If you need to make renovations to your home, consolidate debt or cover another major cost, a home equity loan could be the solution. Home equity loans allow you to borrow money by using your home’s equity—the value of your property minus your existing mortgage balance—as collateral.
We’ve ranked multiple lenders to help you find the best home equity loan rate. While these rankings mainly focused on each home equity loan lender’s minimum annual percentage rate (APR), we also considered the ease of the application process, fees and discounts, combined loan-to-value (CLTV) ratio, transparency in borrowing requirements and overall customer service.
Best home equity loan rates
Compare the best home equity loan rates
Why some lenders didn’t make the cut
Of all the home equity loan lenders that we reviewed, only a fraction made the cut. The lenders that didn’t have high enough scores to be included received lower ratings mostly due to having higher interest rates as well as a lack of transparency around eligibility details like minimum credit score.
Methodology
Our expert writers and editors have reviewed and researched popular lenders to help you find the best home equity loan. Out of all the lenders considered, the seven that made our list excelled in areas across the following categories (with weightings): loan cost (35%), eligibility and accessibility (35%), customer service (15%) and ease of application (10%).
Within each major category, we considered several characteristics, including minimum APR, maximum CLTV ratio and minimum credit score requirements. We also evaluated each provider’s customer support options, lender discounts and features that simplify the borrowing process—like time to close.
How to calculate your home equity
The equity you have in your home is the appraised value of your home minus the amount you still owe on your mortgage.
Your Home’s Value – Total Amount Owed = Home Equity
For example, if you took out a mortgage for $600,000 and still owe $360,000, you would have $240,000, or 40%, in home equity. But keep in mind that, as a general rule, most lenders usually only let you borrow up to 85% of your CLTV ratio—the difference between your home’s value and any loans secured by your property (like your mortgage).
Home equity loan alternatives
A home equity line of credit (HELOC), cash-out refinance or personal loan might be a good alternative to a home equity loan, depending on your situation.
HELOC
A HELOC lets you draw money as you need it for a period of time (typically 10 years), and you’re only responsible for paying back what you use—similar to how credit cards work. If you’re not sure exactly how much you need to cover your extra expenses or you have recurring costs, this might be a better option.
Cash-out refinance
This type of mortgage refinance pays off your current mortgage and replaces it with a new one, leaving you with the difference as a lump sum on top of what you owe. You can use this additional amount to pay for anything you need. If mortgage refinancing rates are lower than a home equity loan or HELOC, this is likely the solution for you.
Personal loan
You can take out a personal loan to pay for almost any emergency expense or cost, which would come with a fixed rate and set monthly payment. If you only need to borrow a small amount, this might be the better choice. Additionally, unlike a home equity loan or other type of mortgage, most personal loans are unsecured—meaning you don’t have to use your house as collateral.
Just keep in mind some personal loan lenders have restrictions on what you can and can’t use their loans for.
Frequently asked questions (FAQs)
As of Feb. 15, 2023, the average interest rate on a home equity loan is 7.76%. However, keep in mind that the rate you’ll receive will depend on the home equity loan lender you choose and a variety of other factors, including your credit score, income and more.
Home equity loan rates are usually higher than mortgage rates because they’re considered a second mortgage. As of Feb. 15, 2023, the average interest rate on a 30-year mortgage purchase loan is 6.72% while the average home equity loan rate is 7.76%.
When you take out a home equity loan, you’re using your house as collateral. So if you’re unable to make payments on the loan, the lender could foreclose, and you might end up losing your home. Before you get this type of loan, make sure you have a plan in place and are able to keep up with payments.
Another potential downside of a home equity loan could be eventually owing more than your house is worth. For example, when you take out the loan, the value is determined by current home prices. If the area your house is in ends up declining rapidly in value, the loan amount won’t change. You’ll still have to pay based on the higher valuation.
While a home equity loan and a HELOC can be used to cover the same expenses, they work differently:
- Home equity loan: You’ll receive a lump sum and have both a fixed rate and set monthly payments for the duration of the loan. Home equity loans also typically come with higher rates than HELOCs.
- HELOC: This is a line of credit that works similarly to a credit card. You take out what you need from the total amount and are only responsible for paying back what you use, and you have the option of borrowing again. This could be a better choice if you’re not sure exactly how much you need to borrow or have recurring expenses. Also, HELOCs typically have lower rates than home equity loans. However, these rates are variable, meaning they can fluctuate over time.
