6 Best Home Equity Loans

If you’re a homeowner in need of extra money, you might be considering a home equity loan or a home equity line of credit (HELOC). These products tap into your home’s equity and use it as collateral to secure the funds you’re borrowing. Homeowners can use HELOCs or home equity loans for any purpose whatsoever, and interest rates for these products are usually lower than those of a credit card or personal loan, which makes tapping home equity an attractive option for people in need of cash.

That being said, there are risks involved if you fall behind on payments, including additional fees, a negative mark on your credit report or even foreclosure. To help you navigate this, and find the best lender for your specific needs, we took a look at various lenders and compiled our top picks for best home equity loans.

As you study the results of our analysis, keep in mind that interest rates change from time to time (ours reflected offerings as of July 7, 2022). You’ll want to look at the most up-to-date rates offered by each lender before making a decision.

Read on for our top picks for the best home equity loans.

Our Top Picks for Home Equity Loans

• Discover– Best for No Fees
• Regions Bank – Best for Competitive Rates
• Truist – Best Fixed-Rate HELOC
• U.S. Bank – Best for Large Loans
• Citizens Bank – Best for Flexible Loan Amounts
• PenFed – Best for Non Owner Occupied Properties

Best Home Equity Loans Reviews

Why we chose it: Unlike its competitors, Discover doesn’t charge any application fees, appraisal fees, mortgage taxes or origination fees. Discover also features a high loan-to-value maximum compared with other top lenders.

The company offers low fixed rates. It also allows customers to apply for a loan online or over the phone, making it an excellent option for homeowners who need an expedited process.

Discover allows borrowers to have a total debt (i.e., mortgage balance plus home equity loan balance) of up to 90% of their property’s value. Loan amounts range from $35,000 to $300,000 – which are higher amounts than many other lenders require, and so may not work for some borrowers. To qualify for a Discover home equity loan, you’ll need a FICO score of at least 620, along with verifiable employment and proof of income.

Discover also requires that borrowers maintain a debt-to-income ratio of less than 43%. Also, if you pay back the loan within the first 36 months, you’ll need to reimburse some of the closing costs (up to $500). Currently, Discover only offers home equity loans, so if you’re looking for a HELOC, you’ll need to choose a different lender.

Why We Chose it: Regions Bank has a fixed rate as low as 6.375% if you enroll in autopay. If you’re looking for a HELOC, the bank has rates starting at 7.25%.

If you’re looking for a HELOC, Regions has an introductory rate of 0.99% APR for the first six months, provided you are eligible. Borrowing amounts start at $10,000 and can be as high as $500,000 with a 30-year term loan. While Regions Bank does charge other fees, there are no closing costs for home equity products up to $250,000.

To qualify for a Regions Bank home equity loan or HELOC, you must have a minimum of $10,000 in equity in your property. In addition, your home must be a primary or secondary residence in one of the 15 states in which Regions has a branch. These states currently include Texas, Tennessee, South Carolina, North Carolina, Louisiana, Mississippi, Missouri, Kentucky, Illinois, Indiana, Iowa, Georgia, Florida, Arkansas and Alabama.

Why we chose it: Truist specializes in HELOCs and offers three repayment options: interest-only, fixed interest rate and variable interest rate repayments with zero-cost closing options. As we discuss in our Truist review, the company doesn’t offer traditional home equity loans.

Truist’s rates for a HELOC start at the variable introductory rate of 6.49% APR. After a year, they start at 8.45%. The variable-rate HELOC has a 10-year draw (the amount of time within which a borrower can access additional funds) along with a 20-year repayment period. During the 10-year draw, you can choose to make interest-only payments or pay 1.5% of the outstanding balance.

With Truist’s fixed-rate option, borrowers can choose a repayment term between five and 20 years. The repayment term determines the monthly payment (plus interest and other fees). The minimum draw amount for either type of HELOC is $5,000, which means that borrowers aren’t forced to borrow (and pay interest on) more money than they need at the time.

It’s worth noting that Truist charges additional fees in certain states. In Alabama, Florida, Georgia, Indiana, Kentucky, New Jersey and Ohio, Truist charges a $50 annual fee on HELOCs. There are additional setup fees and potential origination fees. These fees vary by state and can be as high as $10,000.

Why we chose it: U.S. Bank covers all closing costs for both home equity loans and HELOCs. Further discounts are available for those who have checking accounts with U.S. Bank.

U.S. Bank offers some of the largest loans around — as low as $15,000 and as much as $750,000, depending on your credit score and your home’s equity, with California residents being able to borrow up to a million dollars. Borrowers have the option to convert all or part of their HELOC to a fixed-rate loan. With this arrangement, you can have up to three fixed-rate loans at any time.

To qualify for the best rates with U.S. Bank (as low as 7.45% for a 15-year term), you’ll need a FICO credit score of 730 or higher. There is a 1% early termination fee (up to $500) on HELOCs if the account is closed within 30 months.

While other lenders only require interest payments during a HELOC draw period, U.S. Bank also requires most borrowers to pay as much as 2% of their balance each month, applied to both interest and principal. That said, some borrowers with qualifying credit scores can opt for interest-only payments.

Why we chose it:Citizens Bank offers a variety of loan options, with loan amounts starting as low as $5,000 for its GoalBuilder HELOC with no closing costs or application fees.

Citizens Bank offers two flexible home equity options: a regular HELOC and their Citizens GoalBuilder HELOC. With the standard HELOC, loan amounts start at $17,000 with a 10-year draw and a 15-year repayment term. Citizens’ interest rate minimum is 2.50% but can run as high as 21%. While there are no application fees or closing costs, the bank charges late fees and a $50 annual fee after the first year.

The bank’s GoalBuilder HELOC offers loans between $5,000 and $25,000. When you sign up for autopay from a Citizens checking account, the APR is 3%. Unlike the bank’s regular HELOC, this product has no annual fees or prepayment penalties. You have ten years to use the money and 15 years to repay it.

To be eligible for a HELOC with Citizens Bank, you’ll need a good FICO score, a loan-to-value of 80% or less, and a low debt-to-income ratio.

Why we chose it: PenFed offers special pricing options for borrowers with equity in a second home or rental property. For non-owner-occupied homes, loan amounts start at $25,000 but can go as high as $1 million depending on credit scores and the property’s combined loan-to-value (CLTV) ratio.

HELOCs from PenFed include a 10-year draw and a 20-year repayment period. Rates start at 9.75% APR.

PenFed charges no lender or closing fees. But they will charge an early termination fee if you close your account within 36 months, there is also technically a $99 annual fee. However, PenFed waives that charge if you’ve paid at least $99 in interest within the preceding 12-month period.

Only PenFed credit union members qualify for a HELOC. Further, they require a minimum credit score of 660, a favorable debt-to-income ratio, proof of income, one year of W2s and other financial documentation.

Other companies we considered

In addition to the banks and credit unions that made our list, we considered others that didn’t quite make the cut. Though they weren’t our top picks, they may still be good options for some homeowners.

PNC Bank

PNC Bank offers two ways to access the equity in your home: cash-out refinance and a home equity line of credit, which we discuss in our PNC Bank review. At present, the company isn’t offering traditional home equity loans, but it offers two HELOC options: fixed-rate and variable-rate.

Pros:

• Flexible borrowing options up to 89.9% of your home’s value

• Offers low rates in both variable and fixed categories

Cons:

• PNC’s website isn’t upfront about rates, terms, or eligibility requirements

• Not available in Alaska, Hawaii, Louisiana, Mississippi, Nevada or South Dakota

Bank of America

Bank of America is the second-largest banking institution in the U.S. The company offers a wide range of purchase mortgages, including government-backed VA and FHA loans and two refinancing solutions: cash-out refinancing and home equity lines of credit. See our Bank of America review for more information.

Pros:

• No application fees, closing costs (on lines of credit up to $1 million) or annual fees

• No fee to convert your variable rate balance to a fixed-rate option

Cons:

• $450 early termination fee and closing fees

• $25,000 minimum line amount might be too high for some

Figure

Figure Bank offers purchase loans, cash-out refinancing and home equity lines of credit. As we discuss in our Figure review, it’s also one of a growing number of financial institutions to offer crypto-backed mortgages. So, if you’re sitting on a pile of bitcoin, you may be able to put it to work for you when funding home renovations or other large projects.

Pros:

• Receive money in as little as five days

• Entirely online application process

Cons:

• HELOC loan cap of $400,000

• Origination fee can range from 3% to 4.99% of your first draw amount

KeyBank

Keybank offers fixed-rate home equity loans with terms available from five to 30 years. You can borrow between $25,000 and $500,000 against your home, so long as your combined loan-to-value ratio is 80% or below. Borrowers who have a savings or checking account with the institution are eligible for a 0.25% interest rate reduction,

Pros:

• Borrow up to 90% of your home’s appraised value

• Get a 0.25% interest rate discount when you have checking and savings account with Keybank

Cons:

• Early termination fee if you close a HELOC within 36 months

• HELOC is not available in Alabama, Arizona, California, Nevada, Texas or Washington, D.C.

Flagstar

Flagstar Bank offers cash-out refinance and home equity lines of credit. Home equity loans are only available in some states. A drawback is that there isn’t an online application option, and Flagstar branches are only located in five states.

Pros:

• Zero closing costs on HELOCs or home equity loans

• High $500,000 limit on home equity loans

Cons:

• No online application option

• Physical branches only in California, Indiana, Michigan, Ohio and Wisconsin

BMO Harris Bank

Currently, BMO Harris is offering a competitive variable introductory rate on its home equity line of credit as low as 6.89% APR for up to five years. The company allows you to lock in your rate with a fixed-interest loan anytime during the draw period. Fixed-rate loan terms are between 5 and 20 years. BMO Harris HELOCs are only available to homeowners in seven states: Arizona, Florida, Illinois, Indiana, Kansas, Minnesota, Missouri and Wisconsin.

Pros:

• No application fees and low-to-no closing costs
• Wide range of terms from 5 to 20 years

Cons:

• High credit score requirements (700) compared to other banks
• $75 fee each time you convert HELOC from a variable to a fixed rate

Home Equity Loan Guide

How should you use your home equity?

Home equity loans offer the opportunity to get access to cash for whatever purpose suits you. But that’s not to say it’s a good idea to withdraw equity from your home for a frivolous reason.

Start by asking yourself whether you truly need to spend the money you’re withdrawing. Paying off a pile of medical bills, paying for your kids’ college education and replacing a roof that’s falling down around you are a few examples of necessary spending.

Next, ask yourself whether you’ll be spending the equity you withdraw to save money and improve your financial situation in the long run. For example, home equity loans usually come with lower interest rates than credit cards, personal loans and even student loans. You may use your equity to reduce the interest you’re paying on your total debt.

Finally, consider whether the money you plan to spend will significantly improve your home’s value. Many people use home equity loans for home renovations. Reinvesting the equity you currently have right back into your home can also be a smart decision — you will profit from the investment when it comes time to put your house on the market.

How do you choose the best home equity option?

You have several choices to access the home equity you’ve amassed. The first is to refinance your homes completely. Refinancing makes sense when interest rates are lower than they were when you took out your original mortgage. It may also make sense if you can get better loan terms.

Home equity loans and home equity lines of credit (HELOCs) are second mortgages that you must pay off while also making your primary mortgage payment. Home equity loans are for fixed amounts and payments become due as soon as you take one out. Home equity lines of credit allow borrowers to access their home equity in increments on an as-needed basis. The years that you’re allowed to take money out of your home is known as the draw period.

HELOCs differ from home equity loans in that they typically allow you to defer payments for a period of years: ten years is standard. When your draw period ends, you’ll be required to make monthly payments until you paid off all the borrowed money. With refinance loans and home equity loans, you will typically pay a fixed rate of interest for the life of the loan. Home equity lines of credit are typically adjustable-rate loans.

Which means of accessing your home equity is right for you? That depends on a number of factors, including your current financial situation, the financial future you anticipate, your overall goals and the interest rate you’re paying on your current mortgage. If you got a great rate on your original mortgage and want to keep it — particularly right now when mortgage rates are on the rise — a home equity loan might make the most sense for you. Suppose you’re not sure how much money you need to achieve your goals and aren’t in the position currently to begin paying off a new loan, the flexibility to borrow only what you need from day to day and defer payments for a period of years. In that case, a HELOC might be a better choice for you.

What is the process of getting a home equity loan?

Applying for a home equity loan is very much like applying for any type of credit. Start by researching home equity lenders. Shop around for the best home equity rates. Many lenders allow you to view personalized rates without submitting a formal application.

When the time comes to submit a formal application, you’ll be required to submit a substantial amount of information, including income verification and past tax returns. Lenders take a thorough look at your financial portfolio before they agree to loan you any money. Once you complete your application, the amount of time it takes before a lender approves or rejects it can vary from a few weeks to more than a month. Similarly, once you sign on the dotted line, it can take days or weeks for your loan to be funded.

When is a home equity loan a good idea?

You should have a very good reason for taking out a home equity loan, but that can look different for each homeowner. Sometimes the reason is clear: you foresee a pressing personal expense that you can’t fund through your savings. But some homeowners decide to take equity out of their homes to start a business or make an investment that promises a high return.

One thing’s for certain, though: the time to take out a home equity loan is when you’ve polished your credit profile and it’s as shiny as you can get it. Only borrowers with excellent credit are offered a lender’s lowest interest rate.

Home Equity Loans FAQs

Are home equity loans tax-deductible?

You can deduct the interest you pay on a home equity loan if you meet two criteria. The first is how you decide to use the money you borrowed. To deduct your home equity loan interest, you must have used the borrowed funds to improve a qualified residence or build or buy a new home. In addition, to deduct all of the interest you’ve paid during a tax year, the total amount of money you owe on your property (including both your first and second mortgage) cannot exceed $750,000. If you owe more than that, only a portion of the interest paid will be deductible.

How long does it take to get a home equity loan?

Most lenders allow you to apply online or over the phone. Once you’ve applied, approval can take anywhere from a week to several months, with the average being two to six weeks.

Before you apply, you should spend a fair amount of time educating yourself on home equity loans and shopping around for the best deals. That investment will pay you back by helping you choose the right one with the best rate.

What kind of credit score do you need for a home equity loan?

Each lender sets its own minimum credit score for home equity loan applicants. You may be approved for a home equity loan with a credit score as low as 620, but most lenders require a higher score. In any case, lenders reserve their best rates for the most creditworthy borrowers. You’ll spend a lot more on interest if your credit score is low. That’s why it makes sense to get your credit in the best shape possible before applying for a home equity loan.

How much money can you borrow on a home equity loan?

The amount of money you can borrow with a home equity loan depends on the market value of your home, how much you owe on your first mortgage and your lender’s specific rules. Home equity loan lenders will compare the amount you want to borrow to the equity you have in your home. Your equity is equal to the amount your home would fetch in the market minus what you owe on it. That figure is called the loan-to-value ratio (LTV).

Lenders may limit you to borrowing a certain percentage of your home equity — usually 70% to 90%. Higher loan limits usually have higher interest rates attached. If you have bad credit, the rate you’re offered may also be higher.

How we found the best home equity loans

To identify the best home equity loans and home equity lines of credit, we evaluated each lender based on the following factors:

Loan features: What types of loans are offered? What loan amounts are offered? We also looked at interest rates, loan terms, fees and the credit score requirements for each lender.

Price transparency: We gave extra weight to mortgage lenders whose websites clearly disclosed their interest rates, fees, discounts and other charges.

Application process: We considered eligibility requirements and the time period for approval. Further, we studied application and evaluation fees and determined whether loan application services were available online, by phone or in person.

Reputation and customer satisfaction: To determine the top lenders for customer satisfaction, we looked at two primary data sources: J.D. Power’s 2021 U.S. Primary Mortgage Servicer Satisfaction Study and complaint data reported by the Consumer Financial Protection Bureau (CFPB).

Summary of the Best Home Equity Loans of 2022

• Discover– Best for No Fees
• Regions Bank – Best for Competitive Rates
• Truist – Best Fixed-Rate HELOC
• U.S. Bank – Best for Large Loans
• Citizens Bank – Best for Flexible Loan Amounts
• PenFed – Best for Non Owner Occupied Properties

Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.

This story was originally published July 14, 2022 at 7:11 AM.