Rates & Fees
Best Home Equity Loan Services
Why Get a Home Equity Loan?
We’ve been reviewing home equity loans for seven years. For our most recent update, we spent 40 hours comparing lenders’ rates, terms and eligibility requirements. The average rate for a home equity loan or line of credit (HELOC) is about 5.3%. To get the best rates, you need an excellent credit score, 740 or higher. With a credit score around 630, you’ll qualify for rates around 9%. Lending Tree is our top choice because it offers the most options and has the most tools and features. This service can help you find lenders in any part of the country. Not all the lenders we reviewed are available in every state, but Lending Tree can help you find home equity loans and HELOCs from lenders that serve your state.
Best Overall Home Equity Loan - Lending Tree
Lending Tree offers the quickest path to getting multiple loan offers. While not a lender itself, it can find you loans in your state.
Best for Low Fees - Bank of America
Bank of America typically doesn’t charge a closing fee or an application fee for its HELOCs. There is no annual fee, and variable rates can be converted to a fixed rate.
Best for HELOCs - TD Bank
If you’re looking for a HELOC, TD Bank is the best choice. It has the longest repayment period, and there’s no required withdrawal when closing.
Best for Seniors - Chase
A home equity line of credit (HELOC) from Chase can help seniors tap into their equity while giving them the flexibility to use that money only when they need it. Chase has low rates, and its HELOCs have a 10-year draw period with a 20-year repayment window.
Best for Poor Credit - Wells Fargo
Most lenders prefer credit scores in the 700s, but Wells Fargo can issue HELOCs to borrowers with scores in the 600s.
Why Trust Us?
We spent 40 hours contacting the lenders we reviewed, comparing rates and terms, and reading through the fine print to find fees. We looked for lenders that have good reputations and multi-state presences. The lenders we included represent a small cross section of the available options. We included Lending Tree, which is not a lender itself, to help you find other options. You can also check out the options at your local bank or credit union – it may offer membership discounts or other advantages.
We looked for lenders that don’t charge application and closing fees. These can be as much as 5% of your loan, so not having them helps you fully tap your home’s equity.
Another thing worth considering is the loan-to-value ratio of your home. When you get a home equity loan or line of credit, it combines with your existing loan. Lenders typically look for a combined LTV of 80% or less, though some lenders accept LTVs as high as 90%. For example, if you still owe $140,000 on a home with an appraised value of $200,000 and want a home equity loan worth $25,000, the combined LTV would be 82.5%, so you would need to find a lender that accepts LTVs higher than 80%.
How We Tested
Because each loan is different and depends on factors that vary from borrower to borrower, we averaged each lender’s rates and terms together to create scores that represents where it stands compared to the rest of the industry. Any company with a B or higher has offers that are better than the industry average.
We’d like to stress again that rates change depending on a variety of external factors, and the rates and terms you get depend a lot on your credit and income as well as the amount of equity you have in your home. These grades are meant as a jumping-off point to help you make an educated decision.
We also took stock of the educational tools and customer service each lender offers. These resources can give you a better idea of how a home equity loan works and ways to get a better rate.
Home Equity Loans vs. Line of Credit
There are two ways to take advantage of the equity you’ve built in your home. A home equity loan is a lump sum, while a home equity line of credit (usually called a HELOC) lets you take a little out at a time. Think of it as the difference between a loan and a credit card. With a credit card, you have a limit but only pay back what you put on it.
A HELOC may seem more attractive because of its flexibility, but a standard home equity loan also has some advantages, mainly that the interest rate is fixed. HELOCs usually have variable rates and can be subject to shifts depending on external economic factors.
Standard home equity loans have terms that range from five to 15 years. A HELOC has a draw period of up to 10 years, during which you can use the line of credit. After the draw period, you have up to 20 years to repay. Some HELOCs let you make interest-only repayments during the draw period.
How Does a Home Equity Loan Work?
A home equity loan, more often known as a second mortgage, lets you borrow against the value of your home. You build equity in your home by paying down your mortgage as well as by the increases in the property value and any renovations you make to the house.
For example, if you bought a $200,000 home and have paid off $150,000 worth of the first mortgage, that $150,000 represents your equity and is the amount you can tap into with a home equity loan or line of credit.
With lower rates than a credit card or personal loan, tapping into your home equity can give you the money you need for home repairs or to pay for a child’s schooling.
Benefits & Drawbacks of Home Equity Loans
You can use the money from a home equity loan for just about anything. But it’s best to think about it as spending your savings. By tapping into your home’s equity, you’re using up an investment that you’ve been building up. It shouldn’t be used frivolously, nor is it a particularly good idea to use it to pay other debts. The best use is for remodeling or repairs, something that will add more value to your home. Many people also use home equity loans to pay for a child’s education.
One advantage of home equity loans and HELOCs is that the interest rate is often lower than personal loans and credit cards. HELOCs usually have lower initial rates than a fixed-rate loan, but HELOCs have variable rates that may end up higher by the time you’ve finished paying off your balance.
Unlike credit cards, there are often additional fees, such as closing costs. Not all the lenders we reviewed charge these, but many do. Some don’t charge them unless you pay off your loan early. Other fees, such as application fees or yearly maintenance fees, vary by lender.
When taking out one of these loans, you need to make sure you can adequately make payments. These loans are secured with your home, so any default means your home may be foreclosed. HELOCs may seem less risky, but if fully tapped, a high credit limit of $100,000 will leave you with large payments when the repayment term begins. Always make an honest assessment of your ability to repay before taking out a home equity loan or HELOC.