Best Home Equity Loan Lenders
A home equity loan is a type of loan that lets you utilize the value in your home for any purpose you choose. Whether it is an installment loan or a line of credit, home equity loans are popular for a variety of uses. The best home equity loans give you access to cash at one of the lowest interest rates around. Only a home mortgage loan has a lower interest rate in most cases.
If you think a home equity loan is right for you, it is important to work with one of the best home equity loan lenders in the marketplace today. Virtually every bank and many other financial institutions offer this type of loan. Read more to learn about what to look for in a home equity lender, how a home equity loan works, and what you can do to get the best deal for your needs.
What is a Home Equity Loan?
Home equity loans give you access to the value you hold in your home. To find out how much equity you have in your home, you can look at the current market value less any outstanding mortgage loan balance. For example, if you own a home worth $350,000 and have a $50,000 mortgage balance, you have $300,000 in available home equity.
There are several kinds of home equity loans. Each has its own advantages and disadvantages. Here’s a quick look at the most common loans you will see:
- Home equity installment loan – Sometimes called a second mortgage, this type of home equity loan gives you a fixed interest rate and fixed monthly payment over the life of the loan. You can choose the loan amount, usually up to around 80% of the home value. Based on the amount you borrow, the interest rate, and the repayment period, the lender will calculate a monthly payment. In most cases, you can pay off the loan early with no penalties. You get the cash up front as a lump sum and can use it however you choose. This may also allow you to do something similar to a cash-out refinance without touching your primary mortgage.
- Home equity line of credit – A home equity line of credit, or a HELOC, is a very popular type of home equity loan. A HELOC works kind of like a credit card attached to your home. You can add to the balance during a draw period, usually around 10 years. The monthly payment is updated each month to fully pay off the balance by the end of the repayment period, usually 20 years. However, the terms can vary widely depending on the lender and loan you choose. A HELOC usually has a variable interest rate, which means your rate can go up or down with market interest rates.
People use home equity loans for a wide variety of purposes. Those include home improvement, debt consolidation, college tuition, and other needs. Because a home equity loan has a low interest rate compared to most other types of borrowing, it may be good for many needs. Just keep in mind that the loan is secured by your property. If you stop making payments, the lender can foreclose on the home.
Best Home Equity Loan Lenders
If you are sold on the idea of an installment loan or home equity line of credit, the next step is picking a lender. This can be a bank, credit union, or online lender that only handles home loans. Interest rates may vary between lenders and based on your credit score. Loans with a higher loan-to-value (higher loan amount compared to the home’s value) may incur a higher interest rate.
It is important to shop around and pick a lender that suits your unique needs. Keep an eye out for interest rates, closing costs, early payoff penalties, application fees, and any other costs associated with the loan. For many borrowers, home equity lines of credit are the best choice because you can continue to borrow and add to the balance as needed over a period of time. Before signing, review the loan terms thoroughly so you understand what you are getting into.
Some loans may offer promotions or teasers to get you to sign up, but always factor in the long-term cost. Some loans may offer an introductory rate, but the rate will go up later on. If it isn’t a true low rate loan, you may be better off elsewhere. Here is a list of our favorite home equity lenders. Nationwide banks, regional banks, and online lenders are all worth considering if you are in the market for a home equity loan.
Best overall home equity lender: PenFed Credit Union
Short for Pentagon Federal, PenFed is a growing home lender that supports borrowers from coast to coast with competitive rates, excellent customer service, and flexible home equity loan options. A modest (less than $20) donation to a partner non-profit is required to join if you don’t have military ties, but then you get access to all of PenFed’s great products. Loans are available up to 90% loan to value (LTV).
Best large traditional bank home equity lender: US Bank
Of traditional, major banks, US Bank is a standout choice for home equity loans. It offers loans with large limits and is licensed in all 50 states. You can apply remotely no matter where you live, though you can apply in-person at branches in 28 states. Like most large banks, it struggles with customer service ratings. But the rates are reasonable and they have a good product available for many different customer needs. Loans are available up to 90% LTV.
Best for cash-out installment loans: LoanDepot
LoanDepot gets strong customer service ratings and offers cash out on home equity loans with up to 90% LTV. The biggest downside of LoanDepot is that you can’t handle more online. Much of the application process requires getting on the phone rather than tapping on the screen. It also offers 180 retail locations for in-person customer service.
Best for online application process: Figure
Figure isn’t a big bank. Instead, it is an online-focused lender that makes the application process quick, transparent, and easy to complete from home. It offers competitive rates for its home equity lines with no ongoing fees and funding as fast as five days. It is one of the few lenders that gives you a completely online application and same-day approval.
Other top home equity lenders
- TD Bank – TD Bank, originally from Canada, is active in 15 states and Washington DC, pretty much all on the East Coast. TD Bank offers both installment and HELOC loans. Installment loans have a $25,000 minimum and lines of credit have no minimum draw. You get a discount on your HELOC rate with a linked TD personal checking account.
- Citibank – One of the biggest banks in the US, Citi has options for low fees and competitive rates. Premium account holders get even better rates. Known for excellent customer service and, in most cases, a smooth loan process. They offer a 30-year loan term at a 6.79% rate and a 10-year term loan rate at 6.59%.
- Citizens Bank – Citizens offers both installment and HELOC loans. For a limited time, new customers get 0.50% off for a new HELOC loan. You can start the HELOC application online, though installment home equity loans require a call with the bank. Citizens offers competitive rates and the bank has been growing quickly over the last few years.
- PNC – PNC offers loans in all 50 states and has a physical presence in 19 states and Washington DC. Borrowers in some Eastern state can complete their entire loan application online. It offers many different home loan products to meet a range of needs. You may qualify for a discount with automatic payments. Get up to 90% LTV with PNC home equity loans.
- Navy Federal – This military-centric financial institution gives qualifying military families up to 100% LTV. You can’t beat that! Loans are available with a variety of terms and loan types. While there are some closing costs, you may qualify for credits in some cases.
- Third Federal – Third Federal is great for its very low intro APR, which can make it quite a bit cheaper than some competitors. This Savings & Loan has no minimum required initial draw and offers a rate of 1.01% below Prime Rate if you have a qualifying credit score.
- BB&T Home Mortgage – BB&T offers flexible borrowing options and flexible payment methods. Those include the ability to convert outstanding HELOC balances to a fixed rate. You can borrow up to 80% LTV. Closing costs are waived in some circumstances and new borrowers can get a discount rate for one year.
- Connexus Credit Union – Credit Unions are not-for-profit, so they sometimes offer better rates and fees that for-profit lenders. Connexus has a HELOC with no annual fee, competitive rates, and flexible terms for HELOC draw periods and home equity loan terms. There are some closing costs, but you may make that up in fee and rate savings depending on how you use the loan, which offers up to 90% LTV.
- Alliant Credit Union – Alliant is a popular nationwide credit union with products available in around 30 states. It offers up to 90% LTV and no closing costs. APRs are very good and loans can be closed fairly quickly. It offers three types of home equity loans including an interest-only HELOC.
- KeyBank – KeyBank offers home equity loans with a combined LTV of up to 100%. Loans come with flexible terms and a fixed interest rate. You can choose between two different types of home equity loans with one custom tailored for high-value homes.
- Discover – Discover Home Equity Loans from Discover Financial have no application fees, origination fees, or cash at closing. Loan terms and sizes are flexible and rates are competitive with good credit scores.
You may be able to get a home equity loan by simply walking into your local bank, but that doesn’t mean you will get the best deal. This is why it is so important to use resources like this to compare multiple lenders at once.
How to Qualify for a Home Equity Loan
Before you start the application process, you should review a few key aspects of your home and your credit. Opening any new credit line generally requires a review of your credit, income, and typical monthly expenses. When it is a loan secured by your home, your home’s equity and other key details also come into play.
Start with your home, as that’s the easy part to understand. If you really want to know what your home is worth today, one of the best estimates is to take the average of what you see on Zillow and Redfin. In my own experience, I have found Zillow estimates a little low and Redfin a little aggressively. The average of those two is a reasonable proxy.
Next, look at your mortgage and any other loans secured by the property. Use this to calculate the loan-to-value ratio of your home today. For example, if you own a home worth $400,000 and have a $200,000 mortgage balance, your loan-to-value ratio today is 50%. Most home equity loans are available at up to 80% loan-to-value. In this case, you would have 30% of the home value as a possible loan amount. That would be $120,000 in this example. Many lenders will loan at a higher loan-to-value, however. A handful will lend up to 90% and some will go as high as 100% in rare cases.
Next, look at your credit report and credit score. You can get your credit report for free at the government-mandated website AnnualCreditReport.com. You can get your credit score for free from Credit Karma and similar sites. In most cases, you will need a credit score of at least 620 or above. A higher score can get you a better rate and increased approval odds.
Your total debt monthly debt payments should not be more than 43% of your monthly income. If it is more than 50%, you may not qualify at all. Look at your credit report and add up your minimum monthly payments there and divide by your monthly gross income (before taxes) to calculate this figure.
While you have your credit report out, look at your payment history. A strong history of on-time payments leads to a good credit score and greatly improves your approval odds.
Typical Home Equity Loan Interest Rates & Costs
Interest rates on a home equity loan can vary by lender and borrower. To qualify for the best rates, you will need low overall debt balances, an excellent credit score, and plenty of available equity. If the value of your home has increased since you bought it, you might be surprised by how much you qualify to borrow. Nonetheless, if you meet the minimum qualifications above you should be able to get a new home equity installment loan or HELOC.
As of April 2019, the average home equity loan charges 5.90% and the average home equity line of credit charges 6.75%, according to Bankrate.
With an installment loan, you are most likely to find a fixed rate. This means your interest rate is locked in and your minimum monthly payments will never change over the life of the loan. A HELOC, on the other hand, generally comes with a variable rate. This means the interest rate you pay can change over time.
Variable rates generally go up and down with the target interest rate set by the Federal Reserve. In 2018, rates went up a full 1%. The target interest rate is up 2% since 2015. While rate increases seem to be on hold for now, with a long-term loan you can’t easily predict when rates will change.
Some HELOCs allow you to convert an existing balance to a fixed rate. Review the details of the loan to find out if this is an option for you.
Refinance or Home Equity Loan?
If you talk to a banker about opening a new home equity loan of any kind, they may try to talk you into something else. Some bankers may push you to instead refinance your primary mortgage, either with cash out or with proceeds paying off other loans. The benefit of this is putting all of your debt into one loan with one payment. And, as a mortgage, probably the lowest interest rate you qualify for.
In some situations this makes sense, but it isn’t right for everyone. If you have had your mortgage for a while, for example, refinancing could add decades of debt payments for you. Opening a new home equity loan leaves your original mortgage intact. The payments don’t change and your payoff date is pushed farther into the future.
If you run the numbers, refinancing your first loan may save you more in the long run, but often it is best to leave that loan alone. A home equity loan is tied to the exact same property but allows you to have more control as you can add to the balance at any time or pay it down at any time without changing your home’s monthly payment.
If you are close to paying off your home for good, refinancing into a new primary mortgage could set you back as much as 30 years on your debt payoff plan.
Proceed with caution if you are offered a cash-out home loan of any kind. While it is tempting to refinance or add a loan to your home and walk away with a big check to spend on anything you choose, it is a debt that you will have to pay back at some point. Cash-out refinancing is popular with real estate investors as it allows them to grow their leverage and purchase new properties. But a typical homeowner is better off paying down their loan and wiping away as much debt as possible
Is a Home Equity Loan Right for You?
If you can get one with no origination fee, a HELOC could be a low-interest loan on standby in case you ever need it. That is a much better backup plan than a high-interest credit card. But unlike a personal loan, any type of home equity loan puts your home on the line. As long as you can continue to pay as agreed, everything should be just fine.
As with any type of loan, and particularly with real estate, you should never rush or take a loan you don’t understand. But if you can take the time to make an informed decision, a home equity loan may be perfect for your home improvement projects or any other borrowing needs.