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Homeownership brings a lot of pride, but there are a lot of costs when it comes to owning a home. This can include maintenance costs, home improvement costs, and emergencies. When it comes to the costs of owning a home, there will be times when the expenses are unexpected and will become an issue when you don’t have access to funds.
What are home equity loans?
A home equity loan is a loan that is secured by your property. It is a revolving line of credit that you have ready access to whenever you need to tap into it. The most obvious reason for getting home equity is to finance home improvement projects. Other reasons for obtaining one can include financing children’s education, consolidating debt, or financing a bigger purchase.
A home equity loan is considered a second mortgage and will be in the second lien position if a borrower has the first mortgage. It enables homeowners to borrow against the equity of their homes. A property’s equity is calculated by taking the home’s current market value and deducting the first mortgage balance.
What are the various types of home equity loans that I can apply for?
When borrowers think of getting a second mortgage, they typically choose between a home equity loan and a home equity line of credit. The main difference is that a home equity line of credit has variable rates that are usually tied to the prime rate, whereas a home equity loan is tied to a fixed rate for the life of the loan.
How do home equity loans work?
Most financial institutions that offer home equity loans typically can let customers borrow up to 80% to 90% combined loan to the value of the home’s appraised value. That said, a home equity loan is a great way to convert your home’s equity into cash.
Borrowers typically use their home equity loan to improve their homes by renovating the kitchens, rooms, or repainting. These improvements can add value to the home and increase the market value.
The initial ten years on a home equity loan is the draw period wherein you can draw funds against this line. When the draw period expires after ten years, the borrower will enter into a repayment period of 20 years to pay down the loan. Some lenders will allow you to renew the credit line after the draw period expires.
What are the current interest rates?
The current interest rates for a home equity loan vary depending on the bank that you are looking into. It can vary from 4.00% to 7.24%. The rate for HELOCs is typically tied to a prime rate plus a margin. Some financial institutions offer promo rates for some time to entice new customers.
It is important to know that when the prime rate goes up and down, the HELOC rate increase or decrease accordingly. Borrowers who want to shield themselves from the interest rate fluctuations can opt for a fixed rate option on their HELOC.
A home equity loan calculator will enable you to calculate what your monthly payments will be on your loan, depending on the interest rate.
How will my credit score affect my loan?
Your credit score is one of the main things that lenders look at when determining your creditworthiness for loan approval. You will have a better chance of getting approved with a higher credit score.
Top 15 banks to get a home equity loan from
When shopping around for a home equity loan, compare the terms and interest rates, and the fees lenders would charge. This would enable you to have an apples-to-apples comparison and guide you in choosing the right bank or financial institution.
Here is a list of the top 15 banks for home equity loans:
Bank of America
A Bank of America home equity loan is very competitive because Bank of America has a wider footprint and is present in all 50 states and Washington DC. They offer discount pricing like a 0.25 rate reduction when you set up automatic payments from a Bank of America account. There are also no application fees, closing costs, or annual fees.
A PNC home equity loan will enable you to switch from a fixed or variable rate on a portion of your HELOC when you are within the draw period. One of the biggest advantages of going through PNC is that it will let you borrow up to 84.9% of your home value, and you will also get relationship discounts when you set up automatic payments.
When obtaining a rocket mortgage home equity loan, the whole process is done online or over the phone, enabling borrowers to have a seamless experience from start to finish. Since the
whole process is done online, it is a faster and more expedited process compared to dealing with other financial institutions.
TD Bank is one of the premier banks located on the East Coast. You can apply for a HELOC through the phone, online, or through their mobile app. They offer lower HELOC rates and a rate discount for TD bank customers who elect to set up automatic payments from their TD Bank account.
If you have a great credit score, getting a Flagstar Bank HELOC is a great option because they have flexible loan options and lower rates than other institutions. Annual fees are attached to their HELOC product but can be waived during the first year.
Chase is one of the biggest banks in the nation, and they offer HELOCs. Since it is a nationwide bank, you can go into a branch and apply or do it online. They also offer preferred pricing for their customers.
Figure is another online lender that offers HELOCs in 41 states and Washington DC. Borrowers are eligible for discounts by opening an account with Figure’s partner credit unions and setting up autopay. The interest rate is always fixed, which protects borrowers from interest rate fluctuations.
Citizens Bank services customers living in the mid-Atlantic and Midwest area. Their lines of credit start at $5,000 for their GoalBuilder HELOC and $17,500 for its standard HELOC product.
Lower is another fintech company that was founded recently. One of the main advantages of going through Lower is that it analyzes data and recommends the best loan for each borrower’s financial situation. The application process and entirely online, and you can borrow up to 95% of your home’s loan value.
BMO Harris Bank
Getting a BMO Harris Bank home equity loan is easy because there are no application fees or closing costs. You also get a discount on the rate when you set up automatic payments from a BMO Harris checking account. They offer variable rate HELOCs and fixed terms for 5 to 20 years.
A Wells Fargo home equity loan will enable borrowers to apply in their branches or online. They offer competitive rates and relationship pricing for customers who bank with them. Currently, Wells Fargo is not accepting home equity loan applications.
A USAA home equity loan is a preferred option for veterans. As of right now, USAA is not accepting applications for HELOCs.
A Navy Federal home equity loan enables borrowers to borrow up to 95% of home equity with a 20-year draw period and a 20-year repayment period which is longer-term than other institutions. There are also no application, origination, or annual fees charged.
Schwab is partnered with Rocket Mortgage for their home equity lending program, and there are no prepayment penalties or balance requirements. Since they are partnered with Rocket Mortgage, the process is seamless and is completed online.
Third Federal Savings and Loan
One of the main benefits of getting a home equity loan from Third Federal Savings and Loan is that the repayment periods are longer than other banks. They do not charge closing costs or minimum draw requirements.
Consider these banks for home equity loans. Remember to ask questions to ensure that you have a clear understanding of the loan and the terms.