Mar

2025

Can I Refinance My HELOC With Another Bank?

By Kim Franke-Folstad | Growing Wealth, Home Ownership, mortgage, Terminology, Tools & Calculators | Comments Off

If the terms of your home equity line of credit (HELOC) no longer feel like a good fit, you may be wondering if you can refinance your HELOC with another bank.

The answer is yes, you can. There are several HELOC refinancing options available. And depending on your reasons for refinancing, and the terms other lenders are offering, you might be able to benefit from switching to a different lender.

Read on for a look at what it can take to refinance a HELOC, some pros and cons, and whether it might make sense for you.

Key Points

• Refinancing a HELOC can lead to a lower interest rate, extended draw period, and reduced monthly payments.

• Potential drawbacks include higher interest rates, closing costs, and a temporary decrease in credit score.

• Eligibility for refinancing requires at least 15% to 20% home equity, among other factors.

• Options for refinancing include a new HELOC, a home equity loan, a cash-out refinance, or modifying the current HELOC.

• The refinancing process involves reviewing current terms, comparing offers, providing documentation, and applying for a new loan.

HELOC Refinancing Explained

A HELOC is a revolving line of credit that usually comes with a variable interest rate — which can make it seem very much like using a credit card. You can tap into your credit line at any time (up to a preapproved limit). And you can use the money for just about anything you want.

Unlike a credit card, however, a HELOC is secured by the equity in your home. Which means the credit limit for a HELOC will likely be higher than a credit card, and the interest rate will likely be lower. But if you default on your payments, you could be putting your home at risk of foreclosure.

Another significant difference between HELOCs and credit cards is that the life of a HELOC is divided into two phases:

• With a HELOC, you can only use the money from your credit line for a fixed period of time (usually 5 or 10 years) called the “draw period.” During this time, you can make payments toward your principal and interest, if you like. But typically, HELOC borrowers are only required to make interest payments during the draw period.

• When the draw period ends, the “repayment period” begins. During this phase, which generally lasts 10 to 20 years, the focus turns to paying back the principal, along with any interest that’s due.

This is where the option to refinance a HELOC might make sense for some borrowers. Depending on how large the account balance has grown over time, your monthly payments could be substantially higher during the repayment period than they were during the draw period — especially if interest rates have gone up over the years. If you can transfer your HELOC to another bank with more competitive terms (a lower interest rate, for example, or a longer loan length), it could help bring those payments down. You also could refinance to a new HELOC so you can continue borrowing against your equity with another draw period.

Eligibility for HELOC Refinancing

When you refinance a HELOC, you’re basically taking out a whole new line of credit or a new loan to replace your current account. And the eligibility requirements lenders want you to meet may be different from those of your original HELOC. With a refinance, you can expect lenders to look at several factors, including:

• Home equity: Home equity is the value of your home minus the amount you still owe, and to qualify for a HELOC, you typically must have at least 15% to 20% equity in your home. (A home equity loan calculator can help you estimate how much you might be able to borrow.)

• Debt-to-income (DTI) ratio: Lenders look at your DTI ratio (all monthly debt payments / gross monthly income = DTI) to determine how much of your income goes toward paying your monthly debts. Generally, lenders like to see a DTI ratio that’s no higher than 43% to 50%, but the lower the better.

• Loan-to-value (LTV) ratio: The amount you’re allowed to borrow can also be affected by your LTV ratio (your mortgage balance / your home’s current value). Having a lower LTV can improve your chances of meeting refinance requirements. Lenders also like to see a low combined loan to value (CLTV) ratio (that’s all the secured loans on your home / the value of your home) to be sure you aren’t taking on too much debt.

• Credit standing: Having a good credit score and solid credit history can help you qualify for financing and get a better interest rate.

Types of HELOC Refinancing Options

If you’re thinking about refinancing your HELOC, you may have a few different options to consider, including:

Replacing Your Current HELOC with a New HELOC

Refinancing to a new HELOC can allow you to reset your draw period (giving you more time to keep borrowing) and postpone your repayment period. You also may qualify for more favorable terms — a fixed and/or lower interest rate, for example, or a longer loan term with lower monthly payments. It’s important to keep in mind, though, that if you refinance and you don’t pay down your principal, you could end up paying more interest over time. And if you sell your home, you’ll likely have to pay off your HELOC as part of that transaction. You can use a HELOC monthly payment calculator to see how different interest rates will affect your monthly payments.

Paying Off Your HELOC with a Home Equity Loan

There are different types of home equity loans. A basic home equity loan is similar to a HELOC in that it’s secured with the equity in your home. But unlike a HELOC, a home equity loan is paid out as a lump sum and usually has a fixed interest rate. This can make payments more predictable, and easier to plan for. But again, you could end up paying more interest over time than you would with the original HELOC. And if you sell your home, you may need to pay off the home equity loan. These are all considerations as you weigh a new HELOC vs. a home equity loan.

Using a Cash-Out Refinance

With a cash-out refinance, you would replace your original mortgage with a new, larger mortgage, and use the money that’s left over to pay off your HELOC. If you can get a fixed interest rate that’s lower than what you’ve been paying, this strategy might make sense, especially if you can also refinance to a mortgage with a shorter term. And as an extra bonus, you’ll have the convenience of combining two payments into one. But better terms aren’t guaranteed, so it’s a good idea to check out what various lenders are offering.

Modifying Your HELOC with Your Current Lender

If your current lender will work with you to lower your monthly HELOC payments, that may be the most convenient option. If you have a good relationship, you can try asking about extending your repayment term, lowering your interest rate, moving to a fixed rate, or even reducing your principal. Even if you get a positive response, though, you may want to take some time to look at what other lenders are offering and what best suits your needs and goals.

Recommended: HECM vs. HELOC

The HELOC Refinancing Process

The process for refinancing your HELOC is pretty much the same whether you choose a new HELOC, a home equity loan, or some other option. Here are some of the basic steps:

Getting Reacquainted with Your Current HELOC

If it’s been a while since you looked at the terms of your HELOC, take a moment to get reacquainted with the important details — including your current balance, your repayment terms, any fees you might owe, the current interest rate, and what you could end up paying in the future if rates go up.

Comparing Lenders and Offers

Once you’ve reviewed your current HELOC, you can do some comparison shopping to see what other lenders might offer you. Look at interest rates, fees, and other loan terms. And if you can, read reviews to get a feel for what it might be like to work with a particular lender. Keep both your short- and long-term goals in mind as you evaluate various refinancing options.

Applying for Refinancing

Be prepared to provide current mortgage and bank statements, proof of income and employment, a home appraisal, and any other documentation your lender asks for. You can also expect your lender to run a credit check.

Keep in mind that you can only refinance your HELOC if you have adequate equity in your home. If you don’t have at least 15% or 20% in equity, based on the home’s current fair market value, you may not qualify for refinancing.

Costs Associated with HELOC Refinancing

No matter which method you might choose to refinance your HELOC, you can expect to pay closing costs on the new loan. These can include an appraisal fee, loan origination fee, application fee, credit reporting fee, attorney fee, and more. Closing costs vary depending on the type of loan, the loan amount, and the lender. Though closing costs for some loans can be as high as 2% to 5% of the loan amount, with a HELOC, you may be able to pay as little as 1%.

Pros and Cons of Refinancing Your HELOC with Another Bank

If you’re thinking about refinancing your HELOC with a different lender, there are a few pros and cons you may want to consider.

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Pros:

• You may be able to qualify for a lower interest rate with a new lender. (Especially if your credit has improved or rates have dropped since you took out your original HELOC.)

• With a new HELOC, you could restart the draw period and continue borrowing money when you need it.

• You also may be able to extend your repayment term and potentially lower your monthly payments.

• If you’re unhappy with your current lender, refinancing could allow you to break up and move on.

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Cons:

• If interest rates have gone up since you opened your original HELOC, you may have to pay more for your loan.

• You can expect to pay some closing costs when you open a new HELOC.

• You’ll have to complete some paperwork, and you may have to get a new appraisal.

• Applying for a new HELOC could temporarily ding your credit.

Recommended: HELOCs and Taxes

The Takeaway

If you think you may be able to qualify for a more affordable monthly payment by refinancing into a new HELOC or home equity loan, or by doing a cash-out refinance with your first mortgage, it can make sense to check out the options with other lenders when you are wondering if you can refinance a HELOC with a different bank. It’s easy to hop online and compare what lenders are offering. And that can help you decide if refinancing would help you meet your financial goals.

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.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

How soon can I refinance my HELOC after opening it?

If you’re hoping to avoid high monthly payments or you want to extend your draw period, it can make sense to refinance your HELOC before you enter the repayment period. But it’s a good idea to review your HELOC agreement to determine if your lender assesses a penalty for closing your HELOC out early.

Will refinancing my HELOC affect my credit score?

Refinancing your HELOC could temporarily affect your credit score. But you can minimize the impact by making your HELOC and other payments on time and by not applying for any other credit accounts for a while.

Can I refinance a HELOC on an investment property?

You may be able to refinance a HELOC on an investment property, but in general, HELOCs are not as common for investment properties as they are for primary residences. Fewer lenders offer them, and the eligibility requirements may be more strict.

Photo credit: iStock/Inside Creative House

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SoFi Mortgages
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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOHL-Q125-072

Mar

2025

Second Mortgage vs. Home Equity Loan

By Kim Franke-Folstad | Growing Wealth, Home Ownership, mortgage, Terminology, Tools & Calculators | Comments Off

If you’re thinking about accessing some of the equity in your home, but you’re a little confused about the mix of terms used to describe this type of borrowing, you’re not alone.

Understanding the subtle differences in how these borrowing options work (a home equity loan vs. a second mortgage vs. a HELOC, for example) can be challenging. But the more you know, the more equipped you can be to make the best choice for your needs.

In this guide, we’ll break down what the different terms mean, some of the pros and cons of each type of financing, and factors that might influence which option you choose.

Key Points

• Second mortgages include home equity loans and HELOCs.

• Home equity loans offer a lump-sum payment and a fixed interest rate.

• HELOCs provide flexible, revolving credit and often have variable interest rates.

• Both second mortgages use the home as collateral, posing a foreclosure risk.

• Interest on these loans may be tax-deductible for some home improvements.

Key Differences Between Second Mortgages and Home Equity Loans

Ready to have the fog lifted a bit? Let’s start by defining the term “second mortgage,” and discuss how it relates to the term “home equity loan.”

A second mortgage is pretty much just what it sounds like: You’re adding a second mortgage loan to your existing primary mortgage, and your home is the collateral for both loans. The first mortgage is secured by your home, and the second mortgage is secured by the equity you’ve managed to build up in that home.

You see where this is going, right? A home equity loan is a type of second mortgage. But — plot twist! — all second mortgages aren’t necessarily home equity loans. Another type of financing you’ve likely heard of, a home equity line of credit (HELOC), is also considered a type of second mortgage. (A third and less common second mortgage: Some homebuyers, including those with FHA loans, may get a second mortgage when they initially buy their home, as a way of helping to make the down payment.)

So there are two basic types of second mortgages: home equity loans and HELOCs. And there are some important differences between these two options.

Loan Structure

• A second mortgage that is a home equity loan is considered a “closed-end” loan, which means the borrower receives a lump-sum payment upfront and repays that amount over time. When you pay down the balance — even if you pay off the loan early — you can’t re-borrow, or “draw” from the same loan again. If you need more money, you have to take out a new loan. (You can get an idea of how much you might be able to borrow with a home equity loan calculator.)

• A HELOC, on the other hand, is an “open-end” line of credit. You can take out cash as you need it, up to the credit limit, and as you repay your outstanding balance, the amount of available credit is replenished, much like a credit card. You can borrow against it again and again, if you need to, throughout your draw period (which is typically 10 years). Usually, you’re only required to make minimum or interest-only payments during this time. Then, when the draw period ends, the repayment period begins.

Interest Rates

• A second mortgage that’s a home equity loan will typically have a fixed interest rate that’s higher than the mortgage rate for your primary home loan but lower than the rate you’d likely get with an unsecured loan, like a personal loan.

• A HELOC is also secured with your home, so the interest rate will likely be lower than if you used a credit card. But like a credit card, a HELOC often comes with a variable interest rate, which means the rate can change over time. (There may be an initial fixed rate for an introductory period before the variable rate kicks in.) Much in the way that mortgage rates drive costs on a variable-rate mortgage, if interest rates rise during the variable-rate period, so do the costs associated with your HELOC. This can affect the monthly payments and the total interest paid over the life of the line of credit.

Repayment Terms

• Home equity loans usually have fixed monthly payments that are made over a predetermined loan term that could range from five to 30 years.

• A HELOC repayment term, which starts after the draw period is over, generally lasts 10 to 20 years. During this time the interest rate may fluctuate, which means monthly payments may be less predictable. If interest rates rise, your payments could be higher than you expected; if they drop, your payments could be lower. (You can use a HELOC repayment calculator to estimate what your payments might be.)

Pros and Cons of Second Mortgages

As with most types of financing, the different types of home equity loans have pros and cons to consider.

Advantages

• Because the loan or line of credit is secured with your home as collateral, you can expect your interest rate to be lower than the rate for an unsecured loan or line of credit, like a personal loan or credit card.

• If your second mortgage is a HELOC, you can decide how much to withdraw (up to your credit limit) and when to withdraw it, and you’ll only pay interest on what you’ve borrowed. The money in the account will be there if you need it at any time during the draw period, but you’ll have some flexibility in how you use it.

• Unlike many other types of loans (auto loans, first mortgages, student loans), you can use the funds from your HELOC or home equity loan for just about anything you want.

• The interest you pay may be tax deductible, if you use the money for qualifying home improvements. You’ll want to talk to a tax advisor about this deduction.

Disadvantages

• Securing your second mortgage with your home as collateral can put you at risk of foreclosure if you default on your payments.

• If your home’s value declines, you could end up owing more than your home is worth. And if you have a HELOC, your lender may decide to freeze or reduce your line of credit.

• Closing costs for second mortgages are generally lower than for primary mortgages, but you can still expect to pay some fees when you close on your loan or line of credit.

• You will likely have to repay your home equity loan or HELOC if you sell your home.

Recommended: HELOC Loan Guide

Pros and Cons of Home Equity Loans

Both HELOCS and home equity loans are a type of a second mortgage, and they have some similar traits and some that differ. Here are some pros and cons that are specific to home equity loans.

Advantages

• Because you get your money upfront with a home equity loan, it can be a useful way to pay for a large one-time expense, such as a home renovation, or for debt consolidation.

• Home equity loans typically come with a fixed interest rate and a predictable fixed monthly payment, which can make it easier to budget for and plan around.

Disadvantages

• With a home equity loan, you’ll immediately start paying interest on the full amount of the loan each month, even if you haven’t used the money.

• If you don’t know exactly how much you’ll need for a home renovation, medical procedure, etc., you could under-borrow, and you might have to get another loan to finish the work. (With a HELOC, you can keep borrowing and repaying for several years without getting additional approvals or filing new paperwork.)

Recommended: Mortgage Preapproval

Choosing Between a HELOC and a Home Equity Loan

Because there are pros and cons to both second mortgage options, it may be difficult to choose between a home equity loan vs. a HELOC. Here are some points to consider:

Assessing Your Financial Needs

How do you plan to use the funds from your second mortgage? As you weigh a HELOC vs. second mortgage in the form of a home equity loan, consider this:

• If your goal is to make a large one-time purchase, a home equity loan — which comes in a lump-sum payment — may be the better choice.

• If you like the idea of having more flexibility in how much you borrow and when you borrow it, a line of credit — which you can use and pay back and use again — might be the right option.

Evaluating Interest Rates and Terms

Which terms better suit your purposes (and personality)? When thinking about using a HELOC second mortgage vs. a home equity loan consider this:

• A home equity loan has a fixed interest rate and a traditional loan structure with more predictable monthly payments.

• A HELOC usually has a variable interest rate, which can fluctuate over time. During the first years that you have the line of credit, the “draw period,” you may only have to make minimum or interest-only payments. But when you enter the repayment period, if interest rates have increased, your payments may be higher than you anticipated.

Considering Tax Implications

The interest on both a HELOC and a home equity line of credit may be tax deductible, but only if you use the funds “to buy, build, or substantially improve the residence” you used to secure the loan. (Note that this IRS rule expires at the end of 2025. If it isn’t renewed by Congress, the interest from either type of second mortgage may be deductible in the future — with some limitations — regardless of how the homeowner uses the money.)

The Takeaway

Both home equity loans and home equity lines of credit (HELOCs) are a type of second mortgage. And though they share some similarities, there are also some differences that are important to consider when you’re trying to decide which option is better for your needs.
While both home equity loans and HELOCs allow you to tap into your home’s equity if you need money, a HELOC offers the option to draw only what you require and to pay as you go. This can make it an option worth considering if you’re not sure how much money you need upfront for a project or purchase, or if you want to have a backup plan to cover unexpected costs as they come up. It can also keep your costs down in the first years that you have the HELOC.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

Are interest rates typically higher for second mortgages or home equity loans?

The interest for a second mortgage — whether it is a home equity loan or a HELOC — is typically lower than what you might find with an unsecured loan. The interest rate on any mortgage can depend on several factors, including the borrower’s creditworthiness and loan-to-value ratio, and the prime rate. But second mortgages often have a higher interest rate than primary mortgages.

Can I use funds from a second mortgage or home equity loan for any purpose?

Yes, you can use the money from a second mortgage for just about any purpose.

How does the repayment term differ between a second mortgage and a home equity loan?

A home equity loan is a type of second mortgage. It usually has a fixed repayment schedule for the life of the loan, and repayment begins as soon as you receive the lump-sum loan. Another type of second mortgage, a home equity line of credit (HELOC) has two phases of payments: There is a draw period, during which payments are typically interest-only, and a repayment period when you repay all that you’ve borrowed, plus interest.

What are the risks associated with taking out a second mortgage or home equity loan?

Securing a loan or a line of credit with your home as collateral can put you at risk of foreclosure if you default on your payments. Also, if your home value declines, you could end up owing more than your home is worth.

How does my credit score affect eligibility for a second mortgage or home equity loan?

The higher your credit score, the more likely you are to be approved for a second mortgage. Your credit score also can affect the interest rate and borrowing terms you are offered.

Can I borrow against my home equity if my house is paid off?

Yes. If you have good credit and meet other eligibility requirements, you should be able to use the equity in a paid-off home to get either a HELOC or a home equity loan. (It wouldn’t be referred to as a “second mortgage” in this situation, however.)

Photo credit: iStock/VioletaStoimenova

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SOHL-Q125-069

Mar

2025

Using a Home Equity Loan to Renovate or Remodel

By Rebecca Lake | Growing Wealth, Home Ownership, mortgage | Comments Off

Home equity loans put cash in your hands that you can use for virtually any purpose. Using a home equity loan to renovate could make sense if you’re making improvements that are likely to increase your property’s value.

Getting a home equity loan or home equity line of credit (HELOC) for home improvements offers some advantages over other types of loans, but you’ll need to have sufficient equity to borrow. A good credit score can also make a difference if you hope to qualify for a low interest rate.

How does a home equity loan or HELOC work for home improvements? Here’s what you should know.

Key Points

• Access to large cash amounts is a significant benefit of using a home equity loan for home renovations.

• The loan-to-value ratio is an important consideration for lenders.

• Interest on a home equity loan may be tax-deductible if used for home improvements, but this benefit may change.

• To obtain a home equity loan, borrowers must calculate equity, compare rates, get preapproved, and finalize the loan process.

• Compared to other funding options, home equity loans typically offer lower interest rates and higher borrowing limits, though collateral and closing costs are involved.

Understanding Home Equity Loans

To understand how does a home equity loan work for home improvements, you first need to understand equity. So, what is home equity? In simple terms, it’s the difference between what you owe on your mortgage and your home’s value. A home equity loan allows you to take some of that value out in cash, pulling equity out of your home with your home used as collateral.

A home equity loan is a type of second mortgage, also called a junior lien. This means that in order of repayment, your first mortgage (which is the home loan you used to purchase the property) takes precedence. Should you end up in foreclosure and your home is auctioned off, the proceeds would pay off the first mortgage and anything left would go to the second.

There are different types of home equity loans and credit line arrangements:

• Fixed-rate home equity loan. A fixed-rate home equity loan offers a lump sum of money that you pay back at a fixed or set interest rate.

• Fixed-rate HELOC. A home equity line of credit or HELOC is a revolving line of credit you can borrow against as needed. Fixed-rate HELOCs are less common, but some lenders offer them.

• Variable-rate HELOC. A variable-rate HELOC has an interest rate that’s tied to an index or benchmark rate. If the benchmark rate rises or falls, your HELOC rate moves in tandem.

Having a home equity loan or HELOC means you’ll have two mortgage payments to make each month. If you’re considering a home equity loan to renovate, it’s important to understand what you’ll pay to make sure it’s a good fit for your budget. A home equity loan calculator can help you crunch the numbers.

Benefits of Using a Home Equity Loan for Home Improvements

Using a home equity loan or HELOC for home improvements offers some unique benefits. For one thing, it may allow you to access a large amount of cash. Considering that the average cost to remodel a home can run anywhere from $20,000 to $90,000, that’s a plus. Here are some other good reasons to consider a home equity loan for home renovation.

Lower Interest Rates

Home equity loans can offer lower interest rates than unsecured loans for qualified borrowers. The higher your credit score is, the lower your rate is likely to be.

A fixed rate is another advantage because it offers predictability. Your payments stay the same and you can easily estimate how much you’ll pay in interest. For example, if you get a $100,000 home equity loan at 7.75% with a 30-year term, you’ll always pay $716 a month. (A HELOC is more likely to have a variable interest rate — one that rises or falls at regular intervals in response to market rates.)

Home equity loan rates tend to be higher than purchase loan rates since there’s more risk for the lender. However, they can still be cheaper than personal loans or unsecured home improvement loans.

Potential Tax Deduction

The IRS offers a tax deduction when you use a home equity loan or HELOC to “buy, build, or substantially improve the residence” that secures the loan.

You can claim this deduction in addition to any mortgage interest you deduct for your primary home loan if you itemize on your return. You’ll just need to be sure that you’re only using your equity loan or HELOC to cover eligible expenses related to your renovations. (Save your receipts as part of your tax records.) You’ll want to talk to your tax advisor about this, especially given that, as of early 2025, the current tax rules for deducting home equity loan interest are set to sunset at the end of 2025.

Increased Home Value

Using a home equity loan to remodel could help boost your home’s value, depending on the projects you decide to tackle. That could leave you with more profit in your pocket if you eventually decide to sell the home, or more equity to borrow against later.

Here are some of the home improvement projects offering the highest return on investment:

• Garage door replacement

• Entry door replacement

• Midrange kitchen remodel

• Deck addition

• Vinyl siding replacement

• Window replacement

• Roof replacement

• Bathroom remodel

When deciding which projects to fund, consider the ROI as well as the projected time to complete them. Upgrading to your dream kitchen, for instance, could take months, so you have to be patient enough to see the renovations through.

Evaluating Your Home’s Equity

One of the most important factors lenders consider is the amount of equity you have in your home. Specifically, they look at your loan-to-value (LTV) ratio. If you don’t have sufficient equity in the home, you may not qualify for a home equity loan or HELOC.

Impact on Borrowing Capacity

What is loan-to-value ratio? It’s a ratio that measures the amount you want to finance against the value of your property. Here’s how to calculate it.

LTV ratio = (Current loan balance) / (Appraised value) x 100

Typically lenders look for a maximum LTV ratio of 80% to 90% for home equity loans and HELOCs.

How much home equity can you borrow? Let’s say you owe $300,000 on your home and it’s valued at $500,000. Your LTV would be 60%. In terms of how much of your $200,000 equity you could borrow, you might be able to withdraw up to $100,000 with a home equity loan if a lender allowed a max LTV of 80%, or $150,000 if the lender allowed a max LTV of 90%.

Steps to Obtain a Home Equity Loan for Renovation

How do you get a home equity loan for remodeling? It’s a multi-step process but for the most part, it isn’t that different from getting a mortgage to buy a home. Here’s an overview of how it typically works.

• Calculate your home equity, then calculate your loan-to-value ratio.

• Shop around to compare mortgage rates for home equity loans and HELOCs. Consider getting quotes from several lenders to see how they measure up.

• Consider getting preapproved. Preapproval means that you’re conditionally approved for a home equity loan.

• Select a lender and finalize your application. Most home equity lenders allow you to apply online and upload your documents digitally.

• Wait for the lender to schedule an appraisal. Your lender may request an in-person appraisal, offer a desk appraisal, or use a hybrid approach that combines an in-person visit with use of an automated valuation model.

• Review the loan terms. Assuming you’re approved, you’ll have a chance to review your loan terms before signing off on the final paperwork.

• Close and sign the documents. You’ll pay any closing costs that are due, sign the loan agreement, and tell the lender where to send the loan proceeds.

The process to get a home equity loan or HELOC can take a few weeks to a few months, depending on your situation and choice of lender.

Alternatives to Home Equity Loans for Renovation

A home equity loan for remodeling is just one way to fund home improvements. If you’re looking for other options, you’ve got choices.

• Personal loan. The main difference between home equity loans vs. personal loans is that one is secured by your home; the other isn’t. Personal loans can offer generous lending limits, and you can use the money for anything, but interest rates may be higher. And instead of closing costs, you might pay application or origination fees to borrow.

• Personal line of credit. A personal line of credit is a revolving credit line that you can draw against as needed. A line of credit might be a good fit if you don’t know exactly how much money you’ll need for renovations. The upside is that you only pay interest on the part of your credit line that you use, whereas a home equity loan requires you to pay interest on the entire loan amount.

• Credit card. A credit card could be a good fit to fund home improvements if you have a low interest rate and earn rewards on your purchases. For example, you might use a card that rewards you with 5% cash back at home improvement stores. Just keep in mind that the interest you pay to a credit card (or personal loan) for home remodeling isn’t tax-deductible.

The Takeaway

Using a home equity loan or HELOC to remodel could be an attractive option if you’re ready for a home makeover but don’t want to pull from your reserves. Checking your credit scores before you can apply can give you an idea of what you might qualify for, as far as rates go. From there, the next step is checking mortgage rates and terms from different lenders to see who has the best offer.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

Are there risks associated with using a home equity loan for renovations?

There are risks to using a home equity loan for renovations. If you end up in a situation where you can’t make your home equity loan or mortgage payments, you could end up in foreclosure. That would allow your lenders to take the home from you, since it secures both of your mortgages.

Can I use a home equity loan for any type of home improvement?

You can use a home equity loan for home improvements big and small, whether that means a full kitchen remodel, adding on an extension, or simply replacing some of your fixtures and appliances. Home equity loans offer flexibility since you can use the money for virtually any expenses.

What are the typical interest rates for home equity loans?

Interest rates for home equity loans are typically a percentage point or two higher than rates for first mortgages. So if a lender is charging 6.50% on average for purchase loans, it might charge 7.50% to 8.50% for a home equity loan or HELOC. A good credit score can help you qualify for the lowest rate possible on a home equity loan.

How long does it take to get approved for a home equity loan?

Home equity loan approval may take a few weeks since the lender will need to review your credit and income, and schedule an appraisal to determine the home’s value. The entire underwriting process could take a few months if you hit any snags. For example, if you’re self-employed, you may need to provide additional documentation of your income or assets to the lender.

Are there closing costs associated with home equity loans?

Home equity loans can have closing costs just like other mortgages. Typical closing costs for a home equity loan range from 2% to 5% of the loan amount. Some lenders may allow you to roll the closing costs into your loan so you pay nothing upfront; however, that does add to the amount you’ll pay interest on.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Photo credit: iStock/andresr

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

^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.
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SOHL-Q125-068

Mar

2025

What Is FICO vs. Transunion vs Equifax Credit Scores

By Dan Miller | Credit, Financial Topics | Comments Off

What Is FICO vs TransUnion vs Equifax Credit Scores?

While many people think of their credit score as a singular number, the truth is that most consumers have several different credit scores. This is because different credit bureaus (Equifax®, TransUnion®, and Experian®) use different scoring models, such as FICO® and VantageScore®.

FICO scores are one of the most popular types of credit scores. TransUnion and Equifax are credit reporting agencies and have collaborated with Experian to produce VantageScore. If you compare VantageScore vs. FICO scores, you will find that they share many similarities — and feature a few key differences.

Keep reading to learn more about FICO, TranUnion, and Equifax, including how each works, which credit score bureau is best, and how you can obtain your credit scores and credit reports.

Key Points

• FICO scores are widely used by lenders and are based on credit data from major bureaus, using a specific algorithm to assess creditworthiness.

• TransUnion and Equifax are two of the three major credit bureaus that collect and maintain consumer credit data, but they may have slightly different information on file.

• FICO scores use a consistent formula, while TransUnion and Equifax may provide different scores using their own models, such as VantageScore.

• Your credit score varies between FICO, TransUnion, and Equifax due to differences in reporting dates, data collection, and scoring methods.

• Lenders may use FICO scores or TransUnion or Equifax reports to determine creditworthiness, so it’s important to monitor all three for accuracy.

Types of Credit Scores

There are several different types of credit scores, since different companies have different ideas of which information is most predictive of whether a consumer will be a good lending risk. However, the two most common types of credit scores are the FICO Score and the VantageScore.

How FICO Works

FICO scores are produced by the Fair Isaac Corporation and are one of the most popular types of credit scores. The Fair Isaac Corporation lists five factors that affect your FICO score:

• Payment history (35%)

• Amounts owed (30%)

• Length of credit history (15%)

• Credit mix (10%)

• New credit (10%)

Based on these factors, you receive a FICO credit score, which is a three-digit number between 300 and 850. Those with high credit scores will typically receive the best rates and terms from lenders.

How VantageScore Works

VantageScore is a credit scoring model developed by the three major credit bureaus — Experian, Equifax, and TransUnion. It evaluates creditworthiness using factors like payment history, credit utilization, account age, total debt, and recent inquiries. Unlike FICO, VantageScore can generate a score with a shorter credit history, making it more accessible for new borrowers.

Similar to FICO, the scoring model ranges from 300 to 850, with different categories to indicate credit health:

• 781–850: Excellent

• 661–780: Good

• 601–660: Fair

• 500–600: Poor

• 300–499: Very Poor

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TransUnion vs. Equifax

TransUnion and Equifax are two major credit reporting agencies, along with Experian. Each plays a key role in determining creditworthiness, but understanding their differences can help you better manage your financial health and navigate credit decisions.

How TransUnion Works

TransUnion does not actually produce its own credit score — instead, it is one of the three major credit reporting agencies, along with Equifax and Experian. TransUnion collects payment and other information about consumers to build a consumer credit report.

However, TransUnion, along with Equifax and Experian, did create the VantageScore credit score model in 2006. VantageScore is a company that produces credit scores. So if you hear someone talking about a TransUnion credit score, they may be referring to a VantageScore credit score.

How Equifax Works

Like TransUnion, Equifax is most often thought of as a credit reporting agency rather than as a company that produces credit scores. However, Equifax is another partner in the VantageScore credit score model. So like TransUnion, if you hear someone talking about an Equifax credit score, they may be talking about a VantageScore credit score.

Which Credit Score Bureau Is Best?

When choosing the best credit score bureau, it’s important to recognize that no single bureau is definitively superior. TransUnion, Equifax, and Experian all provide valuable insights into your credit report. The key difference lies in the information they collect and how they calculate scores, which varies slightly.

How Can You Obtain Your Credit Score?

You can check your credit score through several sources, each offering different levels of access and detail. Here are some common ways to obtain your credit score:

• Credit card issuers and banks – Many provide free credit score access to customers.

• Credit bureaus – You can purchase your credit score directly from Equifax, TransUnion, or Experian.

• Online credit monitoring services – You can sign up for credit score monitoring. SoFi’s credit monitoring service allows you to track your credit score and receive weekly updates at no cost.

• Loan applications– Some lenders disclose your credit score when you apply for a loan.

• FICO and VantageScore websites – You can purchase official credit scores from these scoring model providers.

Recommended: How Often Does Your Credit Score Update?

How Can You Obtain Your Credit Reports?

To obtain your credit reports, you can access them through several channels. The Fair Credit Reporting Act (FCRA) grants consumers the right to a free credit report from each of the three major credit bureaus — Equifax, Experian, and TransUnion — once a year. Regularly reviewing your credit report helps identify errors and detect potential identity theft.

To obtain your credit reports, you can:

• Visit AnnualCreditReport.com, the only federally authorized website for free reports.

• Request your reports by calling 1-877-322-8228.

• Submit a request via mail by completing the Annual Credit Report Request Form.

• Access additional reports through credit monitoring services or directly from the credit bureaus.

It can be a good idea to use a money tracker app to review your payment and spending history, as well as regularly review your credit report. If you find any errors or inconsistencies, you can report or dispute them to the agency in question to get any incorrect information removed. Incorrect information on your credit report can cost you points on your credit score.

What Is a Good Credit Score Range?

A good credit score range typically falls between 670 to 739 on the FICO Score scale, which ranges from 300 to 850. Lenders generally view scores in this range as favorable, meaning borrowers are more likely to qualify for loans and credit cards with competitive interest rates.

Credit scoring models like VantageScore also use a 300 to 850 range, with a good score typically between 661 and 780. Maintaining a good credit score involves making timely payments, keeping credit utilization low, and managing different types of credit responsibly.

Recommended: How Long Does It Take to Build Credit?

The Takeaway

There are different companies that issue credit scores, so while you might think that you have a singular credit score, you actually have several different credit scores.

FICO credit scores are one of the more popular credit scores used by lenders. TransUnion and Equifax are two of the three most popular credit reporting bureaus. Along with Experian, they have partnered to create VantageScore, another common credit scoring model. Different credit score models may use different information, and it’s normal for scores from different models to vary by a few points.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Which is more accurate: TransUnion, Equifax, or FICO?

No single credit score is more “accurate.” TransUnion and Equifax are credit bureaus that collect data, while FICO is a scoring model that uses that data to generate scores. Lenders may use different scores depending on the situation, so accuracy depends on which score a lender relies on.

Is the FICO score higher than Equifax?

Sometimes FICO scores are higher than VantageScores (the scores that are affiliated with Equifax). Other times, your VantageScore may be higher than your FICO score. It depends on your individual situation, but it is common for your scores to be similar.

Do banks look at TransUnion or Equifax?

Different banks, credit unions, and other lenders may look at different credit reports (such as TransUnion, Experian, or Equifax) depending on their preferences. Generally, companies do not disclose what credit reports or credit scores they use.

Which credit score is most accurate?

No single credit score is the most accurate, as different lenders use different models. FICO scores are the most widely used for lending decisions, but Equifax, TransUnion, and Experian each generate their own scores based on available data. Accuracy depends on which score a lender considers most relevant.

What is a good FICO score?

A good FICO score typically falls between 670 and 739. Scores in this range indicate a lower risk to lenders, making it easier to qualify for loans and credit cards with favorable terms. Higher scores (740+) offer even better rates, while lower scores may lead to higher interest rates or denials.

Why is my FICO score higher than my credit score?

When considering FICO scores vs. credit scores, it is important to understand that while your FICO score is a type of credit score, it is only one type of credit score. Your FICO score may be higher than other credit scores you may have, or it could be lower. Generally, your FICO score should be within a few points of your other credit scores.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SORL-Q125-025

Mar

2025

What Is FICA Tax and How Much Is the FICA Tax Rate?

By Austin Kilham | Financial Topics, Life & Career | Comments Off

FICA tax is a kind of payroll tax that helps fund social benefits programs, namely Social Security and Medicare. FICA stands for the Federal Insurance Contributions Act.

When you earn money from a job, you typically owe FICA tax as well as income taxes. There are few exceptions to paying FICA tax. Read on to learn more about how FICA tax works and where that money goes.

Key Points

• FICA tax is a payroll tax funding Social Security and Medicare.

• Employees typically pay 7.65% FICA tax, split into 6.2% for Social Security and 1.45% for Medicare.

• Self-employed individuals pay 15.3% FICA tax, covering both Social Security and Medicare, but may deduct the other half when filing their taxes.

• FICA tax provides benefits for retirees, the disabled, and survivors of those groups, as well as health care coverage, but reduces take-home pay.

• Certain groups, including religious members and some government workers and nonresidents, are exempt from FICA taxes.

What Is FICA Tax?

If you’re just starting out in your career or filing taxes for the first time, payroll taxes might be new to you.

FICA, or Federal Insurance Contributions Act, withholding is a type of tax that helps fund Social Security benefits programs, including old-age, survivors, and disability insurance, as well as Medicare, the federal health insurance program for people 65 years of age and older. These funds pay for lost income as well as for health coverage for those in need.

Typically, FICA tax is assessed at 15.3% of earnings, and it makes a major contribution to revenue for the U.S. Federal government, currently tracking at 35% of that influx of funds.

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How FICA Tax Works

If you work for an employer, they take care of income tax withholding as well as withholding for FICA tax. These taxes are deducted from your paycheck automatically.

If you’re self-employed, however, you’ll be in charge of paying these taxes yourself. And because you don’t have automatic withholding, you may need to pay quarterly taxes throughout the year.

Total FICA taxes for both Social Security and Medicare equal 15.3%. This is a flat rate tax, and the FICA tax rate 2024 and FICA tax rate 2025 have not changed. Here’s a closer look at the breakdown:

• If you’re an employee, you’ll pay only half this amount, or 7.65%. This breaks down to 6.2% for Social Security and 1.45% for Medicare.

• If you’re self-employed, you’ll need to pay twice that for each, or the full 15.3%. However, though you pay more, you may also be able to deduct half of the amount when you file your taxes.

Recommended: How Much Do You Have to Make to File Taxes?

FICA Tax Rates for 2024 and 2025

As you’re preparing for tax season, there are a couple important things to know about FICA tax rates.

• First, while the amount of income tax you pay will depend on your tax bracket, all taxpayers pay FICA tax at the same rate. See the chart below.

• Also, you don’t necessarily pay FICA taxes on all of your income. In 2024, you and your employer will only pay Social Security taxes on the first $168,600 of your earnings. In 2025, that number jumps to $176,100.

• In both 2024 and 2025, single filers making $200,000, joint filers making $250,000, and married individuals filing separately making $125,000 owe an additional 0.9% for Medicare taxes.

FICA Tax: What an Employee Pays vs What an Employer Pays

	Employee	Employer
Social Security tax	6.2% • On the first $168,600 in 2024 • On the first $176,100 in 2025	6.2% • On the first $168,600 in 2024 • On the first $176,100 in 2025
Medicare tax	1.45%	1.45%
Total	7.65%	7.65%
Additional Medicare tax	0.9% for single filers only on earnings over $200,000, joint filers on earnings over $250,000, and married filers, filing separately, on earnings over $125,000

Example FICA Tax Calculations

In 2025, say your pretax income is $100,000. If you’re employed, your employer will pay $7,650, and you’ll be on the hook for the same amount. If you’re self-employed, you’ll need to pay $15,300, though you may be able to deduct $7,650 from your taxes.

Say you’re a single filer making $201,000 per year. You’ll only owe Social Security taxes of 6.2% on your first $176,100. That’s $10,918.20. You won’t owe Social Security tax on the remaining $23,901. That said, there’s no wage base limit for Medicare tax. In other words, all of your wages are subject to this tax. In this case you would owe 1.45% plus the 0.9% surtax, so 2.35% or $4,723.50.

Recommended: Tracking Your Budgeting and Spending

Pros and Cons of FICA Tax

While FICA taxes take a bite out of your take-home pay, they also provide important benefits for older Americans.

Pros of FICA Tax

Here are the upsides of FICA tax:

• Social Security benefits are designed to provide a stable source of monthly income for those who are retired, disabled, or relied on the income of someone who has died.

• Medicare provides important health care benefits to those 65 and older, including hospital insurance, medical insurance, and prescription drug coverage.

• Your contributions help pay benefits for current retirees and other beneficiaries. Future workers will help pay for yours. Any surplus money taken in by the federal government through these taxes is deposited in the Social Security trust fund, which is designed to secure benefits for future generations.

Cons of FICA Tax

The downsides of FICA tax include:

• This tax takes a bite out of one’s take-home pay

• Social Security is forecast to become insolvent by 2035, unless adjustments are made to the benefits provided or the taxes that fund the program.

Why Do I Have to Pay FICA Tax?

Simply put, FICA tax is mandated by federal law. FICA tax is mandatory for nearly everyone who earns income. Some exemptions do apply, including for members of certain religious organizations, some government employees, foreigners in the U.S. with temporary visas, and self-employed individuals who earn less than $400 per year.

Recommended: Credit Score Monitoring

How to Reduce FICA Taxes

FICA tax is typically calculated using your gross income, and so the only way to pay less is to earn less or to adjust the withholding status on your W4 form, which may alter the amount.

However, it is worth noting that FICA tax is only paid on earned income. Unearned income is not subject to this tax and may include such investment income as:

• Taxable interest

• Ordinary dividends

• Capital gain distributions

To avoid tax filing mistakes, it may be helpful to speak with a tax professional.

The Takeaway

If you earn income from a job, you’ll likely owe FICA tax. But the good news is these taxes go toward providing you with benefits that help you later in life. In the meantime, if you’re employed, your employer will help you out, paying for half of your FICA taxes. If you’re self-employed, you’ll have to pay the full amount yourself. But you can catch a break by deducting half the amount you pay, which can benefit your personal finances.

See exactly how your money comes and goes at a glance.

FAQ

Is FICA the same as Social Security tax?

FICA, or Federal Insurance Contributions Act, tax includes more than just Social Security tax. It includes two components: Social Security tax and Medicare tax.

Why am I paying FICA tax?

You pay FICA tax in order to support social benefits programs, including Social Security and Medicare. These help those who have lost income due to retirement, disability, or death and can provide health coverage.

Do I get my FICA tax back?

The money you pay in FICA tax won’t be handed back to you when you’re older. However, you will likely be able to participate in Social Security and Medicare, which these taxes support.

How much is the FICA tax?

In total, the FICA tax is 15.3%. If you’re employed, your employer will pay half of that, and you’ll only have to pay 6.2% in Social Security taxes and 1.45% in Medicare taxes. However, if you’re self-employed, you’ll need to pay the full amount yourself but may be able to take half the amount as a deduction when filing your taxes.

Who is exempt from FICA taxes?

Most people have to pay FICA taxes. There are several groups that may be exempt including members of certain religious organizations, some government workers, nonresident aliens, and self-employed individuals who earn less than $400 per year.

At what age is Social Security no longer taxed?

Social Security benefits may be taxable no matter what age you are if your income exceeds a certain level.

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SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SORL-Q125-019