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Best Home Equity Loan Rates for 2021
While they sound the same, home equity loans are quite different from a personal loan. Instead, these are more like second mortgages that use a percentage of the equity you’ve built up in your current home to give you access to a lump sum of funds you can borrow to finance large home renovation projects, pay off bills or a number of other uses.
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A home equity loan is secured by your home, meaning you have to use your home as collateral in case you don’t pay it back. Given that the loan is secured, you’re more likely to get a lower offer on your best home equity loan rate than other loan rates. We rated and reviewed the best home equity loans using our SimpleScore methodology that compares rates, loan amounts, product variety, customer satisfaction and fees.
Still, while somewhat risky, this borrowing tool is a great way for many homeowners to gain access to a large lump sum of cash quickly, and at a much more affordable rate than you’ll get with other loans or credit cards. If you’re considering a home equity loan, it’s important to take the time to find the best home equity loan rates before moving forward in the borrowing process.
The 6 best home equity loan rates of 2021
- Best for Good Credit: U.S. Bank
- Best for Existing Customers: Discover, Member FDIC
- Best for Product Variety: TD Bank
- Best for Small Amounts: PNC
- Lowest Closing Costs: BBVA
- Best for No Fees: Digital Federal Credit Union
| Lender | APR | Loan Amount | Terms | SimpleScore |
|---|---|---|---|---|
| U.S. Bank | Starting at 3.80% | $15,000–$750,000 ($1 million for CA properties) | 10 or 15 years | 4.2 |
| Discover, Member FDIC | 3.99%–11.99% | $35,000–$200,000 | 10–30 years | 3.75 |
| TD Bank | 4.74%–10.01% | Starting at $25,000 | 5–30 years | 3.6 |
| PNC | Starting at 3.50% | $1,000 to LTV maximum | 5–30 years | 3.75 |
| BBVA | 4.04%–9.09% | $10,000–$500,000 | 5–30 years | 3.75 |
| Digital Federal Credit Union | Starting at 3.74% | 80% of CLTV | 5–20 years | 5 |
*Rates accurate as of December, 2020, and exclude autopay discounts.
Best for good credit – U.S. Bank
US Bank is generous with its loans amounts — just make sure you can pay it off in the short time, lest you lose your greatest investment.
With the lowest fees on our list, US Bank also has some of the most flexible lending terms for your loan. The bank is also generous — you can receive up to $1 million in California and $750,000 everywhere else. Just be prepared for the shortened repayment terms, because US Bank only gives you 10 or 15 years for repayment.
Best for existing customers – Discover, Member FDIC
Even though there’s a penalty for prepayment, Discover is an excellent choice if you have great credit — and there’s no closing costs.
Discover is a great middle of the road option that meets a wide array of lending needs. Loans vary from $35,000 to around $200,000, and the repayment terms vary from 10 years all the way up to 30 years.
Best for product variety – TD Bank
Want to know exactly how much you can borrow before you apply or check rates? You’re SOL, as TD Bank doesn’t disclose that information.
TD Bank has industry-competitive APRs of 4.74%–10.01%. However, its transparency is poor, too; while the bank discloses a starting point of $25,000 for its loans, there is no mention of maximum amounts. With average repayment terms, TD Bank is a good fit for the serious lender. But if you like to have plenty of options, TD Bank offers more than enough financial products and home loans to get borrowers interested.
Best for small amounts – PNC Bank
Only need to borrow some change against your house? PNC can extend as little as $1,000 for whatever you need.
PNC Bank has some of the lowest rates for a home equity loan, starting at 3.50%. But, with no indication of the bank’s high-end rates, a poor credit score could potentially bring high rates. Loans also start very small at just $1,000 with generous repayment terms from five to 30 years.
Lowest closing costs – BBVA
BBVA delivers lump-sum payments and low — or even completely eliminates — closing costs on your home equity loan.
BBVA offers competitive rates on its home equity loans, but still runs middle of the pack in APRs. However, it’s a great pick when you need a large loan, because BBVA offers up to $500,000. There are also the standard repayment terms of five to 30 years, so you still have the chance for more time to pay off your loan. If closing costs have you apprehensive, you may qualify for the bank to pay your closing costs instead, making its home equity loan a boon for the fee-adverse.
Best for no fees – Digital Federal Credit Union
The rates are great, and DCU doesn’t charge for many common fees. However, DCU’s service area is only Georgia and Massachusetts, so coverage is extremely limited.
Digital Federal Credit Union is an attractive pick because it offers some of the lowest APRs. Loans terms are also reasonable from five to 20 years, but you can borrow up to 80% of your home’s combined loan-to-value ratio. DFCU gives you bigger loans with longer to repay and at better rates.
What is a home equity loan?
A home equity loan can be an easy way for a homeowner to receive one lump sum payment for emergency repairs or other household needs that may arise suddenly. This loan is then repaid with interest in installments over time.
[More: Should You Get a Second Mortgage?]
Unlike other kinds of loans, a home equity loan specifically uses the value that you have accrued in your home, leveraging your ownership for a loan. Your equity grows in response to your payments on the principle, as well as changing market values.
Because a home equity loan leverages the value of your home, it is considered a type of secured loan that uses your property as collateral. That means if you fail to pay to repay your loan, you risk losing your home to settle the balance.
There’s also a home equity line of credit, or HELOC, that works in much of the same way, but it uses a revolving line of credit instead of one lump sum. As you pay down your balance, you can reuse the funds over the life of the loan. A HELOC allows you the opportunity to take out a smaller loan so you can borrow and repay in stages over time to avoid accumulating one massive bill.
A home equity loan uses a fixed rate, well a home equity line of credit utilizes an adjustable rate that can change over time.
How should I choose the right home equity loan?
It can be confusing trying to differentiate between a home equity loan and a home equity line of credit, but each loan serves a different purpose.
An equity loan is great if you’re planning on some pretty big projects that will require a lot of cash upfront. Other homeowners may prefer it simply for stability, as it will not change like an adjustable rate can.
[Related: Best Personal Loans]
There are times when an adjustable rate is better, however. If the market were to crash, as it is done in the wake of the coronavirus pandemic, a fixed-rate APR would stay the same, while an adjustable-rate stands to drop significantly. In this case, those homeowners with an adjustable-rate loan stand to pay considerably less interest than those who remain locked in at previous rates.
An adjustable-rate loan can also be a better solution when you need to borrow smaller amounts of money at a time. This can also mean faster processing and, therefore, faster funding.
How do I apply for a home equity loan?
- Check your credit reports. You can get a free copy of your credit report online to check your current credit score. This will save you time and protect your credit score from unnecessary inquiries that can cause harm.
- Calculate your home’s value. Some lenders require an appraisal of your home to determine the current value before approving your loan. They will also examine your application to see what the funds will be used for, so any extra details that you provide could result in faster approval.
- Check rates. Many lenders use what is called a soft pull that gives them some financial details without impacting your credit report, but you should check rates with multiple lenders to find the best offers from the best home equity loan providers.
- Compare quotes. Once you receive your quotes, compare the lenders to find the best APR, as well as reasonable repayment terms and minimal fees. Some lenders will also offer special promotions or exclusive discounts that you can use; be sure to inquire before moving forward with your loan.
Home equity loans and Covid-19
When the coronavirus pandemic halted the economy, interest rates plummeted and many homeowners rushed to refinance their homes to take advantage of these historic lows.
However, the demand has been so high that many banks have ceased lending altogether in an effort to catch up to the overall national economic hardship. Rising unemployment numbers create considerable uncertainty for cautious lenders who are having trouble verifying employment, let alone guaranteeing it for the years to come.
[More: Should I Refinance My Home While Interest Rates Are Low?]
Other banks are continuing to accept applications and distribute funds, but they are using heightened borrowing requirements for a more competitive approval process.
Too long, didn’t read?
When you need extra cash in the bank for your home, a home equity loan can be the very solution you need to finance pressing matters and enjoy an extended time frame to pay it back.
We welcome your feedback on this article and would love to hear about your experience with the home equity loans we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.
Keep Reading
Methodology
The SimpleScore is a proprietary scoring metric we use to objectively compare products and services at The Simple Dollar.
For every review, our editorial team:
- Identifies five measurable aspects to compare across each brand
- Determines the rating criteria for each aspect score
- Averages the five aspect scores to produce a single SimpleScore
Here’s a breakdown of the five aspect scores and their rating criteria for our review of the best home equity loans of 2020.
We want to make sure the SimpleScore is as helpful and accurate as possible because we know making any home lending decision — big or small — is tough. With that in mind, we created unique criteria for each category for a fair and honest comparison at The Simple Dollar.
Why do some brands have different SimpleScores on different pages?
Keep in mind that most brands have multiple products and services, and they are scored differently depending on the categories we’re evaluating on a given page. The same product or service may have multiple SimpleScores depending on the categories being evaluated. For example, if we’re comparing U.S. Bank according to our criteria for mortgage origination, it scores a 4 out of 5. But when we compare the same brand based on criteria for home equity loans, it scores higher at a 4.25 out of 5. We adjusted each category’s methodology to account for differences in products in order to cover the most important factors and standards that you might consider.
APR
We awarded higher scores to home equity lenders that offered lower rates
Loan Amounts
We gave lenders with higher available loan amounts higher scores. The higher the loan amount — or even no maximum — the higher the aspect score.
Fees
We doled out higher aspect scores to lenders that kept the fees to a minimum — or eliminated them entirely.
Customer Satisfaction
We used the J.D. Power Mortgage Origination Satisfaction Study℠ to see how customers rated their experience with each lender. If a lender wasn’t included in J.D. Power’s study, we skipped this aspect and averaged the four remaining aspect scores.
Product Variety
If a lender had more than just one product, we awarded it a higher score, because customers should have all available options for loans.
Reviewed by
Andrea Perez
Personal Finance EditorAndrea Perez is an editor at The Simple Dollar who leads our news and opinion coverage. She specializes in financial policy, banking, and investing.
