Choose the best home equity loan lender with our assistance if you’re interested in obtaining a home equity loan.
With a home equity loan, you can borrow money based on the worth of your house, less the amount of your existing mortgage. This type of loan is similar to a second mortgage. Consider first what you need out of a home equity loan. Examine the lenders provided below after that. Read on to find out more about your alternatives if you’re interested in investigating alternative home equity programs.
How a home equity loan works
As long as you keep up with your monthly mortgage payments, your home’s equity will progressively increase. This implies that the amount of the house that you actually own is growing. You can borrow against your equity and use the money however you see fit once you’ve built up enough equity, usually between 15 and 20 percent.
Receiving the entire loan amount at once is a key feature of a home equity loan. Making it a popular option for borrowers who have a clear understanding of their financial requirements. It’s important to actively seek out offers from different lenders to secure the best rate. Your eligibility for interest rates is impacted by factors like your debt-to-income ratio, credit score, and the amount of equity you’re borrowing.
Alternatives to a home equity loan
Home equity loans aren’t the sole means of tapping into your home equity. In addition to home equity loans, HELOCs, and cash-out refinances offer opportunities to convert a portion of your home equity into cash for your discretionary use.
All three loan types are secured by your home as collateral, making it advisable to utilize the cash in a manner that enhances your financial standing. This is why they are commonly employed for home renovations that increase property value.
Here are some essential considerations to bear in mind when comparing home equity loans, HELOCs, and cash-out refinances.
Home equity loan
A home equity loan gives you a single payment upfront that you repay gradually at a fixed rate. You’ll be paying off this loan alongside your mortgage, as it essentially acts as a second mortgage.
The loan term can be shorter depending on how much you borrow and how quickly you intend to repay the loan.
Home equity line of credit, or HELOC
Provides you with a line of credit that you can draw from as needed, eliminating the necessity of determining an exact amount beforehand (though having a rough estimate is still advisable).
Features an adjustable interest rate, implying that the interest rate fluctuates throughout the loan’s duration. Some lenders may also provide a fixed-rate alternative.
Cash-out refinance
Replaces your existing mortgage with a new loan that is greater than the amount still owed on your current mortgage. You receive a cash payout for the difference in amount between the new loan and the current balance.
The top 9 home equity lenders
Bank of America has emerged as a prominent player in home equity lines of credit (HELOCs) and home equity loans. Demonstrating significant activity by extending over $5 billion in home equity debt during the first and second quarters of 2023. This has positioned Bank of America as the leader among lenders in this domain. Such is its influence that when HELOC rates experienced a sudden and substantial increase during the week of November 8. It was attributed to Bank of America discontinuing an introductory rate on its line of credit.
Here’s a breakdown of home equity loan and HELOC activity among various lenders:
- Bank of America: The megabank facilitated $5.14 billion in loans during the first half of the year, marking a 12.5 percent increase from the same period in 2022.
- Citizens Bank: This Rhode Island-based financial institution recorded $4.6 billion in home equity loans and HELOCs, slightly lower than its activity in 2022.
- PNC Bank: With headquarters in Pittsburgh, this bank conducted $4 billion in business in the first half of 2023.
- U.S. Bank: The Minneapolis-based lender saw a 51.9 percent decrease in home equity and HELOC originations compared to the previous year, but still managed to lend $2 billion.
- Huntington National Bank: This Ohio-based lender facilitated $1.8 billion in HELOCs and home equity loans in the first half of the year.
- Spring EQ: Based in Pennsylvania, this lender experienced significant growth, conducting $1.78 billion in business during the first half, a 68 percent increase from the previous year.
- TD Bank: The Canadian lender arranged $1.72 billion in home equity loans and HELOCs.
- Figure Lending: This lender reported $1.32 billion in activity during the first half of the year.
- Navy Federal Credit Union: As the only credit union on the list, Navy Federal more than doubled its volume from the previous year, with $1.31 billion in home equity lending.
- BMO Harris Bank: This lender completed $1.06 billion in home equity business.
Why home equity loans are popular now
Mortgage Rates:
Mortgage rates have surged over the last couple of years. Consequently, for homeowners, utilizing equity via a cash-out refinance. Which was previously the preferred method for home renovations or other financial needs, doesn’t seem sensible today. Why would you want to pay off your 3 percent mortgage when current rates are at 7.5 percent? Opting for a HELOC or home equity loan enables you to retain your low-rate mortgage.
Indeed, home equity rates can also be surprising. As of November 21, the average rate on a HELOC stood at 10.02 percent. based on Bankrate’s survey of major lenders, home equity loans averaged 8.95 percent. The increase in HELOC rates has been particularly significant. At the beginning of the year, lines of credit were around 7.6 percent, and in January 2022, they were at 4.25 percent.
Despite the increase, home equity loans and HELOCs remain significantly more affordable than numerous personal loans and credit cards. Additionally, home equity financing presents other benefits. These products often feature lengthy terms, occasionally spanning up to 30 years. Furthermore, if the funds are utilized for home repair or renovation purposes, the interest may be tax-deductible.
