Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Key Points
• Home equity loans allow homeowners to borrow against their home equity for expenses like home renovations, education, or debt consolidation.
• Home equity loan rates are influenced by factors such as the prime rate, economic conditions, borrower profiles, and market trends.
• To secure the lowest home equity loan rates, it is important to establish a strong credit score, manage debt-to-income ratio, obtain adequate property insurance, and maintain sufficient home equity.
• Home equity loans offer fixed rates, with stable monthly payments.
• Alternatives to home equity loans include HELOCs, HECMs, and cash-out refinances, each with unique characteristics and eligibility criteria.
If you’ve been thinking about how to get equity out of your home to fund home improvements or another big project, you may be considering a home equity loan. In this guide, you’ll find the most comprehensive information on home equity loan rates in South Dakota. We’ll cover how rates are decided and what you can do to qualify for the best available rate. We’ve also got information on alternative borrowing options as there are different types of home equity loans.
Let’s dig into the basics, starting with what is a home equity loan, anyway?
A home equity loan is a fixed-rate installment loan that uses your home as collateral. Because it’s effectively a second mortgage, secured by your property, it will likely offer a lower interest rate than an unsecured personal loan. You repay the money you’ve borrowed, with interest, over anywhere from 5 to 30 years, depending on your loan agreement. The fixed interest rate can make it easier to budget for your monthly payments. To qualify for a home equity loan, you typically need at least 20% equity in your home. You can use the loan to pay for a variety of expenses, such as education, medical bills, or debt consolidation.
The chief driver of a home equity loan’s cost is its interest rate. In South Dakota, as elsewhere in the U.S., home equity loan interest rates are a product of a lender’s prime rate — the rate the lender offers its most creditworthy customers. The prime rate is influenced by Federal Reserve monetary policy. By grasping the dynamics at play, borrowers can watch for news on Fed movements or prime rates to better anticipate fluctuations in interest rates.
The ups and downs of interest rates will have an impact on what it costs you to borrow money. A 1% difference in an interest rate might not seem like much, but it can add up to a significantly higher monthly payment over the life of a loan. The chart below shows how different loan amounts, interest rates, and loan terms influence your monthly costs.
| Loan Amount | Loan Term | Interest Rate | Monthly Payment |
|---|---|---|---|
| $100,000 | 20 years | 8.00% | $836 |
| 7.00% | $775 | ||
| 10 years | 8.00% | $1,213 | |
| 7.00% | $1,161 | ||
| $50,000 | 20 years | 8.00% | $418 |
| 7.00% | $388 | ||
| 10 years | 8.00% | $607 | |
| 7.00% | $581 | ||
| $25,000 | 20 years | 8.00% | $209 |
| 7.00% | $194 | ||
| 10 years | 8.00% | $303 | |
| 7.00% | $290 |
If you’re watching for news rate shifts, it’s helpful to have a sense of how much change is typical. Below you’ll see a snapshot of recent years in detail (it dropped to a low of 3.25% in 2020 and peaked at 8.50% in 2023), plus a visual showing 50-plus years of rates. This should give you a feel for how much movement you might expect.
| Date | Prime Rate |
|---|---|
| 9/19/2024 | 8.00% |
| 7/27/2023 | 8.50% |
| 5/4/2023 | 8.25% |
| 3/23/2023 | 8.00% |
| 2/2/2023 | 7.75% |
| 12/15/2022 | 7.50% |
| 11/3/2022 | 7.00% |
| 9/22/2022 | 6.25% |
| 7/28/2022 | 5.50% |
| 6/16/2022 | 4.75% |
| 5/5/2022 | 4.00% |
| 3/17/2022 | 3.50% |
| 3/16/2020 | 3.25% |
| 3/4/2020 | 4.25% |
| 10/31/2019 | 4.75% |
| 9/19/2019 | 5.00% |
| 8/1/2019 | 5.25% |
| 12/20/2018 | 5.50% |
| 9/27/2018 | 5.25% |
You’re not purely at the mercy of big economic trends when it comes to getting a home equity loan rate in South Dakota. Many other factors can influence the rate you are offered and, thankfully, some of them are within your control.
If you’ve been diligent with your finances and have a credit score of 680 or more, you’re in a great position to secure a competitive interest rate. And you can expect an even sweeter rate with a score of 700 and above.
Lenders typically use appraisals to ensure that the amount of money they lend you is not more than the home’s value. This is good for you as well, as it will help you avoid borrowing more than you can afford. A prospective lender may send an appraiser to your home or use a digital tool called an automated valuation model that amasses data and arrives at an estimated value.
Once you know the value of your home, you (or your lender) can compute the LTV ratio. This is the loan amount (whatever you owe on your current home loan plus the amount you wish to borrow) divided by the appraised value of the property. The maximum LTV most lenders will permit is 85%. The LTV ratio is also used to determine the interest rate and loan term offered.
When home values seem to be trending upward, lenders may be more inclined to approve larger loan amounts, as the increasing value of the property mitigates some risk. Conversely, when home values are declining, a lender may feel more exposed, which can lead to stricter lending criteria and reduced loan amounts. So keep an eye on what’s happening in the real estate market in your corner of South Dakota.
Living in areas with a higher risk of natural disasters or extreme weather can sometimes mean you’ll face higher interest rates on your home mortgage. Lenders may see these areas as riskier places in which to do business.
Each lender has its own unique set of policies and these can affect what rate you’re offered or whether you qualify for a home equity loan at all. To ensure you get the best deal, take the time to shop around and compare interest rates, fees, and closing costs among multiple lenders.
To get the best home equity loan rates, make sure your financial house is in order before you begin applying.
A higher credit score can be your ticket to a better rate on South Dakota home equity loans, potentially saving you a bundle on interest over the loan’s lifetime. Make sure you check your credit report now and then and correct any inaccuracies. Avoid using your credit cards to the max. And above all, stay current on your bills.
Your debt-to-income (DTI) ratio is a critical number for loan eligibility. It compares your monthly income to your monthly debt obligations. Most lenders require a DTI of 36% or less, though some will allow a max of 50% for a home equity loan. To compute your DTI, add up all your monthly debts (car payment, student loan, credit cards, current mortgage, for example) and divide the answer by your gross monthly income.
You should already have solid property insurance — after all, it’s the smart thing to do and probably required by your primary mortgage lender. But you’ll definitely need this if you’re in the market for a home equity loan.
You’ll need to keep at least 20% equity in your primary residence if you’re eyeing a home equity loan. When you’re assessing your equity, remember to use the current appraised value of your home, not the amount you paid for it initially.
Home equity loans typically come with fixed interest rates. This means you can expect to make the same monthly payment over the life of the loan. While fixed rates offer predictability, they may start out higher than variable rates. Variable rates, on the other hand, can start out lower but may increase over time.
Using an online calculator can help you determine if you might qualify for a home equity loan (or its cousin, the home equity line of credit, or HELOC). A calculator can also give you an idea of how much you could borrow and what your monthly payments would look like. Check out three of our favorites:
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
Use SoFI’s HELOC interest calculator to estimate how much monthly interest you’ll pay .
Using the free calculators is for informational purposes only, does not constitute an offer to receive a loan, and will not solicit a loan offer. Any payments shown depend on the accuracy of the information provided.
Closing costs for a home equity loan typically fall between 2% and 5% of the loan amount. You might find charges for the appraisal, credit report, document preparation, notary, title search, and title insurance. Since these fees can differ based on the lender and loan terms, it’s wise to factor each lender’s fees into the total cost of the loan as you make your decision.
If you use your home equity loan to build or substantially improve a home, the interest you pay could be deductible. Joint filers can claim as a deduction interest on up to $750,000 of a home equity loan, while single filers can claim interest on up to $375,000 of a loan. Just remember to itemize your deductions when you file your taxes. And save the receipts from your renovations with your tax documents.
In addition to traditional home equity loans, there are several alternative financing options available to homeowners, each with its own distinct features.
A HELOC is a bit like a credit card in that it provides a revolving line of credit that you can draw on as needed. When you consider a HELOC vs. a home equity loan, remember that with a HELOC, you only pay interest on the amount of the credit line that you actually use. However, the interest rate on a HELOC is variable, meaning that it can fluctuate with the market. This can lead to increased costs if rates rise. A HELOC monthly payment calculator can help borrowers see how changing rates impact costs.
An HECM, or home equity conversion mortgage, is a government-insured reverse mortgage that allows homeowners aged 62 and older to receive payments from the lender based on their home’s value. Borrowers can choose to receive the funds as a lump sum, regular payments, or a line of credit and don’t need to make payments until they leave the home, unlike home equity loans and HELOCs. HECMs may have higher closing costs and longer processing times, but they offer a unique set of benefits. (While SoFi does not offer HECMs at this time, we do offer home equity loans and HELOCs.)
A cash-out refinance is a special type of mortgage refinance. It gets you a brand new mortgage for more than you owe on your existing mortgage. You take the difference in cash to use as you wish. One difference in the cash-out refinance vs home equity line of credit equation is that, unlike a home equity loan or HELOC, a cash-out refi leaves you with a single monthly payment. If you’re considering a cash-out refi, take a close look at the mortgage interest rates in South Dakota and think about how they compare to the rate you have on your current mortgage. You’ll want to make sure you stand to save money, ideally by securing a lower rate.
Understanding home equity loan rates and options available in South Dakota can help you make well-informed decisions about which type of loan to go with — or whether to borrow at all. Make sure you have adequate equity in your home and that your credit score is healthy before you begin applying for a home equity loan. And consider all options, including a HELOC.
Unlock your home’s value with a home equity loan from SoFi.
Payments on a $50,000 home equity loan will be driven by the interest rate and loan term. Assuming a 10-year term, if your interest rate is 7.00% your monthly payment would be $581. At 8.00% it rises to $607.
If you used your full $100,000 home equity line of credit (HELOC), and your interest rate was 8.00%, you’d pay $836 per month to repay the funds over 20 years. Longer repayment terms might have smaller monthly payments but you will pay more in interest over the life of the loan.
When you’re pondering a $25,000 home equity loan, the interest rate and loan term are key players in your monthly payment. To get a handle on what this might look like, use a home equity loan calculator.
Borrowing $30,000 with a 20-year term at a rate of 7.50% would mean a monthly payment of $242. A different interest rate or loan term will change the monthly payment amount.
There are a few things that might stop you from getting a home equity loan. If your credit score is too low, your debt-to-income ratio is too high, you don’t have enough equity in your home, or you don’t have enough insurance on your home, you might not be able to get a home equity loan.
A home equity line of credit (HELOC) offers several benefits, including flexibility in borrowing, a lower interest rate than a credit card, and the ability to pay interest on only the amount you’ve borrowed. This makes HELOCs a good option for homeowners who might need varying amounts of cash over time for different financial needs or long-term projects.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
