Home Equity
A great option for home repairs or paying off high-interest debt; secure the best rate for your home equity loan in 2025 and save more money today.
Frequently Asked Questions (FAQs)
What is home equity?
Home equity is the portion of your home that you own outright, calculated as the difference between your home’s market value and your remaining mortgage balance.
How do I calculate my home equity?
Home Equity = Home’s Current Market Value − Outstanding Mortgage Balance
For example, if your home is worth $300,000 and you owe $200,000, your equity is $100,000.
How can I increase my home equity?
- Make extra mortgage payments to reduce your loan balance faster.
- Wait for home appreciation as market values rise.
- Make home improvements that add value to your property.
What is a home equity loan?
A home equity loan is a lump-sum loan that uses your home equity as collateral. You repay it in fixed monthly payments with a set interest rate.
What is a HELOC (Home Equity Line of Credit)?
A HELOC is a revolving line of credit that allows you to borrow against your home’s equity as needed. It works like a credit card, with a draw period (usually 5-10 years) followed by a repayment period.
What’s the difference between a home equity loan and a HELOC?
- Home equity loan: Fixed interest rate, lump sum, predictable monthly payments.
- HELOC: Variable interest rate, flexible withdrawals, interest-only payments during the draw period.
How much can I borrow with a home equity loan or HELOC?
Lenders typically allow you to borrow 80% to 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:
400,000 × 0.85 = 340,000
340,000 − 250,000 = 90,000
You may be eligible to borrow up to $90,000.
What credit score do I need for a home equity loan or HELOC?
Most lenders require a credit score of 620 or higher, but the best rates are available to borrowers with 700+ credit scores.
What do lenders consider when approving a home equity loan or HELOC?
- Credit score – Higher scores get better interest rates.
- Home equity – You typically need at least 15% – 20% equity.
- Debt-to-income ratio (DTI) – Lenders prefer a DTI below 43%.
- Income stability – Proof of income is required to ensure repayment ability.
How long does it take to get approved?
The approval process can take 2 – 6 weeks, depending on the lender, your documentation, and the home appraisal.
]What are the costs of taking out a home equity loan or HELOC?
- Appraisal fees ($300-$700)
- Origination fees (0%-5% of the loan amount)
- Closing costs (2%-5% of the loan amount)
- Annual fees (HELOCs may have maintenance fees)
- Early termination fees (for HELOCs closed too soon)
Can I lose my home if I don’t repay a home equity loan or HELOC?
Yes. Both a home equity loan and a HELOC are secured by your home, meaning the lender can foreclose if you fail to make payments.
Are home equity loan interest rates higher than mortgage rates?
Yes, typically higher than first mortgage rates but lower than personal loans or credit cards.
Is the interest on a home equity loan or HELOC tax-deductible?
Interest may be tax-deductible only if the funds are used for home improvements. Consult a tax professional for details.
What can I use my home equity loan or HELOC for?
- Home renovations (kitchen remodel, roof repairs, etc.)
- Debt consolidation (paying off high-interest credit cards)
- Education expenses (college tuition)
- Emergency expenses (medical bills, unexpected repairs)
- Investing in another property
Can I use home equity for a down payment on another home?
Yes, many homeowners use a home equity loan or HELOC for a down payment on a second home or investment property.
Can I refinance my home equity loan or HELOC?
Yes, refinancing can help you secure a lower interest rate or switch from a variable to a fixed rate.