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Many homeowners are flush with equity, and tapping it can be tempting. Some lenders will let you borrow as much as 100% of your home equity — the home’s current value minus the mortgage balance — for any purpose. Your house, though, will be on the line.

Here are things to know before applying for a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance.

What’s the Most You Can Borrow With a Home Equity Loan?

To determine how much you can borrow with a home equity loan, lenders will calculate the combined loan-to-value ratio: your mortgage balance plus the amount you’d like to borrow compared with the appraised value of your home.

Most lenders will require your combined loan-to-value ratio (CLTV) to be 90% or less for a home equity loan or HELOC (although some will allow you to borrow 100% of your home’s value).

combined loan balance ÷ appraised home value = CLTV

Let’s say you have a mortgage balance of $150,000 and you want to borrow $50,000 of home equity. Your combined loan balance would be $200,000. Your home appraises for $300,000. (An appraiser from the lending institution determines your property value.) The math would look like this:

$200,000 ÷ $300,000 = 0.666

Your CLTV is 67%.

If a lender allowed you to borrow 90% of CLTV in this scenario, you would have a loan of $120,000:

($150,000 + $120,000) ÷ $300,000 = 0.900

But just because you might qualify for a loan or line of credit of this amount doesn’t mean it’s a good idea for your personal situation. Consider what the payments, which include interest, would look like and whether your financial situation is secure enough for you to afford them if you suffer a setback.

Three Ways to Tap Home Equity

You paid off a chunk of your mortgage or all of it, or your home value soared along with the market, but now a wedding, college, remodel, or something else has you wanting to put that home equity to use. Here are three ways to do that.

Remember that converting home equity to cash means you’ll be using your home as collateral.

Home Equity Loan

Home equity loans come in a lump sum. They are often useful for big one-time expenses like a new car or swimming pool and for borrowers who know how much they need and who want fixed payments.

Some lenders waive or reduce closing costs of 2% to 5%, but if you pay off and close the loan within a certain period of time — often three years — you may have to repay some of those costs.

HELOC

A HELOC may be helpful for long-term needs such as home renovations, college tuition, or medical bills.

Borrowers who want flexibility when dealing with, say, a home addition may favor a revolving line of credit over a lump-sum loan.

Again, some lenders waive the closing costs for a HELOC if you keep it open for a predetermined period.

Recommended: How Do Home Equity Lines of Credit Work?

Cash-Out Refinance

A cash-out refinance might be a good choice if you want to borrow more than you’d qualify for with a home equity loan or HELOC. A cash-out refi replaces your existing mortgage with a new mortgage for more than the previous balance. You receive the difference in cash.

Homeowners will often need to have 20% equity left in the home after refinancing. Some lenders will let them dip below that minimum but pay for private mortgage insurance on the new loan.

Some HELOC borrowers refinance before the draw period ends. In that case, the cash can be used to pay off the HELOC.

You can change the mortgage term and aim for a reduced interest rate with a cash-out refi. Closing costs will be required; it’s a new loan.

Recommended: Cash-Out Refinance vs HELOC

What’s the Difference Between a Home Equity Loan and a HELOC?

A home equity loan, also known as a second mortgage, comes in a lump sum with a repayment term of 10 to 30 years. It typically has a fixed interest rate.

A HELOC is a revolving line of credit that lets a homeowner borrow money as needed, up to the approved credit limit. The credit line has two periods:

•   The draw period, when you can use the line of credit. It’s often 10 years. Minimum monthly payments usually will be interest only on the amount withdrawn.

•   The repayment period, often 20 years, when principal and interest payments are due.

Most HELOCs have a variable interest rate but cap how much the rate can rise at one time and over the loan term. (Some lenders, though, offer fixed-rate HELOCs or allow the borrower to fix the rate on a balance partway through the loan.)

Some HELOCs require you to draw a minimum amount upfront. Some have a balloon payment at the end of the draw period, when the loan principal and interest are due. Ensure that you understand your HELOC’s terms, and when the draw period ends and the credit line is closed.

How Is a HELOC Calculated?

Qualified borrowers are often able to access as much as 90% of their equity with a HELOC.

Some HELOC lenders require that the homeowner retain at least 20% equity in the home, but a few are more generous.

Is Taking Out Home Equity Right for You?

If you’re aware of the risk, you’ve read all the fine print, and you forecast no job or income loss, tapping home equity can be extremely useful.

HELOCs usually have lower interest rates than home equity loans, but some people prefer the fixed rate and payments of the latter. HELOC rates tend to be a tad higher than mortgage rates, but you only have to pay interest on what you borrow during the draw period.

Most cash-out refinances result in a new 30-year fixed-rate mortgage.

Approval for a home equity product and the rate you’re offered will depend on your credit score, debt-to-income ratio, home equity, and home value.

Shopping around can yield the best offer.

Recommended: Home Improvement Cost Calculator

The Takeaway

How much equity can you borrow from your home? Homeowners who meet credit and income requirements are often able to tap up to 90% of equity and sometimes more with a home equity loan or HELOC. A cash-out refi is another way to make use of home equity.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

How can I increase my home equity?

Paying off your mortgage faster, refinancing to a shorter loan term, and making home improvements are some of the ways to boost home equity. In a competitive market, your home value may just naturally rise.

How quickly can I get cash from my home equity?

It depends on the product, but closing can take place in as little as two to four weeks.

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.

SOHL-Q324-045

If you’re finding your student loan debt difficult to manage, one option for tackling it is to leverage your home equity. It’s possible to do this through the student loan cash-out refinance program offered by Fannie Mae or through a general cash-out refinance.

Either option would allow you to use the excess value of your home to pay off student loan debt directly. Plus, because you would be consolidating your student loan debt into your mortgage, you’d have to make just one payment each month. You might also secure a lower interest rate than you had on your student loans.

Still, there are major downsides to consider before paying off student loans with home equity. For one, the student loan debt won’t actually go away — you’ll still owe that money. Additionally, you could lose access to student loan benefits and protections. And, if you aren’t able to stay on top of monthly payments, your home is on the line.

Using a Student Loan Cash-Out Refinance to Pay Off Student Loans

With a cash-out refinance, you take out a new mortgage for an amount that exceeds what you currently owe. You then get the difference in cash, which you could then use to pay off your student loan debt.

One option for doing this is through Fannie Mae’s Student Loan Cash-out Refinance program, which is specifically designed to allow homeowners to use their home equity to pay off student loans. To qualify, borrowers must use the funds from the cash-out refinance to fully pay off at least one of their student loans. Additionally, it’s stipulated that this loan must belong to the individual who applied for the refinance.

For borrowers who don’t qualify for the Fannie Mae program, or who want to use their cash for costs other than student loan repayment, it’s also possible to get a general cash-out refinance through another lender.

Whether you go with Fannie Mae or another lender, there are typically certain requirements that a borrower must meet to qualify for a cash-out refinance. Generally, there are stipulations for credit score, debt-to-income ratio, and the amount of equity in the home after closing. As such, it’s helpful to determine before applying how much equity you have in your home.

Recommended: First-Time Homebuyer Guide

Should I Tap Into My Home Equity to Pay Off Student Loans?

Using the equity you’ve earned in your home to pay off your student loans may sound like an easy fix. But before you commit to refinancing, you’ll want to weigh the decision carefully. While it may make sense for some, a student loan cash-out refinance won’t work for everyone. Here are a few pros and cons to consider as you make your decision.

Benefits of Paying Off Student Loans with Home Equity

Like most financial decisions, paying off your student loans with the equity you’ve earned on your home is a multifaceted decision. Here are some of the ways you could find it beneficial:

•   You may be able to get a better rate. Securing a lower interest rate is potentially the most appealing reason to use the equity in your home to pay off student loans. As part of your decision-making process, consider reviewing mortgage options at a few different lenders. While reviewing rate quotes from each lender, do the math to determine if paying off student loans with home equity will truly reduce the amount of money you spend in interest. If there are any fees or prepayment penalties, make sure to factor those in. Keep in mind this isn’t the only way to get a better rate either — another option to explore is student loan refinancing.

•   You may get more time to pay off your loan. When making your decision, also take into account the length of the mortgage term. The standard repayment plan for student loans is a 10-year term, unless you have already consolidated them, in which case you could have a term of up to 25 years. With a mortgage, term lengths can be as long as 30 years. Just keep in mind that while repaying your debt over a longer time period could lower monthly payments, it may also mean you pay more in interest over the life of the loan.

•   You can streamline your payments. Another benefit is reducing the number of monthly payments you need to keep track of. Instead of paying your mortgage and each of your student loans, those bills will get consolidated into a single payment. Streamlining your payments could help you stay on top of your payments and make your finances a little bit easier to manage.

Recommended: Home Affordability Calculator

Downsides of Paying Off Student Loans with Home Equity

There are a few potential negatives that could impact your decision to pay off student loans with your home equity:

•   You risk foreclosure. Using your home equity to pay off your student loans could potentially put your home at risk. That’s because you’re combining your student loans and mortgage into one debt, now all tied to your home. That means if you run into any financial issues in the future and are unable to make payments, in severe cases, such as loan default, your home could be foreclosed on.

•   Your student debt won’t really disappear. When you use your home equity to pay off your student loans, you’ll still owe that debt. Only now, it’s part of your mortgage.

•   You’ll lose access to student loan benefits and protections. When you do a student loan cash-out refinance, you’ll no longer be eligible for borrower protections that are afforded to borrowers who have federal loans. These benefits include deferment or forbearance, as well as income-driven repayment plans. If you’re pursuing student loan forgiveness through one of the programs available to federal borrowers, such as Public Service Loan Forgiveness, consolidating your student loan debt with your mortgage would eliminate you from the program. As such, it may not make sense to use the equity in your home to pay off your student loans if you’re currently taking advantage of any of these options.

•   You could owe more than your home is worth. As you weigh your options, consider comparing the available equity in your home to the amount you owe in student loans. In some cases, you may owe more in student loan debt than you have available to use in home equity under the various loan guidelines. If you end up owing more than what your home is worth, that could make it tough to sell your home, as you’d need to add your own funds to repay your loan balance.

When It’s Time to Leverage Your Home Equity

Cashing in on your home equity isn’t as easy as withdrawing money from your checking account, but it’s also not as difficult as you might think. A good first step is to contact a mortgage lender, who will order an appraisal of your home and help you to get started on the paperwork.

This is also a good time to explore another way to leverage home equity to pay bills: a home equity line of credit (HELOC). When you take out a HELOC, you can borrow (and pay interest on) only as much as you need at a given time, up to a preapproved credit limit. A HELOC monthly payment calculator can be a useful tool as it will help you understand what monthly payments might look like if you follow this path. If you have a great rate on your existing mortgage and don’t want to refinance into a higher rate, a HELOC might be a good alternative.

It could also be a good idea to check your credit score. To secure a cash-out refinance, many lenders will likely require a credit score of 620 or higher. That being said, the minimum score required depends on many factors, such as credit, income, equity, and more. If you don’t meet the minimum FICO score requirement for your chosen program, you might want to try to improve your credit score before applying.

At the very least, you’ll likely need to gather necessary documents so you have them handy. Get together your latest tax filings, pay stubs, and bank statements. Lenders use those documents to evaluate whether you have the savings and cash flow to pay back a fatter mortgage, and they may ask for when you apply to refinance.

The Takeaway

When used responsibly, home equity can be a useful tool in helping to improve your overall financial situation — including using home equity to pay off student loans. While there could be upsides, such as streamlining payments and securing a better rate, it’s important to also weigh the drawbacks, like losing access to student loan protections and putting your home on the line. Depending on how much you owe on your student loans, a cash-out refi or a home equity line of credit (HELOC) might be a good way to settle some or all of your student loan debt and even consolidate multiple loans into one payment.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

Is it smart to use home equity to consolidate debt?

It can be. If you can obtain a lower interest rate on a home equity loan, home equity line of credit (HELOC), or even a cash-out refinance, it could make sense to consolidate debt this way. And if you have multiple types of debt (student loan debt, credit card debt, for example), it might simplify things to have one monthly payment. But it does mean you would lose access to student loan forgiveness and forbearance benefits, and securing debt with your home does involve risk.

Is it a good idea to take out a home equity loan to pay for college?

While you can pay for college with a home equity loan, it might be better to find a student loan for that expense because if you are unable to make payments on your home equity loan, your property could be at risk.

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.

SOHL-Q424-143

A home equity loan is a way to finance a large purchase, complete home renovations, or consolidate high-interest debt by tapping into the equity of your home. Your home secures the loan, and funds are disbursed all at once.

With your home as collateral, lenders have reason to believe you’ll make on-time, full payments, so they offer a lower interest rate than they would on most unsecured loans. Failing to make the monthly payments could result in foreclosure, however.

Yet for borrowers who are confident they can make the payments, a home equity loan is one of the most affordable financing options on the market. Keep reading to learn more about home equity loans and whether or not one makes sense for you.

What Is a Home Equity Loan?

A home equity loan is typically a fixed-rate loan secured by a home in exchange for a lower interest rate.

Repayment terms are typically between five and 30 years.

How Do Home Equity Loans Work?

First, you’ll need to have sufficient home equity, which is the difference between the market value of your home and what you owe on your mortgage. You may have built home equity by paying down your mortgage and by seeing your home appreciate.

You’ll go through an application process, and the lender will likely order a home appraisal to ensure that there’s enough value there to lend against.

You’ll have a lot more paperwork than some other loans and will sign mortgage lien documents that give the lender the right to start foreclosure proceedings should you fail to make payments.

After closing on the loan, you’ll receive all funds upfront. Repayment starts shortly after.

Homebuyers also occasionally use a home equity loan to avoid PMI on a new home. An 80/10/10 piggyback mortgage, for example, consists of a conventional home loan, a second mortgage like a home equity loan, and a 10% down payment. Such buyers are able to put less than 20% down and avoid paying private mortgage insurance.

Types of Home Equity Loans

When you’re looking to use the equity in your home, there are two types of home equity loans to choose from — a home equity loan and a home equity line of credit (HELOC) — and a cash-out refinance.

•   Home equity loan: The loan is disbursed in one lump sum and paid back over time. The interest rate is typically fixed.

•   HELOC: With a home equity line of credit, money can be taken out as you need it, up to the limit you were approved for. HELOCs have a draw period, often 10 years, when you might pay only interest on money borrowed, followed by a repayment period, when principal and interest payments begin. The interest rate is usually variable.

•   Cash-out refinance: A third way of freeing up equity is through cash-out refinancing. This means taking out a new mortgage for more than you owe on your current mortgage. You use the loan to pay off your current mortgage and you are left with a lump sum to spend as you please.

Home Equity Loan Requirements

Home equity loans are contingent on:

•   The amount of home equity a homeowner has

•   Income

•   Credit history

•   Debt-to-income ratio

How to Calculate Your Home Equity

Home equity requires basic math: Subtract the amount you owe from the market value of your home. If your home is worth $500,000 and you owe $350,000, you have $150,000 in equity.

You usually will not get a loan for the total amount of home equity you have, however. When it comes to how much home equity you can tap, many lenders allow a maximum of 85% or 90%, although some allow less, and some, more.

Another way of saying that: Your loan-to-value ratio shouldn’t exceed 90% in many cases.

If you’re taking out a second mortgage like a home equity loan or HELOC, your first mortgage and the equity loan compared with your home value is what is called the combined loan-to-value (CLTV) ratio.

Many lenders will require a CLTV of 85% or less to obtain a home equity loan and a CLT of 90% for a HELOC, although some will allow you to borrow 100% of your home’s value.

Example of a Home Equity Loan Payment

One thing that attracts a lot of borrowers to a home equity loan is the long repayment period, which is also why most homebuyers choose a mortgage term of 30 years.

A longer repayment period can make your monthly payment more manageable. For example, if you were to get a $75,000 home equity loan with a repayment period of 20 years, your monthly payment at 8% interest would be $627. If you had to repay that same amount in five years, your payment would be $1,521.

Here’s a chart comparing examples of monthly payments with different terms:

A lot of variables will affect the rate you pay, such as your credit score and how much home equity you have. Also, keep in mind that the longer the loan term, the more interest you’ll pay, despite the more affordable monthly payment.

Difference Between Home Equity Loans and HELOCs

Home equity loans and HELOCs both use your home as collateral on a loan. How they differ is in how you receive and repay the money.

Advantages and Drawbacks of Home Equity Loans

Home equity loans have some advantages, but be sure to consider the drawbacks as well.

Home Equity Loan Quiz

What Can You Use a Home Equity Loan For?

The great thing about a home equity loan is the wide range of things you can use it for. Once the funds flow to your bank account, they’re yours to use for almost any purpose. Some common uses of home equity are:

•   Home renovations

•   Education expenses

•   Medical expenses

•   Consolidation of high-interest revolving debt

•   Recreational vehicles

•   Vacations

•   Weddings

•   Purchase of an investment property

•   Building an ADU

•   Money in retirement

While you can pay for college tuition with a home equity loan, it might be better to find a student loan for that expense. And vacation expenses and wedding costs might be better addressed by saving and planning than by dipping into home equity.

Why? Because other loan types don’t put your home at risk if you’re unable to pay.

How to Apply for a Home Equity Loan

Step One: Assess your situation. Do you have enough equity to make this happen? How much do you need? Would you prefer a home equity loan or a HELOC? Do you have at least a “good” FICO® score?

If you have an idea of what type of loan you want, how much you want to borrow, and how much equity is available to tap, you’ll be able to shop for what you need.

Step Two: Ask multiple lenders for loan estimates. Getting loan estimates from different lenders can help you find the best terms and rates. Compare the APR of one 20-year loan to another, and so on. The APR will include the loan’s interest rate and any points and fees. Some lenders offer to waive or reduce closing costs on the loan, but the interest rate on these loans may be higher as a result.

All hard credit inquiries made within 14 to 45 days will be counted as one.

Step Three: Find a fitting loan and apply. Submit information about your income, current mortgage, insurance, and other details the lender requests. The lender may require an appraisal of your home.

Step Four: Close on your loan. If everything checks out — including your income, credit history on your credit reports, and home value — you may reach the closing table for your home equity loan. The Federal Trade Commission recommends reading the closing documents carefully and negotiating changes or walking away if something doesn’t look as it should.

Step Five: Receive your funds. Funds are disbursed around three business days after closing on the loan. You’ll receive the amount you were approved for.

Step Six: Begin repaying your loan. On a home equity loan when the funds are disbursed upfront and your interest rate is locked, the first payment will be due around 30 days after you close on the loan.

Is It a Good Idea to Take Out a Home Equity Loan?

Taking out a home equity loan is one of the least expensive ways to finance a large purchase. Because your home is used as collateral, lending institutions are willing to offer a relatively low interest rate on the borrowed amount.

For people who want borrowing flexibility and aren’t sure of the exact amount they will need, a HELOC might be a better option.

While a lower interest rate is great, you should always keep in mind that your home is at risk with a home equity loan. If you’re confident you can make the payments and have a need for a large sum, this may be a financing solution you’ll want to look into.

The Takeaway

With a relatively low interest rate and a repayment period that can be long, a home equity loan is an attractive way to finance a large purchase or consolidate high-interest debt. A home equity line of credit is a good alternative, and more flexible.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

How much can you borrow with a home equity loan?

Most lenders limit the amount to 85% of your home equity, though that is not always the case. The loan amount also depends on your income, debt, and creditworthiness.

Can you have multiple home equity loans at the same time?

Yes, but you’ll want to consider all your options before getting another loan that puts your home at risk.

Are home equity loans tax deductible?

Interest on home equity loans is tax deductible if the money is used to buy, build, or substantially improve the home that secures the loan. You’ll want to work with a tax advisor to make sure you adhere to the rules around this deduction.

Are there costs to getting a home equity loan?

Closing costs for a home equity loan are typically 2% to 5%, but some lenders don’t charge any closing costs.

How do you pay back a home equity loan?

Repayment begins shortly after the funds are disbursed, and monthly payments are made until the loan term ends.

Photo credit: iStock/VioletaStoimenova

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.

SOHL-Q125-004

When you take out a mortgage, you can deduct the amount of money you pay on mortgage interest from your taxable income. But is home equity line of credit (HELOC) interest tax deductible, too? Put simply, it depends on when you took out the HELOC and how much mortgage debt you have.

Here’s what you need to know about HELOC tax deductions, including the requirements and limitations on HELOC tax-deductible expenses, plus how to calculate your deduction.

What Is a HELOC?

Whether to cover renovation costs or consolidate debt, homeowners can borrow against the value of their home to secure the necessary funding. There are two main types of home equity loans: a conventional home equity loan and a home equity line of credit, also known as a HELOC. A HELOC functions as a revolving line of credit that uses home equity — the home’s value minus the amount you still owe on the primary mortgage — as collateral.

How much you can borrow typically ranges from 75% to 90% of your home equity. Generally, lenders require a minimum of 15% to 20% equity in your home to be eligible for a HELOC.

When comparing a HELOC vs a home equity loan, a key difference is that a HELOC allows you to draw funds as you need them, up to a maximum limit, over a draw period (often 10 years). By contrast, home equity loans disburse funds all at once.

With HELOC loans, you pay interest only on the amount you withdraw. Once the draw period ends, any remaining borrowed funds and interest are repaid over a repayment period, which can vary but typically spans 10 years.

Dive deeper: What Is a Home Equity Line of Credit?

How Does a HELOC Affect Your Taxes?

The interest paid on a HELOC could qualify as a tax deduction to lower your taxable income. If you own a home and are planning to claim a HELOC tax deduction, there are some requirements and limitations to keep in mind.

Requirements for the HELOC Interest Tax Deduction

To answer “is interest on a HELOC tax deductible,” it’s essential to check that you meet certain requirements set by the Internal Revenue Service (IRS).

Since the Tax Cuts and Jobs Act of 2017, there are stricter requirements for how funds are spent to be eligible for a HELOC tax deduction. Specifically, funds from a HELOC must be used to buy, build, or improve a qualifying home — either a primary or second home. Eligible expenses can range from rewiring a house to replacing a roof or remodeling a kitchen. Note that funds must be spent on the same property used to secure the HELOC.

It’s also required that you have positive equity in the home used to secure the HELOC. If you have an underwater mortgage, meaning you owe more on the home than its value, you are not eligible for a HELOC tax deduction.

These requirements are in place for tax years 2018 through 2025. Prior to the rule change, a HELOC tax deduction could be made for interest paid on debt used for any type of personal expenses, not just home improvements.

Recommended: Cash Refinance vs. Home Equity

HELOC Tax Deduction Purchase Limits

HELOC tax deductions are not unlimited. So, up to what amount are HELOC loans tax deductible?

The IRS allows you to deduct interest on a maximum of $750,000 in residential loan debt (or $375,000 if married filing separately), including the primary mortgage and a HELOC. For instance, if you had $700,000 left on a home mortgage loan and $150,000 in HELOC debt, you could only deduct interest on the first $750,000 of debt.

If your primary mortgage or HELOC was approved before the 2018 tax year, you may be eligible to claim interest up to the previous limit of $1 million (or $500,000 if married filing separately). Borrowers who took out a HELOC in 2017 or earlier should note that the rule change did away with the $100,000 limit (or $50,000 if married filing separately) on home equity debt for tax deductions.

Tax Deduction Limits on Primary Mortgages

The tax deduction limits on primary mortgages are based on when the mortgage loan was taken out.
If you took out a mortgage before October 13th, 1987, there is no cap on mortgage interest tax deductions. Homebuyers who got a mortgage between October 13, 1987 and December 16, 2017, can deduct interest on up to $1 million in total mortgage debt for married couples filing jointly and single filers. The limit is $500,000 for married couples filing separately.

If you took your mortgage out after December 16, 2017, you can deduct up to $750,000 (or $375,000 if married filing separately).

These limits applied to all combined mortgage debt, including first homes, second homes, and HELOC loans.

Is Home Equity Loan Interest Tax Deductible?

The tax deduction rules for home equity loan interest is the same as a home equity line of credit. As long as you’re using funds to buy, build, or improve a home, you can claim a tax deduction on mortgage debt up to $750,000.

Recommended: What Is a Home Equity Loan?

How to Calculate a HELOC Interest Tax Deduction

Prior to filing taxes, you should receive IRS Form 1098 from your HELOC and mortgage lenders. This form indicates the interest you paid on your HELOC, primary mortgage, or home equity loan in the previous year.

If you used any HELOC funding for ineligible uses, such as personal expenses or debt consolidation, you’ll need to subtract that portion to get the deductible interest.

Besides the interest you paid on your primary mortgage and HELOC loan, total up other deductions like property taxes, mortgage points, and student loan interest. Since you can only deduct mortgage and HELOC interest payments with an itemized deduction, it’s important to check that the total of your deductions exceeds the standard deduction amount.

Here are the standard deduction amounts for tax year 2024:

•   Single or Married Filing Separately: $14,600.

•   Married Filing Jointly or Qualifying Surviving Spouse: $29,200.

•   Head of Household: $21,900.

If the mortgage and HELOC interest, plus other tax deductions you’re eligible for, exceed the above amounts, then it’s worth considering itemizing.

Recommended: Personal Line of Credit vs. HELOC

How to Deduct Home Equity Loan Interest

To deduct home equity loan interest, you’ll need to gather any receipts or invoices documenting how the money was spent. Be sure to keep records of transactions for eligible home renovations and improvements to verify your deductions in case you are audited by the IRS.

Once you’ve compiled all the necessary documentation, you’ll itemize your deductions using Schedule A of IRS Form 1040.

Does a HELOC Affect Property Taxes?

While the amount you take out through a HELOC won’t affect your property taxes, the improvements you make to your home could potentially increase the value of your home. If your renovation is substantial and involves a permit, it could be more likely to change the appraised value and potentially increase your property taxes.

The Takeaway

You can deduct the interest paid on your HELOC if the funds are used to buy, build, or improve your home. HELOC tax deductions must be itemized, and they are only allowable for the first $750,000 in mortgage debt on qualifying primary and secondary residences.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

Do you report a HELOC on your taxes?

You report your HELOC interest on your taxes if you’re claiming an itemized deduction and you used your HELOC to build or improve your home.

Will a HELOC appraisal raise my taxes?

No, a HELOC appraisal will not raise your taxes. Property taxes are based on the appraised value of your home by your local government.

Does HELOC affect capital gains tax?

No, a HELOC does not affect capital gains tax on a home sale.

Photo credit: iStock/damircudic

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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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A 3.6% increase in the conforming loan limits for 2026 raised the baseline loan limit for a single unit to $832,750 in most counties in the United States.

The adjustment is a result of a change in the average price of a home nationwide from the third quarter of 2024 to the third quarter of 2025. Home prices increased an average of 3.6%, and the baseline conforming loan limit kept pace.

Conforming loans may be cheaper than nonconforming loans like jumbo mortgages, but jumbo loans have their place.

Conforming Loan Limits for 2026

The conforming loan limits set by the Federal Housing Finance Agency can vary based on area and the number of units in the property.

In most counties, that number increased to $832,750 in 2026 for a one-unit property. In most high-cost areas, the limit is $1,249,125 for a one-unit property.

In general, here’s how the baseline conforming loan limits break down for 2026.

Maximum baseline loan limit for 2026

Recommended: The Cost of Living by State

Why Care About Conforming Loan Limits?

Staying under a conforming loan limit means you’ll most likely obtain a lower-cost mortgage. Mortgages that “conform” to the limits can be acquired by Fannie Mae and Freddie Mac, government-sponsored enterprises.

Because these mortgages can be bought by the agencies and then sold to investors on the secondary mortgage market, they represent a lower risk to the lender and a lower cost to the consumer.

If you need to finance more than the conforming limit, you’ll need to look at jumbo mortgage loans.

Getting a jumbo loan involves clearing more hurdles than a conforming loan. The rate will usually be similar to conforming loan rates, but sometimes it can be lower. How jumbo can a loan be for a primary residence, second home, or investment property? It’s up to each lender.

Government-backed mortgages are also nonconforming loans, and although they serve certain homebuyers, they also may be more expensive than conforming conventional loans because they usually come with additional fees.

Recommended: How to Get a Mortgage Loan

Notable Counties Above the Standard Loan Limits

Loan limits are higher in counties where the average home price is above 115% of the local median home value. The loan ceiling is 150% of the baseline value.

For 2026, the high-cost-area loan limit increased from $1,209,750 to $1,249,125 on a one-unit property. Alaska, portions of Hawaii, Guam, and the U.S. Virgin Islands also have a baseline loan limit of $1,249,125. Two counties in Hawaii, Kalawao and Maui, have a still higher limit of $1,299,500.

The following is a chart of counties (and some cities) in high-cost areas with an increased baseline loan limit. The increased amount for high-cost areas maxes out at $1,249,125 in select areas.

Will Conforming Loan Limits Rise or Fall?

The baseline conforming loan limit is adjusted each year to reflect the change in the average home value and local housing trends in the United States.

The conforming loan limit has increased steadily for the past 10 years and has never declined. From 2006 to 2016, for example, the conforming loan limit remained at $417,000, despite declining home values across the country. If home values continue to rise, the conforming loan limit will also rise.

Conforming Loan Limits Over the Past 10 Years

The 3.6% increase in loan limits for 2026 is lower than the previous year’s increase of 5.2% and far lower than the 18% increase of 2022, which was the largest jump in the past 40 years. But it still represents an average increase of $26,250 over the past year alone.

Conforming loan limit

The Takeaway

Conforming loan limits help to keep costs low for homebuyers. This means competitive pricing on mortgages, no matter what the housing market looks like each year.

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

Is a conforming loan a good thing?

Yes, generally speaking, staying under a conforming loan limit means you’ll most likely obtain a lower-cost mortgage.

Is a conforming loan the same as a conventional loan?

A conforming loan and a conventional loan are not the same thing, although many conventional loans are also conforming loans. A conventional loan is one that is not backed by a government agency such as the Federal Housing Administration. It might come from a private lender such as a bank. A conforming loan is one in which the underlying terms and conditions adhere to the funding criteria, including loan amount limits, spelled out by Freddie Mac and Fannie Mae. Conventional loans can be conforming. Those that do not follow the conforming loan limits are considered “jumbo” loans.

Photo credit: iStock/marchmeena29

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 Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

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