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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.
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
|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|
|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.
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.
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.
Other banks are continuing to accept applications and distribute funds, but they are using heightened borrowing requirements for a more competitive approval process.
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 firstname.lastname@example.org with comments or questions.