A home equity loan is a lump sum loan secured by the equity you’ve accumulated in your home. Most lenders will allow you to borrow up to 80% to 85% of your home’s equity, which is the value of your property less the amount you currently owe on your mortgage.

Having a home gives you a valuable asset that you may utilize for a range of things, from substantial purchases to debt reduction and home improvements.

And, at a time when the real estate market is booming, many Americans’ homes are more valuable than they have ever been. According to a recent report by property data firm CoreLogic, by 2021, the average homeowner will have built up roughly $51,500 in equity in their home.

You can borrow money against the value of your home and return it over time with a home equity loan or a home equity line of credit (HELOC). You can also get a cash-out refinance, which replaces your current mortgage with a larger one and gives you a lump-sum payment.

The loan-to-value ratio is calculated by dividing the current principal balance of your mortgage loan by the current appraised valuation of your home, expressed as a percentage. You own more of your home if your loan-to-value ratio is lower. This could improve your chances of getting a home equity loan or getting a lower interest rate.

However, just because your home equity has increased doesn’t mean you should sell it right away. Each of the three types of home equity financing has its own set of benefits, drawbacks, and risks, including the risk of foreclosure if you miss a payment. Furthermore, you should consider whether adding to your debt is a wise decision given your existing financial situation.

A home equity loan, on the other hand, may be a good option if you need a quick and affordable source of funds for large bills this year. Mortgage rates have never been lower. Simply shop around with different lenders to obtain the best interest rate and establish a clear repayment plan.

What you should know about home equity loans, how they differ from other types of home equity lending, and which home equity lenders we recommend.

Our Methodology

To compile this list of the best home equity loan lenders, we looked at well-established banks with a history of home equity lending and ranked them based on a variety of factors including annual percentage rate, loan amount and term options, and eligibility requirements such as minimum credit score and the maximum loan-to-value ratio. Additionally, we looked at transparency and how easy it was to get critical loan information on their website, such as APR ranges, without registering or initiating an application. Finally, we highlighted in our analyses whether a company provides any unique perks, such as speedy funding or rate reductions.

Your APR is determined by the lender you select as well as by personal factors such as your creditworthiness, chosen loan size and terms, and the loan-to-value ratio. APR ranges provided by lenders are subject to vary on a regular basis based on market conditions. As a result, we recommend consulting the official lender websites for the most up-to-date information on APRs, fees, and other loan details.

1

Discover

Minimum Credit Score

620

Fees

$0

Discover is best known for its credit cards, but the company also offers a wide range of banking and lending services, including home equity loans.

Discover has no upfront expenses, including as origination fees, appraisal fees, or mortgage taxes, making it one of the most cost-effective home equity loan options. Furthermore, with payback terms ranging from 10 to 30 years, this is a versatile alternative.

It’s worth noting, though, that if you pay off your balance within 36 months, Discover may recoup any of the costs it waived on your behalf. Furthermore, because Discover’s minimum loan amount is $35,000, it may not be suitable for people who require lower sums.

2

BMO Harris

Minimum Credit Score

700

Fees

$0

Although BMO Harris has branches solely in Arizona, Florida, Illinois, Indiana, Kansas, Minnesota, Missouri, and Wisconsin, a home equity loan can be arranged in any of these states. You can obtain a pricing quote online if you live in one of the states where a branch is located. If you live in another state, you must call for a rate quote.

BMO Harris is one of the finest home equity lenders as it gives a wide choice of loan sizes and conditions, making it easy to customize your loan. Additionally, BMO Harris will cover your closing costs, so you will not be required to pay anything up front. If you pay off your balance and close your account within 36 months, however, you may be required to reimburse your closure charges.

3

US Bank

Minimum Credit Score

730

Fees

$0

US Bank was formed in 1863 and is one of the largest national banks in the United States. While you do not need a US Bank checking or savings account to apply for a home equity loan, you will receive the best-quoted rates if you set up recurring payments from another US Bank account. Its simple online application process enables you to submit your application from virtually any device.

Additionally, US Bank offers a diverse lending portfolio, with loan amounts ranging from $15,000 to $750,000 (or $1 million in California) and no closing costs. The greatest rates are obtained with shorter loan terms and a loan-to-value ratio of less than 70% – which means you’ll need at least 30% equity in your house. To qualify for lower rates, you may need at least a 730 credit score.

4

Connexus Credit Union

Minimum Credit Score

Not Specified

Fees

$175 to $2,000

Connexus Credit Union is a nationwide credit union that offers fee-free ATMs and cooperative institutions, as well as online account management. Anyone who creates an account with the institution, including a home equity loan, is eligible for Connexus membership. While Connexus is available in all 50 states, home equity loans are not offered in Alaska, Hawaii, Maryland, or Texas.

Connexus is a leading provider of home equity loans since it makes it easier to complete house loans online without the need for an appraisal. Loan terms, on the other hand, are less flexible, ranging from five to fifteen years rather than thirty.

5

Regions Bank

Minimum Credit Score

Not Specified

Fees

Up to 5% Late Fees

Regions Bank only offers home equity loans on properties located in states where there are Regions branches. As a result, the property in question must be located in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, or Texas. 

While Regions Bank offers limited availability for home equity loans, if you are in an eligible location, you could benefit from the high loan-to-value ratio ceiling and the ability to choose a loan term of between seven and 20 years. Regions also offers autopay discounts ranging from 0.25% to 0.50%. While Regions Bank will cover the loan closing costs, late payment fees could be charged if you don’t make payments on time.

Which Home Equity Financing Option Is Best For You?

Each time you make a mortgage payment on a home, you develop equity. As you pay down the principal on your mortgage, you acquire additional ownership of the property, granting you increased access to your most important asset

A home equity loan, a home equity line of credit (HELOC), or a cash-out refinance are the three primary types of home equity financing. Each of these options enables you to borrow money upfront by tapping into the value of your home equity. The ideal sort of loan for you is determined by your circumstances and aspirations. 

Home Equity Loan

A home equity loan gives you a lump sum of money, the amount of which is determined by the amount of equity you have in your home. Home equity loans usually have a fixed interest rate.

You’ll get your loan cash in one lump sum and can utilize them however you like. The loan will be repaid over a set period of time, usually between five and thirty years.

Borrowers with consistent costs and a specific purpose for their money may benefit the most from a home equity loan. A home equity loan may be a reasonable alternative if you’re certain you’ll need a precise amount to pay a major investment, such as a home repair project.

Pros of Home Equity Loan

  • Fixed interest rate might provide greater predictability
  • Payments can be relatively low
  • Works well for fixed costs
  • Interest might be tax-deductible if used on qualified home improvement costs

Cons of Home Equity Loan

  • If you need more money, you’ll need to apply for another loan (not revolving credit like a HELOC)
  • Your home is at risk if you miss payments
  • Rates can be higher than with a HELOC

Home Equity Line of Credit (HELOC)

With a HELOC, you can borrow money on an ongoing basis up to the credit line limit, comparable to a credit card but secured by your property. Unlike a home equity loan, which must be repaid in full, a HELOC allows you to obtain cash on demand (up to the credit limit) without having to reapply. HELOCs typically have a variable interest rate that fluctuates in lockstep with the prime rate, however certain lenders may provide a low introductory rate for a limited time.

A HELOC is divided into two phases: a draw time and a repayment period, both of which are specified when the loan is signed. You will be expected to make just interest payments during the draw period. After the draw time expires, you’ll make payments on both the interest and principal. You can also make payments against the principle during the draw period. Some lenders may charge you a penalty if you pay off and close your HELOC early, so be sure to inquire about their individual policy.

A HELOC is an excellent choice for someone who is unsure of the cost of a project but needs access to a regular stream of low-interest funds for months or years.

Pros of HELOC

  • More flexible access to money without the need to reapply for funds
  • Interest rate could potentially be lower
  • Potential interest tax deduction when funds are used for qualified home improvements

Cons of HELOC

  • You could lose your home if you miss payments
  • Variable rates could rise over time

Cash-Out Refinance

You may use a cash-out refinance to replace your existing mortgage with a new one that is worth more than what you owe now and pocket the difference, rather than taking out a separate home equity loan or HELOC. As an example, let’s say you owe $150,000 on your mortgage. Your house is worth $300,000 dollars. You might be able to get a new $225,000 home loan if you refinance your mortgage. You would pay down the remaining $150,000 on your previous mortgage with the new $225,000 mortgage and keep the remaining $75,000 as cash. The money is then yours to spend anyway you want.

A cash-out refinance may save you money in the long run if current refinance rates are much lower than the rate on your original mortgage. You might also be able to improve your cash flow by paying less each month. A cash-out refinance may be helpful for someone wishing to borrow money for a specific purpose while adjusting their mortgage circumstances, such as an investment property or credit card consolidation.

Pros of Cash-Out Refinance

  • If you have a lot of equity in your home, this can be a way to access it at once
  • Interest rates can be lower than with a home equity loan or HELOC
  • Potentially improve your cash flow with a lower rate

Cons of Cash-Out Refinance

  • Depending on the terms, you could be in debt longer since your loan term resets
  • Potential to lose your home if you can’t make the new payments
  • You might have to pay private mortgage insurance if your cash-out refinance puts your loan-to-value above 80%