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Best Home Equity Loans for July 2024

Best home equity loans
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updated: July 4, 2024
edited by Wendy Connett
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Whether you're paying for home improvement projects, consolidating high-interest debt or funding a small business endeavor, home equity loans can provide a source of funding that's literally as close as your front door. As they use your residence as collateral, they also tend to cost less than unsecured loans.

However, it’s your home that’s at stake if you default on payments, so it’s especially crucial to know everything you can about them before you start the process. Study the rates, of course. But as you get closer to making a decision, scrutinize each combination of loan amount and terms to determine where you’ll end up financially if you sign on the dotted line.

Here are some leaders we found in the space, plus the key facts you need to know when searching for the best home equity loans.

Our Recommendations

Home Equity LenderBest forLoan amountLoan termAPRCompared to National Average (8.67%)
Discover
Competitive rates
$35,000 to $350,000
10 to 30 years
7.74%
Lower
BMO Bank
Different loan options
$25,000 to $150,000
5 to 20 years
8.19%
Slightly lower
Third Federal Savings and Loan
Customer service
$10,000 to $200,000
5 to 20 years
7.29%
Lower
U.S. Bank
Low fees at a national bank
$50,000 to $99,999
10 to 15 years
7.65%
Lower
Rocket Mortgage
Maximum LTV ratio
$45,000 to $350,000
10 to 20 years
Not disclosed
Unknown

Best for competitive rates: Discover

Discover offers a wide loan-amount range—between $35,000 and $300,000 with zero origination fees. The loans range in length from 10 to 30 years. Discover’s rates span from a 7.99% to 14.09% APR (annual percentage rate) based on how much you borrow and your creditworthiness.

Discover also allows you to borrow as much as 95% of your equity or $200,000, whichever is less. As you might expect, the higher end of the borrowing range requires a high credit score. If you want to max out your loan, you’ll need a score in the high 700s.

The absence of fees applies across the board: none at application, origination or at closing. Opening a loan for zero bucks is a great perk as it allows for some breathing room when trying to get a home improvement or business expense project launched.

Best for different loan options: BMO

The former BMO Bank (now just known by its initials) has established a solid reputation for customer service, even as it has expanded beyond its Bank of Montreal and BMO-Harris Bank incarnations. At present its rates range from 8.19% APR to 9.34% APR depending on property state, loan amount, and other variables.

Unlike Discover, BMO will let you take out a loan for just five years, and its upper end of 20 years means you’ll save yourself some interest charges compared to a longer 30-year term. The more you borrow, the lower the interest rate, from 9.34% ($25,000) to 8.59% ($150,000).

BMO asks for a typical minimum credit score of 700, and the loans step up in increments of five years. Rates are personalized and official quotes come by phone or after an online application process.

Best for customer service: Third Federal Savings and Loan

Third Federal Savings and Loan prides itself on being a senior-citizen–friendly bank with outstanding customer service. It scores 4.8 out of 5 based on more than 1,000 reviews. One typical review states that everyone on the loan team “bent over backwards to make sure they went above and beyond my customer service expectations.”

The bank’s $10,000 loan minimum puts it below competitors, making it a sound option for those who want to borrow only a small amount on their homes. Make sure to check the interest rate, though, as smaller loans often carry higher percentages.

Third Federal is also proactive in waiving late fees on home equity loans for those who live or work in FEMA-designated disaster zones. That also includes eligibility for loan concessions if you cannot make your payment.

Best for low fees at a national bank: U.S. Bank

The terms “low fees” and “national bank” don’t often go together, though some banks such as Chase offer insultingly low interest rates for investor savings. Then there’s U.S. Bank, which scores high for its fee structure.

You’ll need a FICO score of 660 or higher—but assuming you meet that threshold, a U.S. bank loan will come with no closing costs. What’s more, customers who have their monthly payments deducted automatically from a U.S. Bank personal checking or savings account receive a 0.50% interest rate discount.

Another advantage is that some loans will not step up in percentages based on terms or amounts. A U.S. Bank home equity loan of $50,000 to $99,999 (assuming a 60% loan-to-value ratio) still runs at 7.65%, whether for 10 or 15 years.

Best for maximum LTV ratio: Rocket Mortgage

Rocket Mortgage prides itself on having fun with its image compared to stodgy big banks. But when it comes to offering a superior product, it’s serious. Consider how it assesses its willingness to grant a home equity loan based on your loan-to-value ratio—the remaining balance of your primary mortgage subtracted from 90% of your home’s appraised value. If your FICO score is 680 or better, you need an 80% LTV. A score of 700 will raise that to 85%. That LTV rises to 90% if your score is 740 or above.

Keep in mind that Rocket Mortgage charges closing costs, usually 2% to 6% of the loan amount. Assuming you take out $45,000, the minimum amount of equity Rocket requires, it’ll cost you as much as $2,700 to finalize the loan. Ouch. Rocket Mortgage does not publicly disclose interest rates.

How we chose the best home equity loans

We compared multiple home equity lenders along a number of data points that include interest rate, LTV, loan term, loan sizes, and flexibility of terms.

What are today's average interest rates for home equity loans?

The average interest rate for a home equity loan is 8.67%.

Tips to compare the best equity loan companies

Look at the interest rate, of course, as that determines how far your payments will go in terms of reducing the balance. But with loans of this size, also keep in mind the customer service you can expect, the flexibility of terms, and whether regional lenders (such as credit unions and community banks) can offer you advantages particular to your location.

Alternatives to home equity loans

HELOC vs. home equity loan

A HELOC (home equity line of credit) is a revolving line of credit, similar to a credit card. You are approved for a certain amount based on your home's equity. You only pay interest on the amount you actually take out—not the full sum that you are eligible to borrow. A home equity loan (also known as a second mortgage) is a lump-sum loan in which you receive a one-time payment based on the equity in your home. The loan is then repaid in fixed monthly installments over a specific term.

Home equity loan vs. refinance

With a refinance, you are not necessarily incurring more debt. What you’re doing instead is changing the terms of your mortgage based on interest changes. You can use refinancing to (1) pay off your home faster—15 years versus 30, for example, with higher payments but lower total interest. Or, (2), you can extend the term of your mortgage to lower your monthly payments. Closest to a home equity loan is (3 ) taking a cash-out refinance and using the funds for needed expenses, while negotiating a new mortgage to pay off the balance you still owe.

With a home equity loan, on the other hand, you are always taking on more debt. The amount depends on the size of the loan.

Latest news

A hawkish Federal Reserve has continued to raise interest rates after they remained historically low for about a decade. Don’t expect rates on home equity loans to drop anytime soon. Now may be a good time to begin the loan process, which from application to close typically takes 45 days.

TIME Stamp: Review your finances before you borrow

It’s never desirable to take on more debt. Before you take out a home equity loan, look at all the options. A HELOC may be a better choice than a home equity loan because you don’t have to borrow all the money at once. Instead, you get a line of credit and you can draw on it as needed, or not at all. And while a cash-out refinance might feel like free money, it isn’t, as you’ll pay for it on the back end with a newly elevated mortgage balance.

Any of these options may be beneficial if the money goes back into the home to pay for improvements that will boost its value, or consolidate high-interest debt. But as your finances will change based on the loan or cash-out option you choose, always do the numbers first. See what you can afford, and take a reality check on whether getting that extra money is more of a want than a need. Consider meeting with a financial advisor to get the complete picture of what taking the plunge will look like.

Note also, that you will not be able to take a tax deduction on home equity loan interest unless you are using the proceeds to renovate the home that is the collateral for the loan.

Frequently asked questions (FAQs)

Are home equity loans higher than mortgage rates?

Rates on home equity loans are typically higher than mortgages, in part because they are riskier. In the event of a home foreclosure, the mortgage company is paid before the home equity lender because they are in what is known as the “first lien” position.

Home equity loan vs. cash-out refinance: What is the difference?

With a cash-out refinance, you’re replacing an existing mortgage with a larger one based on your level of equity. This allows you to keep the difference in cash and while you’ll still have a mortgage, you’ll only have one payment to worry about. With a home equity loan, you are borrowing against the value of the equity you have built up in your home and creating a second loan along with your existing mortgage. Your loan will also not equal the amount of equity you have but some percentage below it.

How much equity loan can I borrow from my home?

This varies, depending on your loan-to-value ratio—how much you owe on your mortgage versus how much the home is worth. For example, a homeowner with a home worth $500,000 and a remaining mortgage of $300,000 will be eligible to borrow $200,000.

What is the average credit score for a home equity loan?

Anyone whose credit score falls below 630 is unlikely to be approved for a home equity loan. In general, a credit score of around 680 or higher is considered a good starting point for getting approved.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

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