources: J.D. Power’s 2021 U.S. Primary Mortgage Servicer Satisfaction Study and complaint data as reported by the Consumer Financial Protection Bureau (CFPB).
This year, J.D. Power calculated each lender’s customer satisfaction score based on factors such as customer interactions, communication and billing, among others. The top lenders on our list received above-average scores in J.D. Power’s study, with most lenders ranking above 778 points in a 1,000 scale.
The CFPB collects complaints about consumer financial products and services, including home equity loans. We used data that reflect all home equity loan-related complaints from 2018 to 2021. Our list of top home equity lenders features companies with less than 100 complaints.
Some home equity loan lenders that didn’t make our final cut include:
- Frost
- Alliant
- Guaranteed Rate
- Connexus Credit Union
- Bethpage Federal Credit Union
Summary of Money’s Best Home Equity Loans of 2021
- Discover – Best for Competitive Rates
- Regions Bank – Best for Flexible Repayment Terms
- BB&T – Best Fixed-Rate Borrowing Option
- SunTrust – Best for Quick Approval
- U.S. Bank – Best for Borrowers with Good Credit
- Citizens Bank – Best for Flexible Loan Amounts
- PenFed – Best for Non-owner-occupied Properties
