*Rates and APRs are subject to change. All information provided here is accurate as of October 4, 2024.

Home Equity Loans Main Takeaways

The home equity held by homeowners with mortgages totaled $17.6 trillion net during the second quarter of 2024, according to data from analytics firm Corelogic. That represents a year-over-year increase of 8%.
The average equity existing homeowners have to tap is now $315,000. That’s a significant increase over the same figure before the pandemic.
Home equity loans and lines of credit are viable options for property owners to access cash they can use to consolidate higher-interest debt, make home improvements or weather a financial setback.
Money’s editorial team researched and evaluated over 35 home equity providers, comparing them for factors including their interest rates, fees and qualification requirements.
Citizens Bank, Discover and U.S. Bank are among our choices for the best home equity loans and lines of credit.

Best Home Equity Loans Reviews

The companies listed below are in alphabetical order.

Citizens Bank – Best for Customer Experience
Connexus Credit Union – Best Interest-Only HELOC
Discover– Best for Low Fees
Figure – Best for Quick Approvals
Flagstar – Best for Large HELOCs
Navy Federal Credit Union – Best for Military and Veterans
Regions Bank – Best Flexible Repayment Terms
Truist – Best Fixed-Rate HELOC
U.S. Bank – Best for Borrowers with Good Credit

Best Home Equity Loan Lenders Reviews

Pros

No appraisal fees or closing costs
0.25% off with AutoPay if using a Citizens Checking account
Choose full or interest-only payments during 10-year draw period

Cons

Only for properties in certain states
$50 annual fee after the first year on standard HELOCs

HIGHLIGHTS

Annual Percentage Rate (APR)
8.00% to 21.00%

Loan Amounts
$5,000 – $25,000

Terms
10 years

Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company:

Citizens Bank (NMLS #433960) has consistently garnered good customer reviews, as well as high marks in independent, third-party customer satisfaction surveys. That acclaim makes it our choice for providing the best customer experience.

Citizens Bank ranked among the top ten mortgage lenders in J.D. Power’s 2023 U.S. Mortgage Servicer Satisfaction Survey. The survey considers six factors when determining the customer’s overall experience score, including level of trust, client communication and problem-solving.

The bank offers two home equity lines of credit (HELOC) products: the standard line of credit, which offers credit lines starting at a minimum of $17,500, and the Citizens GoalBuilder, which has a minimum borrowing limit of $5,000 and a maximum limit of $25,000.

Citizen says its Fastline application allows you to obtain a personalized rate and line amount within a few minutes, and without impacting your credit score. Once you review and accept the bank’s offer, you could close in as little as seven days and receive your credit line as soon as two weeks from accepting the offer. Signing up for autopay from any Citizens Bank checking account qualifies you for a 0.25% rate discount.

Eligibility requirements

Property type – Owner-occupied 1- to 4-family properties or condominiums

Credit score – Not disclosed

Amount of equity available – Not disclosed

Regional availability – Offered in Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia and Washington DC.

See rates on Citizens Bank’s Secure Website >>

Pros

Loan amounts from $5,000
No annual fee
15-year draw period available

Cons

A credit union membership is required
Closing costs can range from $175 to $2,000
Home equity loans not available in Maryland, Texas, Hawaii and Alaska

HIGHLIGHTS

Annual Percentage Rate (APR)
6.89% – 9.41%

Loan Amount
From $5,000

Terms
5 to 15 years

Max. Loan-to-Value (LTV)
90%

Why we chose this company:

Connexus Credit Union (NMLS #649316) offers home equity loans with flexible repayment terms, ranging between five and 15 years, in addition to an interest-only home equity line of credit.

This line of credit allows you to pay only the accrued interest during the loan’s draw period, rather than having to pay off the loan’s principal as well. It’s a convenient option if you prefer or need to start out with lower payments, and are confident you’ll be able to afford the higher payments in the future, when repayment of the principal will kick in.

Connexus offers attractive locked rates – at writing, the rate for their interest-only HELOC was 5.99%, valid until October 1, 2025. The lender also offers a standard line of credit – that is, one in which you pay both interest and principal during the draw period for the loan. The monthly payment on that option is 1.5% of the amount borrowed.

Connexus is currently offering qualified borrowers a fixed introductory rate lock on both HELOC options until April 2025, after which the interest will become variable.

Eligibility requirements

Property type – Primary home and second homes (single-family homes, 2-4-unit condominiums, owner-occupied duplexes, or townhouses)

Credit score – Not disclosed

Amount of equity available – Minimum 10%

Regional availability – Home equity loans not available in Maryland, Texas, Hawaii or Alaska.

Read Connexus Credit Union Home Equity Loan Review

See rates on Connexus’s Secure Website >>

Pros

No origination, appraisal or application fees or mortgage taxes due at closing
No prepayment penalty
Full online application process

Cons

No information regarding discounts

HIGHLIGHTS

Annual Percentage Rate (APR)
Check Website for Details

Loan amounts
$35,000 – $300,000

Terms
10 to 30 years

Max. Loan-to-Value (LTV)
90%

Why we chose this company:

If you want a lender that doesn’t charge a lot of fees, Discover (NMLS #684042) is a great option to consider.

Discover home equity loans don’t involve fees to apply or for origination, appraisal or loan processing. You also won’t pay any upfront closing costs. The online lender offers competitive, fixed interest rates and repayment terms of between 10 and 30 years.

You can borrow up to 90% of your available home equity, and the loan can be either a first or second lien. Loan amounts range from a minimum of $35,000 to a maximum of $300,000. The application process is entirely completed online, and Discover’s eClosing allows you to sign and submit all closing documents digitally as well.

Eligibility requirements

Property type – Primary residence (single-family residences, condos and townhomes)

Credit score – Minimum of 680

Amount of equity available – Usually between 10% to 20%

Regional availability – Available nationwide.

Read Discover Home Equity Loans Review

See rates on Discover’s Secure Website >>

HIGHLIGHTS

Annual Percentage Rate (APR) Range
6.75% – 15.90%

Loan Amount
$15,000 – $400,000

Terms
5, 10, 15 and 30 years

Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company: Figure (NMLS #1717824) offers competitive rates, an entirely online application process, quick approval times and funding in as little as five days.

The fintech company stands out for its streamlined application, which lets customers check their rate, and then apply and know if they’ve been approved within minutes. The process includes an eNotary who confirms customers’ identities and reviews mortgage applications and documents electronically. In addition, loans can be funded within five days after approval.

Figure’s loan amounts for HELOCs range from $15,000 to $400,000. Interest rates are fixed for the initial draw amount, but change for subsequent draws and the available loan terms are five, 10, 15 and 30 years. Figure doesn’t charge fees to open or maintain accounts, and there are no penalties for prepayment. It does, however, charge a one-time origination fee of up to 4.99% of the initial draw.

Eligibility requirements

Property type – Single-family residences, townhouses, urban developments and condos

Credit score – Minimums of 640 for primary residences and 680 for non-owner occupied or investment properties

Amount of equity available – Not disclosed

Regional availability – Not available in Delaware, Hawaii, Kentucky, New York, or West Virginia.

See rates on Figure’s Secure Website >>

Pros

Line amounts of up to $1 million
0.25% rate discount with AutoPay
1 to 4-unit properties and modular homes are eligible

Cons

$75 annual fee after first year
Not available in Texas, Puerto Rico or the U.S. Virgin Islands

HELOANs are only available in states with a branch office

HIGHLIGHTS

Annual Percentage Rate (APR)
8.99% – 21.00%

Loan Amount
$10,000 – $1,000,000

Terms
10-year draw period, 20-year repayment

Max. Loan-to-Value (LTV)
85%

Why we chose this company:

Flagstar (NMLS #417490) offers lines of credit of up to $1 million, which makes it the best HELOC option for large loans.

Flagstar’s home equity line of credit has variable interest rates and is available for amounts of between $10,000 and $1 million, which means it offers one of the highest loan limits on the market. Borrowers who take out a credit line of $50,000 or more, and make an initial draw of at least 50% of the available credit, qualify for a 7.99% interest rate for the first six billing cycles.

Customers who set up AutoPay from a Flagstar deposit account can receive a 0.25% discount on their interest rate. The company also offers a 10-year draw period and a 20-year repayment term.

Flagstar doesn’t charge closing costs (which typically include appraisal, title, notary and recording fees) as long as you leave the HELOC open for at least 36 months. However, customers are responsible for paying government taxes and fees at closing and a $75 annual fee after the first year.

Eligibility requirements

Property type – Primary residences, including 1-to-4 unit residential homes and secondary homes (1-unit residential homes)

Credit score – Not disclosed

Amount of equity available – Not disclosed

Regional availability – Not available in Texas, Puerto Rico or the U.S. Virgin Islands.

Read Flagstar Home Equity Loans Review

See rates on Flagstar’s Secure Website >>

Pros

No application, origination, annual or inactivity fees

Borrows up to 100% of your home equity for HELOANS and up to 95% for HELOCs
Longer 20-year draw period for HELOCs

Cons

Membership limited to the military and their families

HIGHLIGHTS

Annual Percentage Rate (APR)
From 7.340% (HELOAN), 8.250% – 18.00% (HELOC). Terms apply.

Loan Amount
$10,000 – $500,000

Terms
5 to 20 years

Max. Loan-to-Value (LTV)
100%

Why we chose this company: Navy Federal Credit Union (NMLS #399807) offers the best home equity loans for military service members and veterans. Their products include loans with no application or origination fees and HELOCs with longer drawing periods than most competitors.

Navy Federal offers both fixed-rate equity loans and home equity lines of credit for loan amounts of between $10,000 and $500,000. In the case of equity loans, Navy Federal lets you borrow up to 100% of your home’s equity, with repayment terms of five, 10, 15 and 20 years.

However, with a HELOC you can borrow up to 95% of your home’s equity at a variable rate. Navy Federal offers a longer-than-average 20-year drawing period, rather than the 10-year term most competitors offer. The company also covers closing costs, which can range from $300 to $2,000 for loans of up to $250,000.

Eligibility requirements

Credit union membership – must be an active duty, retired or veteran of the armed forces, or an immediate family member
Property type – primary residence, single-family home
Credit score – Not disclosed
Amount of equity available – Not disclosed
Regional availability – HELOCS not available in Texas.

See rates on Navy Federal Credit Union’s Secure Website >>

Pros

Rates starting at 6.75% APR
HELOC can be converted into a fixed-rate loan
No closing costs

Cons

Property tied to the loan must be in a state with a Regions retail branch
Branches only in AL, AK, FL, GA, IL, IN, IA, KY, LA, MS, MO, NC, SC, TN, and TX

HIGHLIGHTS

Annual Percentage Rate (APR)
6.75% to 14.125%

Loan Amounts
$10,000 – $250,000

Terms
10, 15 or 20 years

Max. Loan-to-Value (LTV)
up to 89%

Why we chose this company: Regions Bank (NMLS #174490) made our cut as the lender with the most flexible repayment terms. It offers term lengths of between seven and 20 years.

Regions Bank offers fixed-rate home equity loans with no closing costs. Loan amounts range from $10,000 to $250,000.

In addition to home equity loans, Regions Bank offers home equity lines of credit (HELOCs). These start at $10,000 and go up to $500,000, with a 10-year draw and a 20-year repayment period.

Regions Bank covers full closing costs for credit lines of $250,000 or less. If your line of credit exceeds $250,000, Regions Bank will contribute up to $500.

Eligibility requirements

Property type – Primary or secondary residence

Credit score – Not disclosed

Amount of equity available – At least $10,000

Regional availability – Available in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas.

See rates on Regions Bank’s Secure Website >>

Pros

Multiple fixed-rate repayment options may be available

Covers appraisal fee

HELOC with no annual fee in most states

Cons

Only offers HELOC

Prepayment penalty for terminating a line of credit within 36 months

$15 service fee

HIGHLIGHTS

Annual Percentage Rate (APR)
8.00% – 16.00% (or state maximum)

Loan Amounts
From $5,000

Terms
5, 10, 15, and 20 years

Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company: Truist (NMLS #399803) is our choice for the best fixed-rate HELOC because borrowers can choose fixed rates and fixed repayment terms of between five and 20 years.

Truist offers home equity lines of credit with three repayment options: interest-only, fixed and variable-rate repayments, all with zero-cost closing options. The minimum amount you can request for HELOCs is $5,000. Fixed-rate HELOCs may be subject to a $15 set-up fee. Truist’s variable-rate lines of credit, on the other hand, have a 10-year draw period and a 20-year repayment period.

Borrowers in some states can choose to have Truist pay the closing costs on lines of up to $500,000. However, rates will vary with this option. Prepayment penalties on lines of credit may also apply should the account be closed within three years of opening. If this is the case, you’ll have to pay back any origination or closing costs that were covered by Truist, which could cost you as much as $10,000.

Eligibility requirements

Property type – Single-family, primary residence, second home or condominium occupied by the owner

Credit score – Not disclosed

Amount of equity available – Not disclosed

Regional availability – Available in Alabama, Arkansas, California, Florida, Georgia, Tennessee, South Carolina, Virginia, Maryland, Mississippi, Washington DC, West Virginia, Indiana, Kentucky, New Jersey, Ohio, Pennsylvania, North Carolina and Texas.

Read Truist Home Equity Review

See rates on Truist’s Secure Website >>

Pros

No closing costs, although initial escrow-related costs may apply
Interest rate will never exceed 18% APR, subject to applicable state law
0.50% interest rate discount with automatic payments deducted from a U.S. Bank account

Cons

$75 annual fee may apply after the first year

Early closure fee of 1% or up to $500 applicable during the first 30 months
Home equity loans not available in Hawaii, Louisiana, New York, Oklahoma and Rhode Island if property is held in a trust

HIGHLIGHTS

Annual Percentage Rate (APR)
From 7.65% (HELOAN); 8.45% – 12.10% (HELOC)

Loan amounts
$25,000 – $750,000

Terms
10 to 30 years

Max. Loan-to-Value (LTV)
60%

Why we chose this company: U.S. Bank (NMLS #402761) has the best home equity loan for borrowers with good credit. It offers highly competitive interest rates for customers with scores of 730 or more.

To get the lowest rates, however, you’ll need a U.S. Bank checking or savings account with automatic payments set up.

The company’s home equity loans and HELOCs do not have closing costs. Home equity loans have repayment terms of up to 30 years. Loan amounts start at $5,000 and go up to 60% of your home equity, to a maximum of $750,000 ($1 million in California).

While the HELOCs feature variable rates, you have the option to convert a portion of (or the total) amount of your balance to a fixed rate for up to 20 years. In addition to having this fixed-rate payment option, any balance you don’t convert to a fixed-rate arrangement will continue to have a minimum payment and variable rate.

Eligibility requirements

Property type – Primary residence, single-family home

Credit score – Minimum 660

Amount of equity available – Not disclosed

Regional availability – Not available in Hawaii, Louisiana, New York, Oklahoma or Rhode Island if property is held in a trust.

Read U.S. Bank Home Equity review

See rates on U.S. Bank’s Secure Website >>

Other home equity loan companies we considered

While solid contenders, the following home equity loan lenders didn’t make it to the top of our list. Nevertheless, they might have features and products that are suited to your particular circumstances.

Bank of America

Pros

No fees for converting a variable rate loan to a fixed rate
0.25% rate discount if you enroll in AutoPay using a BofA checking or savings account

Up to 1.50% rate discount for initial withdrawals of $150k or more (0.10% for every $10,000)

Cons

Only offers HELOCs
Can’t open more than three fixed-rate loans at the same time
Maximum APR is not disclosed

Bank of America (NMLS #399802) is another lender that offers home equity lines of credit. In addition, it features introductory rates and multiple rate discounts, such as one of 0.625% if you enroll in autopay and up to 0.750% for customers with a Preferred Rewards account. However, Bank of America doesn’t offer home equity loans, nor does it readily disclose the maximum APR customers might pay.

Read Bank of America Home Equity Review

See rates on Bank of America’s Secure Website >>

BMO Harris Bank

Pros

0.50% AutoPay rate discount
Fixed-rate options for HELOCs

Cons

$75 fee each time you convert HELOC from a variable to a fixed rate
Not all transactions are eligible for remote closing
$75 annual fee each year during the draw period

BMO Harris Bank (NMLS #401052) offers both home equity loans and HELOCs, which are available for customers with a minimum credit score of 700 or between 650 and 680, respectively. While BMO Harris home equity line of credit rates are competitive, the lender mainly operates in only eight states: Arizona, Illinois, Florida, Kansas, Indiana, Minnesota, Missouri and Wisconsin.

Read BMO Harris Bank Home Equity Review

See rates on BMO Harris Bank’s Secure Website >>

Frost

Pros

No application or annual fee charges
0.25% rate discount with automatic payment
APR rates for HELOANs starting at 6.93%
No prepayment penalty for HELOC

Cons

Only available in Texas

Frost Bank (NMLS #431208) features competitive home equity loan and HELOC products, with terms of up to 20 years. Home equity loans and HELOCs are available starting from $2,000 and $8,000, respectively. Frost’s main drawback is that it’s only available in Texas. If you live in this state, though, it may be an option worth considering.

See rates on Frost’s Secure Website >>

KeyBank

Pros

0.25% rate discount for having a KeyBank checking or savings account
Borrow up to 80% of your home’s value
Flexible payment options including principal and interest, interest-only or fixed

Cons

Doesn’t openly disclose APRs for their home equity loans
Only services 15 states

KeyBank (NMLS #399797) offers both home equity loans and lines of credit of up to 80% of your home’s value. Home equity loans are available from $25,000 to $500,000, whereas the minimum loan amount for HELOCs is $10,000. Like most banks, KeyBank also offers a 0.25% rate discount when you enroll in autopay. However, its products are only available in Alaska, Colorado, Connecticut, Idaho, Indiana, Massachusetts, Maine, Michigan, New York, Ohio, Oregon, Pennsylvania, Utah, Vermont and Washington.

See rates on KeyBank’s Secure Website >>

PenFed

Pros

Loan amounts from $25,000 up to $500,000
Covers most closing costs

Cons

Only offers HELOCs
Does not offer lines of credit for certain types of properties
Properties must be fully livable and have no safety issues to be eligible

Credit union PenFed (NMLS #401822) only offers home equity lines of credit with a 10-year draw period and a 20-year repayment period. Loan amounts range from $25,000 to $500,000. However, to apply you need to become a credit union member and have a minimum credit score of 680. It also charges an annual fee during the draw period.

See rates on PenFed’s Secure Website >>

PNC Bank

Pros

Offers fixed and variable rate options on HELOCs
Minimum draw amount in Texas is $4,000
Potential home renovation tax benefits when renovating for medical purposes or installing energy efficient equipment

Cons

$100 transfer fee each time borrowers opt for a fixed rate
In Texas, only applicants with primary residences and LTVs under 80% are eligible

PNC (NMLS #446303) offers fixed-rate home equity lines of credit for balances of $5,000 or more and a 0.25% rate discount when you enroll in autopay. However, interest rates aren’t readily displayed on its website and it charges an annual fee of $50. In addition, its home equity products are unavailable in Alaska, Hawaii, Louisiana, Mississippi, Nevada or South Dakota.

Read PNC Home Equity Review

See rates on PNC Bank’s Secure Website >>

Spring EQ

Pros

640 minimum score for home equity loans

Offers access to up to 90% of your home value

Relatively fast funding, between 14 to 21 days

Cons

Doesn’t disclose information about fees and rates

Spring EQ (NMLS #1464945) specializes in home equity products. You can access up to 90% of the equity in your home and borrow up to $500,000 with this lender.

Loan terms range from five to 30 years. The loan application process is completely online, providing instant qualification in most cases and funding between 14 to 21 days. However, it didn’t make our top picks as current fees and rates are not openly available on their website.

Read Spring EQ Home Equity Review

See rates on Spring EQ’s Secure Website >>

Unison

Pros

Lets you convert up to 15% of your home equity into cash
Single-family homes, townhouses and condominiums are eligible
Doesn’t impact creditworthiness nor charges interest rates
No payments for 30 years or until you sell your home

Cons

Five-year restriction period, where Unison won’t share in the losses of your home’s value, if you sell
May affect your eligibility for refinancing your mortgage
Must pay back the co-investment plus four times the percentage invested after 30 years

Unison is a home equity loan alternative that offers home co-investing. Basically, the company lets you borrow up to 15% of your home value in cash in return for a share of your home’s future value. Although you don’t have to pay Unison back for up to 30 years, or until you sell your house, this alternative has several potential drawbacks. For one, you may not be able to refinance your home during this period. And if you don’t sell your home, you must pay back the original co-investment plus a percentage of your home’s increased value.

See rates on Unison’s Secure Website >>

Home Equity Loans Guide

Long-time and even recent homeowners are in an enviable position when it comes to the value of their homes. Since the second quarter of 2023, property owners with existing mortgages have gained $1.3 trillion in home equity; that represents a year-over-year increase of 8%, according to a report by analytics firm CoreLogic. Overall, homeowners hold an aggregate of $17.6 trillion in equity they can access if needed.

That accumulation has been a lifeline for some property owners. “The substantial accumulation of home equity for existing homeowners has served as a financial buffer in times of uncertainty,” wrote Selma Hepp, CoreLogic’s chief economist, in the report. “Some homeowners are facing higher costs of homeowners’ insurance and taxes and have had to tap into their equity to prevent falling behind on their mortgages.”

Home equity loans and lines of credit are options homeowners can consider if they need cash to pay off debt that’s high in interest debt or to cover unexpected bills like medical costs or home repairs. The money these products provide can also be used to make home improvements, which provides another advantage – since the interest paid on the loan is tax deductible.

To find out more about whether a home equity loan is the right option for you, and how to find a suitable lender, read on for our complete guide.

What is a home equity loan?

A home equity loan (HEL or HELOAN) is a fixed-term loan product that uses the equity you’ve accumulated in your home as collateral. Often called a second mortgage, a home equity loan provides the borrower with a lump-sum payment they can use for major home renovations, consolidating debts or paying off student loans. This type of loan can be paid back in equal installments, if the borrower wishes.

Home equity loans often have lower interest rates than credit cards or personal loans, provided you have a good credit score. Yet they also put you at risk of losing your home if you are unable to make payments. Note, too, that the first mortgage remains the primary loan on a property if it still carries a balance – meaning it will be paid down first in the event of the homeowner defaulting on their obligations.

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.

The maximum amount you can borrow with a home equity loan 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 can represent no more than 80% to 90% of the property’s appraised value. Loan terms include a fixed interest rate and fixed monthly loan payments for up to 30 years.

Current home equity loan rates

Home equity loan interest rates are typically on par with mortgage loan rates. HELOC rates, on the other hand, are variable and can be somewhat higher depending on the bank and the prime rate.

When comparing rates, look at the annual percentage rates (APRs) to get a more complete idea of what you’ll pay in interest and help you determine which lender offers the best rate.

How to calculate home equity

Home equity refers to the difference between your mortgage balance (what you owe) and the current market value of your home.

Your equity can increase over time as you pay down the principal, and if the value of your property goes up. It can also decrease if your home value drops.

To calculate your equity, you need to:

Determine the current market value of your home. (In most cases, a certified real estate appraiser can help you obtain an official valuation.)

Deduct your remaining mortgage balance (if you have one) from your home’s current market value.

For instance, if your home is worth $300,000 and you owe $175,000 of your mortgage, then your home equity is $125,000. If you’ve already paid your mortgage, your equity is your home’s full value.

Home equity loan requirements

When determining if you qualify for a home equity loan, lenders will typically check if you meet the following requirements:

At least an 80% loan-to-value ratio, or the equivalent of 20% equity
A low debt-to-income ratio, preferably under 43%
A minimum credit score of 620 or higher
Own a qualifying home, such as a single-family home, townhouse or condo
Be employed, self-employed or retired and have a steady income
Supporting documentation, such as pay stubs, tax returns and W2s

Naturally, the higher your home equity, the more you’ll be able to borrow. If you’re a recent homebuyer, focus on building equity before considering this type of loan. One way to do this is by making additional mortgage payments to your principal. Check our guide on how to build equity in a home for more actionable steps.

Pros and cons of home equity loans

Here are some advantages and disadvantages to consider when deciding whether a home equity loan is the best option for your financial situation.

Pros

You get a fixed interest rate

Predictable payments for the life of the loan

Money can be used for any purpose (debt consolidation, paying for tuition, etc.)
Interest may be tax-deductible, if the loan is used for home improvement

Cons

Must use your home as collateral

You’ll have a second mortgage if you’re still paying the primary mortgage

You may have to pay closing costs, depending on the lender

You need significant equity on your home, typically between 15% and 20%

How to choose a home equity loan

When looking for a home equity loan, consider the following steps.

1. Understand your options

There are two different types of home equity loans: traditional home equity loans and home equity lines of credit. Traditional HELOANs give you a lump sum, whereas HELOCs work much like a credit card. Read the section on differences between home equity loans and HELOCs for more information.

2. Compare loan terms and repayment options

Regardless of which option you choose, make sure you understand all the costs associated with the loan or line of credit. A fixed-rate loan means your rate and loan payments won’t change for the life of the loan.

If it’s a variable or adjustable-rate loan, know that your monthly payments will fluctuate with interest rates. While mortgage rates remain low, your payments will be low. However, those interest rates may start to go up at some point, which means your monthly payments will also increase.

3. Calculate how much you can borrow with a home equity loan

To determine how much equity you can borrow, you must calculate your loan-to-value ratio (LTV). To do this, divide your mortgage’s outstanding balance by your home’s current market value and convert that into a percentage. Let’s say your current mortgage loan balance is $175,000 and your home is appraised at $250,000. This means you have a loan-to-value ratio of 70% and 30% equity.

Because most lenders require you to keep at least 20% of equity in the home, you would only be able to borrow against 10% of your equity — in this case, $25,000. (The home’s current value ($250,000) by 10%, gives you the amount you’ll be eligible to borrow).

Another (simpler) way to calculate how much you can borrow is to multiply your home’s current value by 80% and subtract what you still owe from the total.

4. Check closing costs for home equity loans

Just like with primary mortgages, home equity lenders may charge closing costs. These can range anywhere from 2% to 5% of your loan total. Lenders may also charge an application fee in addition to costs for other services such as loan origination, appraisals, title search and attorneys. There are, however, no appraisal home equity loan lenders as well.

However, many lenders don’t charge some of these fees and may even be willing to waive closing costs altogether, on the condition that you won’t pay off the loan before a certain period of time (typically three years). If you close the loan before then, you must pay back all the costs the lender covered.

Some lenders may also offer somewhat higher interest rates in exchange for reducing or covering closing costs or fees.

How to get a home equity loan

Once you’ve chosen your home equity lender, you will typically need to get an appraisal, gather your financial information and apply for the loan. Check out our guide on how to get a home equity loan for more information.

Alternatives to home equity loans

Aside from home equity loans, there are several ways to tap into your home’s equity: home equity lines of credit (HELOC), cash-out refinance loans and home co-investing.

Most of these loan options require equity in your home, but they all have different characteristics and qualification requirements.

Home equity loan vs HELOC

When deciding between a home equity loan and a home equity line of credit, keep in mind these key differences:

Home Equity Loan

HELOC

Most have a fixed interest rate.

HELOCs typically have a variable interest rate, which can increase or decrease over time. (Some banks may let you convert your variable rate into a fixed rate later on)

Access to funds is through a single upfront lump sum.

Allows you to withdraw funds as needed up to a preset credit limit for an established period of time (draw period).

Available with terms from five up to 30 years

Typically has a 10-year draw period and a 20-year repayment period.

You pay interest plus principal for the determined repayment period.

Options to pay interest only during the draw period are typically available.

Home equity loan vs. cash-out refinance

Home equity loans and cash-out-refinances are a way to get cash for home improvement projects or debt consolidation using some of your home equity. Some homeowners, however, prefer refinancing their existing mortgage into a cash out refinance rather than take on a new loan. These are the differences to consider:

Home Equity Loan

Cash-out refinance

Gives you a lump sum in exchange of your home equity, creates a second mortgage on the property.

Pays you part of your home equity in cash, and replaces your existing mortgage with a new one.

The terms of the original mortgage won’t change. Instead, you’ll have two loans.

You may refinance at a lower interest rate, if available.

Interest rates are typically somewhat higher than mortgage rates.

Interest rates are typically lower because they’re based on current mortgage rates.

Tax deductible if the funds are used to improve your home.

Interests on the principal are tax deductible as any other mortgage. You may also deduct the cash-out portion if used for home improvements.

Home equity loan vs. personal loan

A personal loan can be a viable alternative to a home equity loan for some. When choosing between the two, keep these key differences in mind.

Home Equity Loan

Personal Loan

Home serves as collateral, so rates are lower

Typically unsecured, as a result rates tend to be higher

Borrowing limits are generally higher, and are determined by the amount of equity in the borrower’s home.

Borrowing limits are lower, and based on the borrower’s creditworthiness, income, and other factors.

Interest paid can be tax deductible if the funds are used to improve your home.

Generally not tax-deductible, regardless of how the funds are used.

Carries the risk of losing your home if you default

Lenders cannot seize assets if the borrower defaults, but can still damage the borrower’s credit score

Best Home Equity Loans FAQs

Can you get a home equity loan with bad credit?

There are some home equity and HELOC lenders who are willing to consider applicants with credit scores in the 600s. However, expect to pay higher interest rates and be required to have at least 20% equity in your home.

Going with your current mortgage lender could be a good move. If you have a track record of on-time payments and a stable income, they might approve your application even with a less-than-perfect credit score.

How long does it take to get a home equity loan?

Timing can vary greatly depending on the home equity lender. In most cases, it can take between two and four weeks to close the loan, whereas funding may take a few days after closing.

How can you use a home equity loan

You can use a home equity loan to add value to your property by way of home improvements. You can also use it to consolidate debts, invest in a new business venture, create an emergency fund, pay education bills, or cover unexpected expenses.

How We Chose The Best Home Equity Loans

The methodology we used to narrow down our list of the top home equity loan providers includes researching and vetting each lender and evaluating them on the following criteria:

Price transparency: We evaluated the loan types offered, minimum and maximum loan amount, interest rates, loan terms and credit score requirements for each lender.

Application process: We checked eligibility requirements and approval times. In addition, we compared application and evaluation fees, and whether application services were available online, by phone or in person.

Reputation and customer satisfaction: We looked into two main data sources: J.D. Power’s 2022 U.S. Mortgage Servicer Satisfaction Study and complaint data as reported by the Consumer Financial Protection Bureau (CFPB).

Summary of Money’s Best Home Equity Loans of October 2024

The companies below offer the best home equity loans, according to our analysis. They are listed in alphabetical order.

Citizens Bank – Best for Customer Experience
Connexus Credit Union – Best Interest-Only HELOC
Discover– Best for Low Fees
Figure – Best for Quick Approvals
Flagstar – Best for Large HELOCs
Navy Federal Credit Union – Best for Military and Veterans
Regions Bank – Best Flexible Repayment Terms
Truist – Best Fixed-Rate HELOC
U.S. Bank – Best for Borrowers with Good Credit
According to a report from The Money.com, rates and APRs for home equity loans are subject to change and all information provided is accurate as of October 4, 2024. During the second quarter of 2024, homeowners with mortgages held a total of $17.6 trillion in home equity, representing an 8% increase from the previous year. The average amount of equity that existing homeowners can access is now $315,000, a significant increase from before the pandemic. Home equity loans and lines of credit are viable options for homeowners to access cash for debt consolidation, home improvements, or financial setbacks. The editorial team at Money.com researched and evaluated over 35 home equity providers, considering factors such as interest rates, fees, and qualification requirements. Based on their findings, Citizens Bank, Discover, and U.S. Bank are among the top choices for the best home equity loans and lines of credit. These companies were chosen based on their customer experience, low fees, quick approval process, and flexible repayment terms. It is important to note that Citizens Bank only offers their services in certain states and charges a $50 annual fee after the first year for their standard HELOCs. However, they do not have any appraisal fees or closing costs and offer a 0.25% discount for using AutoPay with a Citizens Checking account. Overall, Citizens Bank has received positive customer reviews and high satisfaction ratings, making them a top choice for providing the best customer experience. 

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