The best home equity loan rates in March 2024 — and how to qualify for them (2024)

Our picks at a glance

Why get a home equity loan?

• Lower interest rates: Home equity loans tend to have lower rates than other types of loans, such as personal loans or credit cards. That’s because the loan is secured by your home, reducing the risk for the lender. However, that also means if you can’t repay the loan, your home could be at risk of foreclosure.
• Flexible use: You’re generally not restricted in how you can use the money from a home equity loan, allowing you to address various financial needs. Popular reasons to take out a home equity loan include debt consolidation, financing home improvements, paying for education and more.
• Fixed payments: Home equity loans usually come with fixed interest rates and repayment terms, meaning your payments stay the same for the life of the loan, making it easier to budget. Home equity lines of credit, which also allow you to borrow against the value of your home, usually carry variable rates and fluctuating monthly dues.
• Potential tax benefits: The interest paid on a home equity loan may be tax-deductible if the loan is used for home improvement or other qualified expenses. Still, consult a tax advisor for specifics.

What are home equity loans?

Home equity loans are a form of borrowing where a homeowner uses the equity in their home (the appraised value of the home minus any outstanding mortgage balances) as collateral. The borrower receives a lump sum of money upfront that can be used for almost any legal purpose, and then pays it back in monthly installments. The repayment term can range from 5 to 30 years, and many lenders will allow you to borrow up to 80% of your home’s available equity.

One of the main features of home equity loans is their fixed interest rates. The interest rate stays the same throughout the life of the loan, resulting in consistent and predictable monthly payments. Home equity loan rates are also usually much lower than other forms of borrowing.

How to determine your home equity

Calculate the difference between your home’s current market value and the amount you still owe on your mortgage. For example, say your home was recently appraised for $400,000 and you have $300,000 left on your mortgage. You’d have $100,000 in equity, or 25%.

If your lender allows you to borrow up to 80% of your equity, you could borrow as much as $20,000.

$300,000 (mortgage) + $20,000 (home equity loan) = $320,000

$320,000 / $400,000 = 80% CLTV

Lenders vary eligibility requirements for minimum equity and loan-to-value (LTV) ratios. One shortcut to understanding is that your LTV is the opposite of your equity. So if you have 25% equity in your property, your LTV would be 75%. Combined loan-to-value (CLTV) accounts for all liens on a property, not just the primary mortgage. (HELOC eligibility requirements are similar.)

Pros and cons of home equity loans

Home equity loans come with several advantages: namely, their lower interest rates compared to unsecured loans and credit cards. They also provide fixed interest rates and payments, making them predictable and easier to fit into your monthly budget. (On the other hand, home equity line of credit rates are variable, making it difficult to budget.)

These loans also allow homeowners to borrow larger amounts, depending on the available equity in their homes, and use the funds for just about any purpose. Plus, the interest paid on a home equity loan might be tax-deductible if used for home improvement.

Despite these many benefits, there are some potential downsides to consider. For example, there is the risk of foreclosure if you fail to repay the loan according to the terms. You’ll also need enough equity built up in your home (usually, at least 20%).

Some lenders also charge various closing costs and fees, adding to the total cost of the loan, which is why it’s important to shop around for the best deal before committing to a loan.

Home equity loans commonly have terms as long as 20 years, resulting in low monthly payments — but this also means adding another long-term debt to your plate. This can impact your ability to qualify for and pay down future credit.

How to get a good home equity loan rate

The interest rate on your home equity loan impacts how much you pay overall. Spending the time and effort to secure a low rate can save you thousands of dollars over the life of your loan. Here’s what you can do:

• Start by checking your credit. Generally, the higher your credit scores, the lower the interest rate you can qualify for. So before you apply for a home equity loan, it’s wise to check your credit reports (via AnnualCreditReport.com) for any errors or negative entries, such as an account in collections. By taking a few months to resolve any credit issues — including disputing credit report errors — you might qualify for a considerably lower rate.
• Aim for a lower loan-to-value (LTV) ratio. Your loan-to-value ratio measures how much you currently owe on your mortgage relative to the appraised value of your home. Paying down your mortgage balance before applying for a home equity loan can improve your LTV ratio and potentially help you qualify for a lower interest rate.
• Improve your debt-to-income ratio (DTI). This number represents how much of your monthly gross income goes toward paying debt obligations. A lower DTI will generally help you qualify for better home equity loan rates.
• Shop around for the best offers. Don’t settle for the first offer you receive. It’s a good idea to get quotes from multiple lenders and compare rates, fees and loan terms. Most lenders allow you to get an online pre-qualification quote within minutes without impacting your credit scores. (Once you find the loan you want, you’ll need to submit an official application and agree to a traditional credit check, which can drop your scores by about five points, according to FICO.)
• Negotiate with lenders. It’s possible to use the quotes you receive as leverage to negotiate better rates and loan terms with lenders. Some may be willing to match or beat the rates offered by their competitors. Remember that it never hurts to ask.
• Consider timing. Interest rates fluctuate based on economic conditions. If rates are currently high, it might be worth waiting until they come down a bit — if you have the flexibility to do so. Alternatively, you could secure a home equity loan now, then refinance if rates fall in the future.

How to select the best home equity loan

Choosing the right home equity loan means taking the time to research your options and compare key features. The best loan for you will depend on your specific financial profile and goals, but you can follow these steps as a general guideline:

• Check your credit. Start by reviewing your credit reports and scores (via your financial institution, the credit bureaus or other third parties) to confirm you have a good chance of qualifying for a home equity loan. It’s important to select a loan that fits your credit profile.

  Though it’s possible to seek a home equity loan with bad credit, most lenders require good credit, defined as a FICO score of at least 670.

• Get multiple quotes. Although some lenders require you to apply for a loan in person at a branch, many major lenders allow you to get a preliminary quote by sharing a few details online. It’s wise to get several quotes so you can compare factors such as interest rate, term and monthly payment — and choose the one that fits your needs best.
• Evaluate the fees. Don’t forget to ask about the fees that each lender charges, such as origination fees, prepayment penalties, late fees and more. These fees can add to the cost of your loan, so it’s important to choose a loan that involves few to no fees.
• Research the lender’s reputation. Finally, make sure that others have had a good experience with the lender you want to borrow from. You can check third-party sites (like the Better Business Bureau and the Consumer Financial Protection Bureau’s complaint database) to see what previous customers had to say, but it never hurts to test-drive a lender’s service before you borrow.

Home equity loans vs. other financing options

A home equity loan isn’t your only option for borrowing against your home’s equity. Consider the following alternatives:

How to apply for a home equity loan

The application process will look a bit different for each lender. However, there are a few general steps you can expect:

Choose the right lender

The process starts with selecting a lender and home equity loan offer that fits your needs. Find a lender that provides the best combination of favorable terms and reliable customer service.

Gather your documentation

Getting approved for a home equity loan involves a lot of documentation, and gathering the necessary paperwork ahead of time can help streamline the application process and get you approved faster. In most cases, you’ll need the following:

• Pay stubs, W-2s or tax returns
• Bank and loan statements
• Investment records
• Current mortgage statement
• Home insurance details
• Recent appraisal of your property

Submit the application

When it comes time to fill out the application, be sure to provide all the necessary personal and financial information completely and accurately. Missing or incorrect information can cause delays. Keep in mind that some lenders may charge an application fee, but nearly all fees are negotiable.

Methodology

CNN Underscored Money editors compared 25 reputable lenders across 22 home equity loan features that would be important to the average borrower. We collected information about these features to make objective comparisons and, ultimately, declare the best home equity loans available today. Here’s greater detail about these factors and how their weightings helped us create an out-of-5-star rating for every lender under consideration.

Current loan rates (30%)

Lenders were rewarded for displaying rates prominently on their websites, advertising competitive APR ranges and offering rate discounts. Each of the five data points in this category received equal weighting.

Loan details (30%)

Here, we took a deeper look at loan cost, considering lenders’ fees and no-closing-cost options. We also rewarded lenders with a wide range of available loan amounts and faster-than-average closing timelines.

Eligibility (20%)

Since you need a good credit score, debt-to-income ratio, income and sufficient home equity (or loan-to-value ratio) to qualify for this product, we put lenders’ requirements on a spectrum to determine which were more or less accessible to the average borrower. Lenders were also rated higher for lending nationwide or in more states than their competitors.

Repayment experience (20%)

A lender might be good at funding low-cost loans, but how does it help borrowers in repayment? That’s the central question of this category. Points were awarded to lenders that offer various repayment options and modes of customer contact, and those that have a track record of good service.

What didn’t make the cut

In the final analysis, 15 lenders fell short of cracking our list for the best home equity loan rates. The explanation is straightforward for some, like Flagstar Bank, which paused its home equity loan offering in favor of HELOCs. For others, they simply didn’t measure up.

Lenders registered lower ratings because of noncompetitive (or hidden) interest rates, unnecessary fees, restrictive loan amounts or repayment terms and spotty customer service records.