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.
What Fees Can You Expect With a Home Equity Loan?
Home equity loans come with a variety of fees attached, though they vary by lender. Many lenders allow you to roll the closing costs into the loan. Here are some of the most common fees you can expect to see when you apply for a home equity loan or home equity line of credit:
Origination Fee: This fee is charged for processing the application. Most lenders we reviewed don’t charge origination fees. If a lender charges this type of fee, it can be up to 1 percent of your loan cost. Some lenders let you choose between an early closure fee or an origination fee.
Appraisal Fee: The lender will appraise your home to determine how much it is worth and how much equity you have in it. The appraisal also determines your loan-to-value (LTV) ratio – the amount you owe divided by the value of the property. Lenders won’t let you borrow more than 85 percent of the LTV. Appraisal fees vary depending on the type of appraisal. A desk appraisal, done by an automated program, or a drive-by appraisal can cost up to $500. A more exhaustive appraisal, which may be worthwhile if you’ve done a lot of work on your house, can cost up to $1,000.
Title Search: Lenders perform this search to verify the title of the home is in your name and there aren’t any liens or other outstanding issues. This can cost from $100 to $250.
Do You Have to Get an Appraisal for a Home Equity Loan?
The short answer is yes. To get an accurate read on your home’s value and the amount you’re eligible for, the lender will likely have your home appraised. This can cost from $50 to $500, depending on the type of appraisal the lender uses. This can be paid upfront or rolled into the loan.
Like many things associated with lending, there are levels of complexity, and some lenders may not order an appraisal unless your home exceeds a certain value.
Existing Appraisal: In the rare case you get a home equity loan on a mortgage that’s between six months and a year old, the lender may use the appraisal for that loan. There will be a small fee to recertify the appraisal, but it can be as little as $150.
Desktop Appraisal: This is an automated method of home appraisal. The lender uses software that comes back with a value based on comparable recent sales. The program includes a confidence score that shows how closely it represents the market value. This is often used for homes with a high amount of equity. A desktop appraisal can cost between $75 and $200.
Drive-by Appraisal: This involves an appraiser stopping by and taking pictures of the exterior. The rest of the appraisal consists of taking information from similar sales and comparing those values with that of your home. One drawback of a drive-by appraisal is it may not accurately reflect your home’s value.
Complete Appraisal: This is the most thorough type of appraisal, and it involves an exterior and interior inspection of your home. It is the most costly type of appraisal, running between $300 and $500.
How Long Does it Take to Get Approved for a Home Equity Line of Credit?
Approval on a home equity loan or line of credit usually takes between 30 to 45 days. In some cases in can take as little as two weeks. A lot depends on the specifics of your application, how many documents you need to provide and the type of appraisal the lender needs to do.
The underwriting process is virtually the same as for a regular mortgage. The lender will review you finances and see if you meet their requirements. And you’ll have to provide the same types of documents you did when you got the first mortgage.
These documents include:
The deed to your home
You current pay stub
The last two years of tax returns, along with any additional schedules if you’re self employed
Mortgage statement showing the outstanding balance
A valuation of your property
A list of payoffs if you’re using the loan to consolidate debt
If you have as much of this documentation ready when you apply, you can streamline the process. In general, the requirements for a home equity loan or HELOC aren’t as standardized as those of a regular mortgage, so some of these requirements will vary depending on the lender you choose.
Many lenders offer online applications. This can speed up the process, and you’ll usually get approved in a few days, though the actual underwriting process takes longer. With an online application you’ll still need to provide W-2 forms, paystubs and other documents.
How Do You Increase the Equity in Your Home?
A home equity loan or line of credit is one of the reasons to build equity in your home. You can tap the equity in the future to consolidate debt, make repairs or make other big purchases. However, you don’t need to be thinking of a loan to benefit from improving your equity, and there are many things you can do to raise your home’s value. Equity usually increases in one of two ways: your debt decreases or the property value increases.
A large down payment is one of the easiest ways to get equity. A down payment is a part of the home you already own, and if you put down 20 percent or more, you’ll avoid paying for private mortgage insurance. Opting for a 15-year mortgage is another way to quickly build equity. Your monthly payments will be higher, but you’ll usually get a lower rate and can start chipping away at the principle faster than with a 30-year mortgage.
Depending on external factors, your property value may increase naturally. However, it’s a bad idea to peg your hopes on this because home prices tend to be cyclical. There are other ways to increase your home’s value that you can control. Making improvements, internally and externally, can increase your home’s worth. Remodel Magazine, lists common improvements and the expected return on the costs of those improvements.
Can You Sell Your Home If You Have a Home Equity Loan?
The short answer is yes you can. Having a home equity loan or line of credit doesn’t prevent you from selling your home. Like all loans, you pay them off as part of the sale. This means the proceeds from selling your home go to pay off the original mortgage and then the home equity loan, with any leftover coming back to you.
For example, if you sell your home for $250,000 and have $50,000 left on the original mortgage and $80,000 on a home equity loan, after selling, you’d pay off both those loans and have around $120,000. There’s no guarantee your home will cover the loans completely though. Even so, you’re obligated to pay both and may have to negotiate with both lienholders. If your home value has decreased and is worth less than the mortgage and home equity loan, you may not be able to complete the sale.
It's a good idea to do some prep work before you begin selling. Before listing, make sure you’ll get enough from the sale to fulfill your obligations. Get a payoff quote from your mortgage holder. Consult a realtor to see what price you should list at and if it's worth selling now.
Is Using Home Equity for Debt Consolidation a Good Idea?
One of the many reasons for getting a home equity loan is to consolidate debts. By tapping into the equity you’ve built in your home to pay off other debts you’ve accumulated, you may save some money in the long run. The interest rate on a home equity loan is typically lower than that of a debt consolidation loan.
A home equity loan can help you simplify your credit card debt situation. If you have multiple credit cards with high balances, paying them off with a home equity loan leaves you with one monthly payment and a lower rate. The one drawback may be that the home equity loan can take longer to pay off, but over the long term, you’ll end up saving money.
It’s worth considering using home equity to consolidate debt if you can pay it off in five years or less and your debt is less than half of your gross income. If you don’t meet these criteria, you may want to explore other options, including debt consolidation programs or even bankruptcy.
When you use a home equity loan to consolidate your debt, you should also take stock of your spending habits. Otherwise, you might fall back into the same pattern that led you to needing to use your home equity to consolidate the debt. Consider using personal finance software to create a budget.
What Can You Use a Home Equity Loan For?
A home equity loan or line of credit can give you a financial boost, but you shouldn’t go into one without a plan. Home equity loans have many uses, but depending on how much you currently owe on your primary mortgage, it could overextend your finances. If you’re looking for funds for any of the following, it may be a good option:
Home Improvements: This is the most common reason to take out a home equity loan or line of credit. The benefit is the improvements you make can increase your home’s value, which is good if you plan on selling soon. Often, things like new carpet or flooring and improvements to the kitchen or bathroom add the most value.
Paying for Education: Using your home equity to pay for your child’s or your own education can be a good idea. Often, you can get a lower rate than you would on a student loan through a private lender. However, you should compare the rates you’re eligible for before using a home equity loan for education.
Debt Consolidation: You can use home equity to pay down credit card bills. As outlined above, there are pros and cons to this approach, but if you have good credit, you can save substantially.
Personal Expenses: Most financial advisors caution against using home equity for expensive vacations or things like boats. It would be more prudent to use home equity to invest than to spend on extravagant things that might come back to bite you.
How Much Can I Borrow on a Home Equity Line of Credit?
The amount you can borrow with a home equity line of credit (HELOC) depends on a variety of factors. The primary one is how much equity you have in your home. The simple way to calculate that is to find out how much your home is worth and subtract your current mortgage balance.
Another factor that influences how much you can borrow is the lender’s loan-to-value (LTV) requirements. Basically, this is the percentage of your home’s value it’s able to lend. Most lenders have LTVs that range between 75% and 90%. So if you have a home worth $200,000 and the lender has an 80% LTV limit, you could get up to $160,000 on a HELOC. The actual amount depends on your mortgage balance. In the above example, if you have $80,000 left on your balance, you’d be eligible for a HELOC worth $80,000.
Unlike a standard home equity loan, which is a lump sum, HELOCs function like credit cards, where you can withdraw a little at a time. HELOCs have a variety of fees, including standard closing costs. You’ll also likely have to maintain a minimum balance. Most HELOCs have a minimum draw amount, but it's possible to get this waived.
Are There Home Equity Loan Programs for Veterans?
While there’s no specific VA home equity loan, you can get a standard home equity loan or HELOC with a VA mortgage. The application process is the same as for a home equity loan on a standard mortgage, and you pay all the standard closing costs and appraisal fees. Keep in mind that lenders typically have requirements on how much equity you must have in your home, usually 20% or more. Because VA mortgages don’t have down payment requirements, it may take longer for you to build up the necessary equity.
Though there’s no home equity loan program, the VA does offer a cash-out refinance program that in some ways approximates a home equity loan. A cash-out refinance replaces your current mortgage and gives you the equity you’ve built in cash. Often, a cash-out refinance has a lower rate than the initial mortgage. One of the main differences between a home equity loan and a VA cash-out refinance is the home equity loan requires a completely separate payment and has its own terms and rates.
Depending on what you need to tap into your home equity for, a standard home equity loan or HELOC could be a better option than the refinance. These are private loans and not guaranteed by the VA, so you have to meet the lender’s requirements to be eligible. This includes having a credit score of at least 620 and meeting the lender’s specific debt-to-income, work history and income requirements.
Home Improvements That Increase Home Value
One way to increase your home’s value is to make improvements. Depending on what you need the money for, you can make these improvements either before or after getting a home equity loan or line of credit. However, some home improvements increase value more than others.
One of the easiest ways to improve your home’s value is to update the kitchen. Even simple changes, such as painting or refinishing cabinets, can raise the value. Often, you’ll see a great enough return on investment from these small changes and won’t need to take on a full-scale remodel.
Bathroom renovations are similar – small improvements can have a big return on investment. You don’t need to go crazy and redo the whole thing since replacing vanities or other fixtures increases value by a great deal.
One small way to ensure your home is worth as much as possible is by adding curb appeal and keeping up on maintenance. Your home’s value won’t dramatically increase if you add a new roof, but having an older roof can depreciate the value and might put off buyers. Likewise, modest landscaping goes a long way to improve your home’s appearance. Strategically placed trees and shrubs can also help cool your home, contributing to lower energy costs.
It’s common to tap into home equity to fund renovations, so some of this advice might seem counterintuitive. The main takeaway is that small improvements can ensure your home is worth as much as possible.
Tax Law Affects Home Equity Deductions
Tax season is approaching, and recent changes to our country’s tax laws have affected the way home equity loan tax deductions work. The primary changes affect the interest deduction and adjust the limit on the loan balance you can deduct interest on.
Previously, you could deduct interest no matter how you used your home equity loan, but the 2017 Tax Cuts and Jobs Act changed that. From 2018 through 2026, you can only deduct interest if you use your home equity loan or HELOC to make improvements to your home. You can’t deduct the interest if you use the loan to pay off debt or for other personal expenses. This doesn’t affect the ways you can use your home equity loan or HELOC – you can still use the money however you want – but the interest isn’t tax deductible in some cases.
The law also changed the total mortgage balance you can deduct interest for. Previously you could deduct interest on a home worth up to $1 million, or $500,000 if you were married filing separately. The new law reduces this limit to $750,000, or $370,000 if you’re married filing separately.
Keep in mind that the balance restriction applies to the combined amount of your mortgage and home equity loans. So if you have a home worth $500,000 and take out a home equity loan for $300,000, you can only take a deduction on the interest of $750,000 of the loan, provided the loan is used on home improvements and not for something like consolidating your debt.
The IRS doesn’t have a form to provide any information about how you use your home equity loan, so it's a good idea to keep any receipts for home improvements made with proceeds.
Home Equity Mistakes to Avoid
Getting a home equity loan is relatively straightforward if you meet most of your lender’s criteria. Still, these loans are not without their downsides. Here are a few things to watch out for when looking at home equity loans:
Unpredictable income: If you freelance, work part time or do gig-economy work like drive for a rideshare service, you may have a harder time getting approved. Lenders tend to prefer borrowers with predictable income. It's not impossible, but you have to provide a lot more income documentation than if you work a steady job, including up to two years of tax returns.
Unsecured debt to secured debt conversion risks: One of the most common reasons for getting a home equity loan is to pay off credit card debt. A home equity loan often has a lower interest rate, but if you’re unable to make payments, you risk losing your home. If you’re struggling to make payments on your credit cards, consider debt settlement instead of risking your home.
Home value fluctuations: Homes tend to increase in value, but that’s not always true. Local real estate price fluctuations can result in lower home values, especially if external economic factors impact where you live. It's certainly possible to end up underwater, owing more than your home is worth. The more equity you keep in your home, the better insulated you are against any market downturns.
Home Equity Loan Do’s & Don’ts
Having equity in your home is never a bad thing, but just because you’ve built up equity, it doesn’t mean you need to run out and tap into it. Here are some do’s and don’ts to consider before you take out a home equity loan or HELOC:
Do know how much your home is worth. Get an appraisal so you have a good idea of your home’s value. This can give you a clearer idea of how much equity you actually have. Home values rise and fall, and in the rare case your home is worth less than it was when you bought it, you should hold off.
Don’t use your home equity for luxuries. A boat, home theater or something else fun may seem enticing, but it's not the best use of the value you’ve built up. It may seem like these things are all paid for, but you’ll be making monthly payments. And if something should happen and you can’t make your home equity loan payments, you could risk losing your home.
Do shop around. Compare multiple offers – check out banks, credit unions and alternative lenders. Different lenders offer different amounts based on how much equity you’ve built up, but very rarely are you able to tap into the entire amount.
Don’t get a home equity loan if you plan on selling soon. Generally, if you sell, you need to have paid off most of the debts related to your home. If you get a home equity loan to make improvements for selling, it's wise to pay off as much as you can before you sell. If you do sell, you need to pay off the remaining mortgage and the home equity loan before you see any profit, so if you sell at a loss, you could still owe money.
What Does 2019 Hold for Home Equity Loans?
It’s always wise to shop around when you’re looking for a home equity loan or HELOC. You can compare offers and rates from different lenders and see which combination of rates and terms best fits your financial situation. However, if 2019 continues 2018’s trends of rising rates and home prices, it may make getting a traditional home equity loan a more attractive choice than a HELOC.
According to Bankrate, the current rate for a traditional home equity loan is 5.88%, and the average rate for a HELOC is 6.52%. Keep in mind that these are average rates, and a lot depends on your credit score and the lender you choose. It’s also likely that these rates will rise in 2019, since the Fed plans on raising interest rates – home equity rates will rise with those hikes.
With the uncertainty surrounding those rate hikes, a traditional home equity loan may be a wiser investment. Standard home equity loans have fixed rates – once you get approved, you can lock in the rate. HELOCs have variable rates, which means rising rates affect them more often. It’s better to choose the stability of a fixed rate when rates are on the rise.
Recent changes to the tax law also affect how you can deduct interest from a home equity loan or HELOC. In previous years, you could deduct all the interest from these loans. However, on taxes for the year 2018, you can only deduct that interest if the money went toward home improvements or repairs.
When to Take a HELOC Over a Home Equity Loan
If you’re looking to tap your home equity, deciding whether to get a line of credit or a standard home equity loan is one of many decisions you’ll be faced with. Here are some things to consider when deciding:
Fixed rate vs. adjustable rate: HELOCs usually have adjustable rates, which are based on the prime rate plus the lender’s margin. The rate on your HELOC will rise and fall on a monthly or quarterly basis as the Fed adjust rates. With at least one hike expected in 2019, it's likely rates will continue to rise. Typically, lenders offer introductory rates for the first few months or year.
Flexibility: A HELOC gives you more control over your money than a standard home equity loan. As a line of credit, you can draw and repay as necessary. With a standard home equity loan, the entire amount is disbursed at once. Typically, you’re required to make an initial draw of $10,000 or more with a HELOC. After that, you can use the HELOC as often as you want. In addition, you can make interest-only payments on a HELOC, something you can’t do with a regular home equity loan. This makes it more flexible and gives you some added protection in case you find yourself in a financial bind.
Repayment: With a standard home equity loan, you make payments soon after the loan has closed. With a HELOC, there is an initial draw period of 10 years, during which you can make interest-only payments. After that, you have between 10 and 20 years to repay the loan. Standard home equity loans have terms of up to 15 years.