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Compare Mortgage Rates
Rates shown are for illustration. Click to see actual rates from our partners.
| Lender | Rate (APR) | Monthly Payment | Fees | |
|---|---|---|---|---|
| A LendFirst Bank | 6.25% | $1,847 | $2,100 | View Offer |
| B QuickRate Financial | 6.50% | $1,896 | $1,800 | View Offer |
| C HomeSecure Lending | 6.75% | $1,946 | $1,500 | View Offer |
How Home Equity Loans Work
A home equity loan lets you borrow against the equity you have built in your home, providing a lump sum of cash with a fixed interest rate and predictable monthly payments. The loan is secured by your property, which means rates are typically lower than unsecured personal loans or credit cards. Repayment terms generally range from 5 to 20 years, and you begin making principal and interest payments immediately after receiving the funds.
Home Equity Loan vs HELOC
Home equity loans and HELOCs both tap into your home equity, but they work differently. A home equity loan provides a single lump sum with a fixed rate, making it ideal for one-time expenses like a major renovation or debt consolidation. A HELOC functions as a revolving line of credit with a variable rate, better suited for ongoing expenses or projects with uncertain costs. Your choice depends on whether you need all the funds at once or prefer the flexibility to draw as needed.
Tax Deductibility of Home Equity Loan Interest
Under current tax law, interest on a home equity loan is tax deductible only if the funds are used to buy, build, or substantially improve the home that secures the loan. Interest on home equity funds used for other purposes, such as paying off credit card debt or funding a vacation, is not deductible. The combined mortgage and home equity loan debt eligible for the interest deduction is capped at $750,000 for loans taken after December 2017.
How Much Home Equity Can You Borrow?
Most lenders allow you to borrow up to 80-85% of your home's appraised value, minus your outstanding mortgage balance. This is known as your combined loan-to-value ratio (CLTV). For example, if your home is worth $400,000 and you owe $250,000 on your mortgage, an 80% CLTV limit would allow you to borrow up to $70,000. Your credit score, income, and debt-to-income ratio also factor into the maximum amount a lender will approve.
Frequently Asked Questions
Most lenders allow you to borrow up to 80-85% of your home's value minus your outstanding mortgage balance. For example, if your home is worth $400,000 and you owe $250,000, you could potentially borrow up to $90,000.
Home equity loan interest may be tax deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. Interest on funds used for other purposes (like paying off credit cards) is generally not deductible.
A home equity loan provides a lump sum with a fixed interest rate and fixed monthly payments. A HELOC is a revolving line of credit with a variable rate, allowing you to borrow as needed during a draw period.
As of 2024, home equity loan rates typically range from 7.5% to 10%, depending on your credit score, loan-to-value ratio, and loan term. These rates are generally higher than first mortgage rates but lower than personal loans or credit cards.