TEXAS HOME EQUITY LOAN RATES TODAY
Current home equity loan rates in
Texas.
Disclaimer: The prime rate directly influences the rates on HELOCs and home equity loans.
Current home equity loan rates in
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Compare home equity loan rates in Texas.
Key Points
• Home equity loan rates are influenced by the borrower’s credit score and loan-to-value ratio, and by lender policies, among other influences.
• Home equity loans allow homeowners to borrow against the equity in their homes for large expenses like renovations, education, or debt consolidation.
• Fixed interest rates provide stability and predictability for monthly payments, while variable rates can fluctuate based on market conditions.
• Closing costs and fees associated with home equity loans can vary but typically range from 2% to 5% of the loan amount.
• Home equity loan interest may be tax-deductible if used for the purpose of purchasing, constructing, or renovating a home.
Introduction to Home Equity Loan Rates
Welcome to our guide to home equity loan rates in Texas. We’ve done the legwork to highlight the factors that influence rates, and how to snag the lowest ones. We’ll cover closing costs, tax deductibility, and alternatives to home equity loans, and introduce you to helpful tools and calculators. Armed with this information, you’ll be ready to make the best choice for your home equity financing needs.
How Do Home Equity Loans Work?
A home equity loan is like a second mortgage. It uses your home as collateral, which often means lower interest rates than with personal loans. And just like your mortgage, you pay back the loan in equal monthly installments with interest over a longer term (typically 20 years).
The interest rate is typically fixed, so you can plan your budget with more certainty. To qualify, you’ll usually need to have at least 20% equity in your primary residence.
Where Do Home Equity Loan Interest Rates Originate?
Home equity loan interest rates are influenced by a variety of economic factors, including the prime rate. The prime rate is the interest rate that banks charge their most creditworthy customers.
Federal Reserve policy decisions regarding interest rates can also influence home equity loan rates. Understanding the factors that influence home equity rates can enable borrowers to anticipate rate fluctuations and make informed decisions about the best time to take out a home equity loan.
How Interest Rates Impact Affordability
The interest rate you secure can have a big impact on your monthly loan payments and the total interest you pay over the life of the loan. For example, the difference between a 7.00% and 8.00% interest rate on a 20-year term can add up to $11,000 more in interest. The more you borrow, the more noticeable the difference in monthly payment and total interest would be.
A home equity loan calculator can help you understand how different interest rates and loan terms affect your monthly payment and the overall cost of the loan.
HELOCs vs Home Equity Loans
It’s important not to confuse a home equity loan with a home equity line of credit (HELOC), which is also secured by your home. The chart below explains HELOCs vs. home equity loans.
| HELOC | Home equity loan | |
|---|---|---|
| Type | ||
| Interest rate | ||
| Repayment | ||
| Disbursement |
Recommended: What Is a Home Equity Line of Credit?
Home Equity Loan Rate Trends
The prime interest rate is a key indicator of future home equity loan rates. By keeping an eye on the prime rate, you can get a sense of where home equity loan rates are headed. This can help you make smarter decisions about the timing and terms of your home equity loan application, so you can get the best rate possible in Texas.
Historical U.S. Prime Rates
Since 2018, the U.S. prime rate has fluctuated greatly, reaching a low of 3.25% in 2020 and a high of 8.50% in 2023. This rate plays a large role in the economic environment, and it is important to understand how it can affect Texas home equity loan rates.
| 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% |
Source: St. Louis Fed
Factors Influencing Home Equity Loan Rates
In addition to macroeconomic factors like the prime rate, the interest rate you’re offered for a home equity loan is influenced by microeconomic metrics. These include the borrower’s credit score, their loan-to-value ratio, the stability of the local housing market, the location of the property, and the policies of the home loan lender.
Understanding these factors can help you secure the best possible rates and make the most of your financial strategy.
Credit Score
Those who have a track record of responsible financial management, including making payments on time, are more likely to be offered a lower interest rate. Most lenders will look for a credit score of about 680 or higher when considering a home equity loan, but many prefer a score of 700 or above. This is because higher credit scores are associated with a lower risk of default, which makes you a more attractive candidate for a loan.
Loan-to-Value (LTV) Ratio
The loan-to-value (LTV) ratio is a key factor in determining the maximum LTV most lenders will allow for a home equity loan, which is typically 85%. The LTV is calculated by dividing the loan amount by the appraised value of the property. By looking at the LTV, a lender can determine the appropriate interest rate and loan term for a borrower.
Home Value
Lenders often use independent appraisals to help determine a home’s market value and the maximum loan amount. This is important because the amount of equity you have in your home can impact the maximum loan amount a lender is willing to approve. The valuation process is an important step in assessing your financial standing and ensuring responsible lending practices.
Home Value Stability
The stability of home values can significantly impact the amount of equity homeowners can potentially access and utilize. When local home values experience an upward trend, lenders may be more inclined to approve larger home equity loans, as the increasing value of the property mitigates some of the associated risk. Conversely, when home values decline, the lender’s risk exposure increases, potentially leading to stricter lending criteria and smaller home equity loans approvals.
Lender Policies
Here’s a tip: Lender policies can really shake up the interest rates they offer. So when you’re on the prowl for the best deal, be sure to compare rates, fees, and closing costs from a handful of lenders. It takes time, but it can lead to some serious savings and a much better borrowing experience.
Property Location
If you live in an area with a high risk of extreme weather, you might see higher interest rates. That’s because lenders see these areas as riskier to lend in. These areas can be more prone to natural disasters like hurricanes, floods, and wildfires. And if you’re in one of these areas, it could impact your home equity.
How to Qualify for the Lowest Rates
To qualify for the best home equity loan rates, you need to have a good credit score, a low debt-to-income ratio, and enough equity in your home. You also need to have property insurance. If you meet these requirements, you can get a lower rate on your loan.
Build a Strong Credit Score
A higher credit score can be your golden ticket to snagging more attractive interest rates on home loans, which translates to significant savings over the loan’s lifetime. Not only that, but a beefed-up credit score can also unlock loan options and better terms, giving you the flexibility and control you want. And here’s a little secret — a higher credit score can even mean lower fees, lightening the load of borrowing.
Manage Debt-to-Income Ratio
When it comes to securing a home equity loan, your debt-to-income (DTI) ratio can play a big role in determining your eligibility. This ratio compares your monthly income to your monthly debt obligations, which helps lenders get a better picture of your financial health. Typically, lenders want to see a DTI that’s 36% or lower, but some may go up to 50%. Staying within these parameters can help you be better positioned to qualify for a loan.
Obtain Adequate Property Insurance
In many cases, having the right property insurance is a must for home equity loans, especially if you live in an area of Texas prone to flooding. This insurance is designed to protect both you and the lender in case of damage to your property.
Maintain Sufficient Home Equity
To secure a Texas home equity loan, you’ll need to maintain at least 20% equity in your primary residence. This requirement is in place to protect your financial well-being, ensuring you have a significant ownership stake in your property before you take on additional debt.
Fixed vs. Variable Interest Rates
Home equity loans often come with fixed interest rates. This means you’ll have the same interest rate and monthly payment for the life of the loan. While fixed rates offer stability, they can also start out higher than variable rates. Variable rates can start out lower, but they change over time based on the market. When it comes to how to get equity out of your home, it’s important to consider whether you prefer the fixed interest rate of a home equity loan or the variable interest rate of a HELOC.
Tools & Calculators
A variety of practical tools and calculators are available to help you get an accurate estimate of your home equity loan payments and determine your borrowing capacity. These resources can provide you with a better understanding of the financial implications of taking out a home equity loan, and help you make more informed decisions. Here, in addition to the home equity loan calculator, you’ll find a HELOC repayment calculator and a HELOC interest only calculator.
Run the numbers on your home equity loan.
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Home Equity Loan Calculator
Enter a few details about your home loan and we’ll provide you your maximum home equity loan amount.
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HELOC Payment Calculator
Punch in your HELOC amount and we’ll estimate your monthly payment amount for your HELOC.
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HELOC Interest Only Calculator
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 and Fees
Home equity loan closing costs in Texas tend to run 2% to 5% of the loan amount. Common fees include the appraisal, credit report, document prep, origination, notary, title search, and title insurance. Here are some quick estimates of what you might pay:
• Loan origination fee: 0.5-1% of loan amount or flat fee.
• Title insurance: 0.5-1% of loan balance.
• Appraisal: $300-$500.
• Credit report: $50-$100.
• Document prep and attorney fees: $500-$2,000.
No-closing-cost loans exist but often have higher interest rates. Compare multiple lenders — including their rates, fees, and terms — before choosing a loan.
Tax Deductibility of Home Equity Loan Interest
Here’s the scoop: The interest you pay on a home equity loan can be tax-deductible if you use the funds for home improvements. If you’re married and filing jointly, you can deduct interest on loans up to $750,000. Single filers can deduct interest on loans up to $375,000. Just remember, you’ll need to itemize your deductions to get this benefit.
Recommended: What Is a Home Equity Loan?
Alternatives to Home Equity Loans
You have a range of different types of home equity loans to consider, such as home equity lines of credit (HELOCs), home equity conversion mortgages (HECMs), and cash-out refinances (one type of mortgage refinance). Each option has its own unique features and eligibility requirements. These alternatives provide you with additional borrowing options that may be more tailored to your specific financial needs and circumstances.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is akin to a credit card, but with the potential for a much higher limit. It allows you to borrow up to a certain amount, and you only pay interest on what you’ve borrowed. However, the variable interest rate means that if market rates go up, your costs will too. It’s important to weigh both the benefits and risks associated with HELOCs.
Home Equity Conversion Mortgage (HECM)
An HECM, or home equity conversion mortgage, is a government-backed reverse mortgage that allows homeowners aged 62 and older to receive payments from the lender based on their home’s value. The disbursement form is your choice: lump sum, regular payments, or a line of credit. The beauty of an HECM is that you’re not required to make payments until you leave the home. Note that HECMs typically have higher closing costs and longer processing times compared to home equity loans and HELOCs.
Cash-Out Refinance
A cash-out refinance is a new mortgage that pays off your old one and lets you borrow extra cash. Lenders typically limit the loan-to-value (LTV) ratio to 80-85% of a home’s equity. If comparing all these options is confusing, you may find the comparison article Cash-Out Refinance vs Home Equity Line of Credit helpful.
The Takeaway
Home equity loans can be a great way to get the cash you need for a variety of uses, from home renovations to high-interest debt consolidation. Understanding how home equity loan rates work in Texas is important when shopping around for the best deal for your situation. By comparing rates and fees from multiple lenders, using online tools, and considering other options, you can find the best home equity loan for you.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What would the monthly payment be on a $50,000 loan?
The monthly payment for a $50,000 home equity loan is determined by the interest rate and the loan term. For example, with an interest rate of 8.00% and a 10-year loan term, your monthly payment would be approximately $607. This is based on a standard repayment schedule with equal payments of principal and interest over the life of the loan.
What would the monthly payment be on a $100,000 HELOC?
The monthly payment on a $100,000 Home Equity Line of Credit (HELOC) is determined by the interest rate and the amount drawn. Let’s consider one scenario: Suppose we have a HELOC with an interest rate of 7.99% and a $50,000 draw. The monthly payment over 20 years would be approximately $418. If you draw the full $100K, the monthly payment would be $836.
What is the payment on a $25,000 home equity loan?
Your monthly payment for a home equity loan depends on the interest rate and the length of the loan. Let’s say you borrow $25,000 with an 8.00% interest rate and a 10-year term. Your monthly payment would be about $303. But remember, your number could be different based on the interest rate and other factors.
What would the payment be on a $30,000 home equity loan?
The monthly payment amount on a $30,000 home equity loan is going to be based on the interest rate you secure and the term of the loan. For instance, if you were to get an 8.00% rate and a 10-year term, your payment would be around $364.
What could disqualify you from getting a home equity loan?
There are a few things that could keep you from getting a home equity loan. If your credit score is too low, your debt-to-income ratio is too high, the equity in your home is too low, or you don’t have enough insurance on your home, you might not qualify. These are all things that you can work on to improve your chances of getting approved.
What are the benefits of a HELOC?
HELOCs, a type of revolving credit, offer several advantages, often including lower interest rates compared to credit cards, and the flexibility to pay interest only on the borrowed amount during the draw period. However, borrowers should be aware that variable interest rates can result in higher costs if rates increase, making it important to carefully consider the potential risks and benefits before using a HELOC.
Photo credit: iStock/Art Wager
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More home equity resources.
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What is a Home Equity Line of Credit
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Different Types of Home Equity Loans
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HELOC vs Home Equity Loan: How They Compare