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The Secured Overnight Financing Rate (SOFR) is the benchmark interest rate that has replaced the London Interbank Offered Rate (LIBOR) in the U.S. In fact, for the past several years, lenders have been gradually switching from using LIBOR to determine rates for consumer loans, such as student loans, to using SOFR.

Here’s what you need to know about SOFR, including how it differs from LIBOR, and how you might be impacted by the change.

What Is the Secured Overnight Financing Rate (SOFR)?

Financial institutions now use Secured Overnight Financing Rate, or SOFR, as a tool for pricing corporate and consumer loans, including business loans, student loans, mortgages, and credit cards. SOFR sets rates based on the rates that financial institutions pay one another for overnight loans (hence the name). The SOFR rate is published daily by the Federal Reserve Bank of New York.

SOFR is a popular benchmark because it is risk-free and transparent. It is based on more than $1 trillion in cleared marketplace transactions. This in contrast to the index it has replaced, the London Interbank Offered Rate, better known as LIBOR. LIBOR was based on hypothetical short-term loan rates. This has historically made LIBOR less reliable and more vulnerable to insider manipulation.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

How Does the SOFR Work?

When large financial institutions lend money to one another, they must adhere to reserve and liquidity requirements. They do this by using Treasury bond repurchase agreements, known as “repos”. Using repo agreements, Treasurys are used as collateral and banks are able to make overnight loans.

The SOFR interest rate index is made up of the weighted averages of the interest rates used in real, finalized repo transactions. Every morning, the New York Federal Reserve Bank publishes the SOFR rate it has calculated for repo transactions on the previous business day.

Current SOFR Rates

The New York Federal Reserve publishes the SOFR rate every business day. The latest rate is:

5.06% on July 25, 2023

The History of SOFR

Financial institutions, banks, and lenders rely on certain indexes to determine interest rates. Before the 1980s, there wasn’t one particular index that was used internationally. However, during the 1980s, increased complexity in the market resulted in the need for more standardized use of a benchmark tool for determining adjustable rates.

The international financial industry adopted LIBOR as the standard because it was viewed as a trusted, accurate, and reliable index. Other indexes were still used, but the majority of institutions used LIBOR. LIBOR rates were once the basis for about $300 trillion in assets around the world.

Fast forward to around 2008, and certain large financial institutions were manipulating interest rates illegally in order to increase their profits. This was possible in part because LIBOR is based on hypothetical rates. Manipulation of rates was one factor that led to the financial crisis.

Once that manipulation was discovered, there was a global demand for a new rate benchmark and a call to end the use of LIBOR. As a result of the 2008 financial crisis, banking regulations led to less borrowing and a lessening of trading activity. Less trading made LIBOR even less reliable.

In 2017, the Federal Reserve formed a group of large financial institutions known as the Alternative Reference Rate Committee (ARRC) to work on finding an alternative to LIBOR. They ultimately chose SOFR.

Both LIBOR and SOFR were being used by banks and lenders until June 2023, when SOFR became the standard in the U.S.

How SOFR Is Different From LIBOR

There are some key differences between SOFR and LIBOR, which help explain the shift towards SOFR and away from LIBOR. Here’s a look at some of the biggest.

•   SOFR is based on completed transactions, whereas LIBOR is based on the rates that financial institutions said they would offer each other for short-term loans. Because it’s based on hypotheticals, LIBOR is more vulnerable to manipulation.

•   Lending based on LIBOR doesn’t use collateral, making it unsecured. Loans using LIBOR include a premium due to credit risk. SOFR, on the other hand, is secured, as it is based on transactions backed with Treasurys. Therefore, there is no premium included in the interest rates.

•   SOFR is a daily (overnight) rate, while LIBOR has seven variable rates.

Recommended: What’s the Average Student Loan Interest Rate?

How SOFR Could Affect You

There has been some concern that the shift away from LIBOR would cause great market disruption. However, the changeover was designed to be slow and gradual and, generally, hasn’t caused any sudden changes for borrowers.

In fact, if you have a federal student loan or a private student loan with a fixed-rate, the change from LIBOR to SOFR has not — and will not — have any impact on your loan, since the rate is fixed for the life of the loan. If you are entering into a new loan, SOFR rates are already being used.

If you have a student loan (or any other type of loan) with a variable rate, the shift from LIBOR to SOFR may have impacted your loan — but likely not in any noticeable way. Switching from one index (LIBOR) to another, largely similar index (SOFR) — in the absence of any other market changes — won’t have much impact on a loan’s interest rate, according to the Consumer Financial Protection Bureau .

The rate on an adjustable-rate loan can go up and down over time. These changes, however, are largely due to general ups and downs in interest rates across the economy. Loan rates have been going up across the board, but that is not due to the shift from LIBOR to SOFR. Rather, it’s the result of efforts by the Federal Reserve to tamp down inflation.


💡 Quick Tip: It’s a good idea to understand the pros and cons of private student loans and federal student loans before committing to them.

The Takeaway

If you have a student loan, you may have received a notice from your lender or servicer about a change in the index rate for your loan. Instead of LIBOR, lenders in the U.S. are now using SOFR. The indexes work in a similar way and it should not have a major impact on your loan. If you’re in the market for a new loan, you won’t be affected by the switch, since U.S. lenders have already made the shift to SOFR.

Keep in mind, though, that interest rates on loans are based on numerous factors, including general market conditions and your (or your cosigner’s) qualifications as a borrower.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

Photo credit: iStock/Nicholas Ahonen

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 Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

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Have you heard the term “piggyback mortgage” and wondered what it is? At its most basic, a piggyback mortgage can be considered a second mortgage. These are usually either a home equity loan or home equity line of credit (HELOC).

Piggyback mortgage loans can sometimes also be a wise option for homebuyers looking to finance a home without putting down a significant down payment. In this situation, they are taken out at the same time as the main mortgage. A benefit is that they may help you pay less over the life of the loan because you don’t need to pay for private mortgage insurance (PMI).

Read on to learn more about what a piggyback loan is and how it works.

What Is a Piggyback Mortgage Loan?

Homebuyers can use a piggyback mortgage loan to fund the purchase of a property. Essentially, they take out a primary loan and then a second loan, “the piggyback loan,” to fund the rest of the purchase.

Using the strategy helps homebuyers reduce their mortgage costs, such as by not needing a 20% down payment to qualify. It also helps them avoid the need for private mortgage insurance, which is usually required for those who don’t have a 20% down payment.

Note: SoFi does not offer piggyback loans at this time.

Recommended: How to Qualify for a Mortgage

How Do Piggyback Loans Work?

When appropriate for a homebuyer’s unique situation, a piggyback mortgage might potentially save the borrower in monthly costs and reduce the total amount of a down payment.

Here’s an example to consider of how they work:

Jerry is buying a home for $400,000. He doesn’t want to put down more than $40,000 for the down payment. This eliminates several mortgage types. He works with his lender through the prequalification and preapproval process to secure a first mortgage for $320,000, then with a piggyback mortgage lender to secure a piggyback mortgage of $40,000, and finishes the financing process with his down payment of $40,000.

Piggyback home loans were a popular option for homebuyers and lenders during the housing boom of the early 2000s. But when the housing market crashed in the late 2000s, piggyback loans became less popular, as a lack of equity proved homeowners more vulnerable to loan defaults.

Fast forward to today’s housing market. With the cost of living by state rising in certain areas, piggybacks are starting to become a viable and acceptable option again.

Recommended: First-Time Homebuyer Guide

Types of Piggyback Loans

Here are some of the types of piggyback loans to consider:

A 80/10/10 Piggyback Loan

There are different piggyback mortgage arrangements, but an 80/10/10 loan tends to be the most common. In this scenario, a first mortgage represents 80% of the home’s value, while a home equity loan or HELOC makes up another 10%. The down payment covers the remaining 10%.

In addition to avoiding PMI, homebuyers may use this piggyback home loan to avoid the mortgage limits standard in their area.

A 75/15/10 Piggyback Loan

A loan with a 75/15/10 split is another popular piggyback loan option. In this case, a first mortgage represents 75% of the home’s value, while a home equity loan accounts for another 15%. And like the 80/10/10 split, the remaining 10% is the down payment.

For example, a $300,000 75/15/10 loan would break down like this:

Main loan (75%): $225,000
Second loan (15%): $45,000
Down payment (10%): $30,000

See how these options stack up in chart form:

Average Piggyback Mortgage Rate

A piggyback loan usually has a higher interest rate than the primary mortgage, and the rate can be variable, which means it can increase over time. Let’s say your primary mortgage rate is 6.75%. The rate on the second mortgage might be 7.5%. If you borrowed $35,000 with this piggyback mortgage, your monthly payment for that loan would be $416. Of course, the exact rates you are able to secure from a piggyback mortgage lender would be based on how much you borrow, your credit score, current interest rates, and other variables.

Benefits and Disadvantages of a Piggyback Mortgage

A piggyback mortgage may help homebuyers avoid monthly PMI payments and reduce their down payment. But that’s not to say an 80/10/10 loan doesn’t come with its own potentially negative costs.

There are pros and cons of piggyback mortgages to be aware of before deciding on a mortgage type.

Piggyback Mortgage Benefits

Allows you to keep some cash on hand. Some lenders request a downpayment of 20% of the home’s purchase price. With the average American home price of $346,270 as of mid-2023, this can be a difficult sum of money to save, and paying the full 20% might wipe out a buyer’s cash reserves. A piggyback mortgage may help homebuyers secure their real estate dreams but still keep cash in reserve.

Possibly no PMI required. In what may be the largest motivator in securing a piggyback mortgage, homebuyers may not be required to pay PMI, or private mortgage insurance, when taking out two loans. PMI is required until 20% of a home’s value is paid, either with a down payment or by paying down the loan’s principal over the life of the loan.

PMI payments can add a substantial amount to a monthly payment and, just like interest, it’s money that won’t be recouped by the homeowner when it’s time to sell. With an 80/10/10 loan, both loans meet the requirements to forgo PMI.

Potential tax deductions. Purchasing a home provides homeowners with potential tax deductions. Not only is there potential for the interest on the main mortgage loan to be tax deductible, the interest on a qualified second mortgage may also be deductible.

Potential Downsides of Piggyback Mortgages

Not everyone qualifies. Piggyback mortgage lenders take on extra risk. Without PMI, there is an increased risk of a financial loss. This is why they’re typically only granted to applicants with superb credit. Even if it’s the best option, there’s no guarantee that a lender will agree to a piggyback loan scenario. You’ll see whether the cards are stacked in your favor by going through the process of getting preapproved for your home loan.

Additional closing costs and fees. One major downfall of a piggyback loan is that there are always two loans involved. This means a homebuyer will have to pay closing costs and fees on two loans at closing. While the down payment may be smaller, the additional expenses might outweigh the initial savings.

Savings could end up being minimal or lost. Before deciding on a piggyback loan arrangement, a homebuyer may want to estimate the potential savings. While this type of loan has the potential to save money in the beginning, homeowners could end up paying more as the years and payments go on, especially because second mortgages tend to have higher interest rates.

To quickly make an assessment, make sure the monthly payment of the second mortgage is less than the applicable PMI would have been on a different type of loan.

Here are the pros and cons of piggyback loans in chart form to help you decide if this kind of mortgage arrangement is right for you.

How to Qualify for a Piggyback Mortgage

It’s essential to keep in mind that you’re applying for two mortgages simultaneously when you apply for a piggyback home loan. While every lender may have a different set of requirements to qualify, you usually need to meet the following criteria for approval:

•   Your debt-to-income (DTI) ratio should not exceed 36%. Lenders look at your DTI ratio — the total of your monthly debt payments divided by your gross monthly income — to ensure you can make your mortgage payments. Therefore, both loan payments and all of your other debt payments shouldn’t equal more than 36% of your income, although some lenders may go higher.

•   Your credit score should be close to excellent. Because you are taking out two separate loans, your risk of default increases. To account for this increase, lenders require a strong credit score, usually over 700 (though some lenders may accept 680), to qualify. A higher credit score means you’re more creditworthy and less likely to default on your payments.

Before you apply for a piggyback loan, make sure you understand all of the requirements to qualify.

Refinancing a Piggyback Mortgage Loan

Sometimes homeowners will seek to refinance their mortgage when they have built up enough equity in their home. Mortgage refinancing can help homeowners save money on their loans if they receive a lower interest rate or better terms.

If you have a piggyback mortgage, however, refinancing could pose a challenge. It’s often tricky to refinance a piggyback loan because both lenders have to approve. In addition, if your home has dropped in value, your lenders may even be less enticed to approve your refinance.

On the other hand, if you’re taking out a big enough loan to cover both mortgages, it may help your chances of approval.

Recommended: How Much Does It Cost to Refinance a Mortgage?

Is a Piggyback Mortgage a Good Option?

Not sure if a piggyback mortgage is the best option? It may be worth considering in the following scenarios:

If you have minimal down payment resources: Saving up for a down payment can take years, but a piggyback mortgage may mean the homebuyer can sign a contract years sooner than any other type of mortgage.

If you need more space for less cash: Piggyback loans often allow homeowners to buy larger, recently updated, or more ideally located homes than with a conventional mortgage loan. This advantage can make for a smart financial move if the home is expected to quickly build equity.

If your credit is a match: It’s traditionally more difficult to qualify for a piggyback loan than other types of mortgages. For many lenders, you will need to have your down payment, stable income and employment history, and acceptable DTI lined up.

Piggyback Mortgage Alternatives

A piggyback mortgage certainly isn’t the only type offered to hopeful homebuyers. There are other types of mortgage loans homebuyers may also want to consider.

Conventional or Fixed-Rate Mortgage

This type of loan typically still requires PMI if the down payment is less than 20% of the home’s purchase price, but it is the most common type of mortgage loan by far. They’re often preferred because of their consistent monthly principal and interest payments.

Conventional loans are available in various terms, though 15-year and 30-year options are among the most popular.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Adjustable-Rate Mortgage

Also known as an ARM, an adjustable-rate mortgage may help homebuyers save on interest rates over the life of their loan. However, the interest rate will only remain the same for a certain period of time, typically for one year up to just a few years.

After the initial term, rate adjustments reflect changes in the index (a benchmark interest rate) the lender uses and the margin (a number of percentage points) added by the lender.

Interest-Only Mortgage

For some homebuyers, an interest-only mortgage can provide a path to homeownership that other types of mortgages might not. During the first five years (some lenders allow up to 10 years), homeowners are only required to pay the interest portion of their monthly payments and put off paying the principal portion until their finances more easily allow for that.

FHA Loan

Guaranteed by the Federal Housing Administration, FHA loans include built-in mortgage insurance, which makes these loans less of a risk to the lender. So while it’s not possible to save on monthly insurance payments, homebuyers may still want to consider this type of loan due to the low down payment requirements.

Other Options to Consider

Some other alternatives to a piggyback mortgage might include:

•   Speaking to a lender about PMI-free options

•   Quickly paying down a loan balance until 20% of a home’s value is paid off and PMI is no longer required

•   Refinancing (if a home’s value has significantly increased) and allowing the loan to fall under the percentage requirements for PMI

•   Saving for a larger down payment and reducing the need for PMI

The Takeaway

Before signing on for a piggyback mortgage, it’s always recommended that a homebuyer fully understand all of their mortgage options. While a second mortgage might be the best option for one homebuyer, it could be the worst option for another. If a piggyback mortgage is selected, understanding its benefits and potential setbacks may help avoid financial surprises down the line. The home loan help center can help you make decisions.

FAQ

What is a piggyback fixed-rate second mortgage?

A piggyback fixed-rate second mortgage is a home equity loan or home equity line of credit (HELOC) that is obtained at the same time as the primary mortgage on a home purchase. Because its rate is fixed, the interest rate does not change over the life of the loan.

Is it hard to get a piggyback loan?

Because piggyback borrowers typically don’t pay for private mortgage insurance, the requirements to obtain this type of loan can be more strict. You may need a credit score of 680-700 or more and a debt-to-income ratio less than 36%.

What is the advantage of a piggyback loan?

A piggyback loan can help you avoid having to pay for private mortgage insurance (PMI) if you are making a low down payment on a home purchase. However, you’ll want to compare the costs of the second mortgage (including its closing costs) against the costs of PMI before making a decision.

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.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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.

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If you’re cash poor and home equity rich, a cash-out refinance could be the ticket to funding home improvements, consolidating debt, or helping with any other need. With this type of refinancing, you take out a new mortgage for a larger amount than what you have left on your current mortgage and receive the excess amount as cash.

However, getting a mortgage with a cash-out isn’t always the best route to take when you need extra money. Read on for a closer look at this form of home refinancing, including how it works, how much cash you can get, its pros and cons, and alternatives to consider.

What Is a Cash-Out Refinance?

A cash-out refinance involves taking out a new mortgage loan that will allow you to pay off your old mortgage plus receive a lump sum of cash.

Like other types of refinancing, you end up with a new mortgage which may have different rates and a longer or shorter term, as well as a new payment amortization schedule (which shows your monthly payments for the life of the loan).

The cash amount you can get is based on your home equity, or how much your home is worth compared to how much you owe. You can use the cash you receive for virtually any purpose, such as home remodeling, consolidating high-interest debt, or other financial needs.

💡 Quick tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with a mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.

How Does a Cash-Out Refinance Work?

Just like a traditional refinance, a cash-out refinance involves replacing your existing loan with a new one, ideally with a lower interest rate, shorter term, or both.

The difference is that with a cash-out refinance, you also withdraw a portion of your home’s equity in a lump sum. The lender adds that amount to the outstanding balance on your current mortgage to determine your new loan balance.

Refinancing with a cash-out typically requires a home appraisal, which will determine your home’s current market value. Often lenders will allow you to borrow up to 80% of your home’s value, including both the existing loan balance and the amount you want to take out in the form of cash.

However, there are exceptions. Cash-out refinance loans backed by the Federal Housing Administration (FHA) may allow you to borrow as much as 85% of the value of your home, while those guaranteed by the U.S. Department of Veterans Affairs (VA) may let you borrow up to 100% of your home’s value.

Cash-out refinances typically come with closing costs, which can be 2% to 6% of the loan amount. If you don’t finance these costs with the new loan, you’ll need to subtract these costs from the cash you end up with.

💡 Quick tip: Using the money you get from a cash-out refi for a home renovation can help rebuild the equity you’re taking out. Plus, you may be able to deduct the additional interest payments on your taxes.

Example of Cash-Out Refinancing

Let’s say your mortgage balance is $100,000 and your home is currently worth $300,000. This means you have $200,000 in home equity.

If you decide to get a cash-out refinance, the lender may give you 80% of the value of your home, which would be a total mortgage amount of $240,000 ($300,000 x 0.80).

From that $240,000 loan, you’ll have to pay off what you still owe on your home ($100,000), that leaves you with $140,000 (minus closing costs) you could potentially get as an get as cash. The actual amount you qualify for can vary depending on the lender, your creditworthiness, and other factors.

Common Uses of Cash-Out Refinancing

People use a cash-out refinance for a variety of purposes. These include:

•   A home improvement project (such as a kitchen remodel, a replacement HVAC system, or a new patio deck

•   Adding an accessory dwelling unit (ADU) to your property

•   Consolidating and paying off high-interest credit card debt

•   Buying a vacation home

•   Emergency expenses, such as an unexpected hospital stay or unplanned car repairs

•   Education expenses, such as college tuition

Qualifying for a Cash-Out Refinance

Here’s a look at some of the typical criteria to qualify for a cash-out refinance.

•  Credit score Lenders typically require a minimum score of 620 for a cash-out refinance.

•  DTI ratio Lenders will likely also consider your debt-to-income (DTI) ratio — which compares your monthly debt payments to monthly gross monthly income — to gauge whether you can take on additional debt. For a cash-out refinance, many lenders require a DTI no higher than 43%.

•  Sufficient equity You typically need to be able to maintain at least 20% percent equity after the cash-out refinance. This cushion also benefits you as a borrower — if the market changes and your home loses value, you don’t want to end up underwater on your mortgage.

•  Length of ownership You typically need to have owned your home for at least six months to get a cash-out refinance.

Tax Considerations

The money you get from your cash-out refinance is not considered taxable income. Also, If you use the funds you receive to buy, build, or substantially improve your home, you may be able to deduct the interest you pay on the cash portion from your income when you file your tax return every year (if you itemize deductions). If you use the funds from a cash-out refinance for other purposes, such as paying off high-interest credit card debt or covering the cost of college tuition, however, the interest paid on the cash-out portion of your new loan isn’t deductible. However, the existing mortgage balance is (up to certain limits). You’ll want to check with a tax professional for details on how a cash-out refi may impact your taxes.

Cash-Out Refi vs Home Equity Loan or HELOC

If you’re looking to access a lump sum of cash to consolidate debt or to cover a large expense, a cash-out refinance isn’t your only option. Here are some others you may want to consider.

Home Equity Line of Credit

A home equity line of credit (HELOC) is a revolving line of credit that works in a similar way to a credit card — you borrow what you need when you need it and only pay interest on what you borrow. Because a HELOC is secured by the equity you have in your home, however, it usually offers a higher credit limit and lower interest rate than a credit card.

HELOCs generally have a variable interest rate and an initial draw period, which can last as long as 10 years. During that time, you make interest-only payments. After the draw period ends, the credit line closes and payments with principal and interest begin. Keep in mind that HELOC payments are in addition to your current mortgage (if you have one), since the HELOC doesn’t replace your mortgage.

Home Equity Loan

A home equity loan allows you to borrow a lump sum of money at a fixed interest rate you then repay by making fixed payments over a set term, often five to 30 years. Interest rates tend to be higher than for a cash-out refinance.

As with a HELOC, taking out a home equity loan means you will be making two monthly home loan payments: one for your original mortgage and one for your new equity loan. A cash-out refinance, on the other hand, replaces your existing mortgage with a new one, resetting your mortgage term in the process.

Personal Loan

A personal loan provides you with a lump sum of money, which you can use for virtually any purpose. The loans typically come with a fixed interest rate and involve making fixed payments over a set term, typically one to five years. Unlike home equity loans, HELOCs, and cash-out refinances, these loans are typically unsecured, meaning you don’t use your home or any other asset as collateral for the loan. Personal loans usually come with higher interest rates than loans that are secured by collateral.

Pros of Cash-Out Refinancing

•  A lower mortgage interest rate With a cash-out refinance, you might be able to swap out a higher original interest rate for a lower one.

•  Lower borrowing costs A cash-out refinance can be less expensive than other types of financing, such as personal loans or credit cards.

•  May build credit If you use a cash-out refinance to pay off high-interest credit card debt, it could reduce your credit utilization (how much of your available credit you are using), a significant factor in your credit score.

•  Potential tax deduction If you use the funds for qualified home improvements, you may be able to deduct the interest on the loan when you file your taxes.

Cons of Cash-Out Refinancing

•  Higher cost than a standard refinance Because a cash-out refinance leads to less equity in your home (which poses added risk to a lender), the interest rate, fees, and closing costs are often higher than they are with a regular refinance.

•  Mortgage insurance If you take out more than 80% of your home’s equity, you will likely need to purchase private mortgage insurance (PMI).

•  Longer debt repayment If you use a cash-out refinance to pay off high-interest debts, you may end up paying off those debts for a longer period of time, potentially decades. While this can lower your monthly payment, it can mean paying more in total interest than you would have originally.

•  Foreclosure risk If you borrow more than you can afford to pay back with a cash-out refinance, you risk losing your home to foreclosure.

Is a Cash-Out Refi Right for You?

If you need access to a lump sum of cash to make home improvements or for another expense, and have been thinking about refinancing your mortgage, a cash-out refinance might be a smart move. Due to the collateral involved in a cash-out refinance (your home), rates can be lower than other types of financing. And, unlike a home equity loan or HELOC, you’ll have one, rather than two payments to make.

Just keep in mind that, as with any type of refinance, a cash-out refi means getting a new loan with different rates and terms than your current mortgage, as well as a new payment schedule.

Turn your home equity into cash with a cash-out refi. Pay down high-interest debt, or increase your home’s value with a remodel. Get your rate in a matter of minutes, without affecting your credit score.*

FAQ

Are there limitations on what the cash in a cash-out refinance can be used for?

No, you can use the cash from a cash-out refinance for anything you like. Ideally, you’ll want to use it for a project that will ultimately improve your financial situation, such as improvements to your home.

How much can you cash out with a cash-out refinance?

Often lenders will allow you to borrow up to 80% of your home’s value, including both the existing loan balance and the amount you want to take out in the form of cash. However, exactly how much you can cash out will depend on your income and credit history. Also, you typically need to be able to maintain at least 20% percent equity in your home after the cash-out refinance.

Does a borrower’s credit score affect how much they can cash out?

Yes. Lenders will typically look at your credit score, as well as other factors, to determine how large a loan they will offer you for cash-out refinance, and at what interest rate. Generally, you need a minimum score of 620 for a cash-out refinance.

Does a cash-out refi hurt your credit?

A cash-out refinance can affect your credit score in several ways, though most of them are minor.

For one, applying for the loan will trigger a hard pull, which can result in a slight, temporary, drop in your credit score. Replacing your old mortgage with a new mortgage will also lower the average age of your credit accounts, which could potentially have a small, negative impact on your score.

However, if you use a cash-out refinance to pay off debt, you might see a boost to your credit score if your credit utilization ratio drops. Credit utilization, or how much you’re borrowing compared to what’s available to you, is a critical factor in your score.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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.

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 .

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So, you’ve decided to move. Be it for a new job, a fresh start, or just for an adventure in an exciting new locale, moving can be a great way to kick off change in your life.

But before you start assembling boxes, folding clothes, and bubble wrapping your most prized possessions, there are a few key steps — some financial and some practical — you might want to take to ensure a seamless transition. Here’s a moving checklist that can help you get from your old home to your new place with relative ease.

3 Months Before the Move

Pick a Date and Make a Moving Budget

Pick a Day to Move

Assuming your new place is ready to go and you’ve already discussed the move with your current landlord (or have sold your current home), a good first step is to decide on a moving day.

The least expensive times to move are typically during the week. Moving companies will often offer better rates on a Monday, Tuesday, Wednesday, or Thursday because they aren’t typically as busy as on weekends.

You might also want to try to schedule your move in the morning. This is helpful during the summer, since temperatures aren’t as hot. Also, if you aren’t moving far, an early move will give you a good portion of the day to start getting settled in your new home.

Choose a Moving Company

Once you’ve picked the day, it’s time to pick the mover. You might start your search by asking people you know who have recently moved for recommendations. You can also check out the reviews online and send out a few quote requests to local movers. It can be a good idea to interview and get estimates from at least three movers before making a choice.

Create a Budget

Moving can be costly, and movers may be one of your biggest expenses. The average per-hour cost for a local move is $25 to $50 per mover, per hour. So if you use a two-person team for four hours, it can run at least $200 to $400, just for labor. You may also have to pay for transportation fees, materials, and gas.

For a long-distance move, costs go up considerably. You may need to factor gas, tolls, and lodging if the trip is more than one day, along with additional fees for drivers. All told, a long-distance move can run anywhere from $600 to $10,000 (or more), depending on the moving company you choose, the distance, and the size and amount of your belongings.

When you create your moving budget, you’ll want to factor in other moving costs, which may include:

•  Any penalties you might incur for leaving a lease early

•  Ending a phone, cable, or internet package early

•  Any and all repairs you need to make for your new home

•  Transportation cost to get to your new place

•  Any additional items you need to buy for your new place

Recommended: Things to Budget for After Buying a Home

Inform the Important People in Your Life

Now might be the time to share the news of your move. Your friends and family may already know, but don’t forget to tell other important people about your departure schedule, such as your children’s school and your employer. That way they have plenty of time to make any necessary arrangements.

You may also want to contact a few government agencies. For example, the U.S. Postal Service recommends setting up mail forwarding about two weeks in advance of a move. The service may be in place in as few as three days, but it’s smart to have some wiggle room.

If you’re moving to a new state, you may also want to set up an appointment at your new state’s department of motor vehicles, as you may be required to get a new driver’s license or register your vehicle in that state. And, if you’re moving during election season, reach out to your new area’s voter registration office to ensure you’re all set up to cast your ballot.

1 Month Before the Move

Evaluate Your Belongings and Declutter

Walkthrough

You might want to do a walkthrough of your current home and look at each and every item you own. Then grab two sticky note pads with different colors, one to represent the things you want to keep and one to represent the things that must go. Every single item should get a sticky note.

Start Selling

Instead of simply throwing away the things you no longer want, you could try to sell them online. After all, your trash could certainly be another person’s treasure. And this way you could have a few dollars in your pocket to spend on buying new things for your new home.

Donate Unwanted, but Still Usable, Items

If you’d prefer to donate some or all of your gently used but no-longer-needed possessions, you may want to reach out to The Salvation Army, Goodwill, Habitat for Humanity, a local thrift store, or a nearby homeless shelter to arrange for a pickup or delivery.

Recommended: 23 Easy Ideas to Pay It Forward

Call Your Cable, Internet, and Utility Providers

Now might be a good time to call your current cable, internet, and utility providers to let them know when you will be cutting off service. You’ll also want to reach out to providers that service your new home to set up services. That way, you’ll have electricity, WiFi, and everything you need up and running as soon as you get there.

Cancel Other Subscription Services

If you belong to a gym, community supported agriculture (CSA), or any other local group or subscription service, you’ll want to be sure to cancel your membership so you don’t continue to get charged after you move.

Three Weeks to One Week Before the Move

Collect Boxes and Start Packing

Collect Boxes

As the moving date gets closer, it’s time to acquire boxes. You can buy them or, to save money, start hunting down free boxes. Good sources include local restaurants, liquor stores, coffee shops, and supermarkets. Simply call or stop in and ask what days they typically get deliveries and if you can come to take the used boxes off their hands. Then, over the week or so, stop in and collect as many boxes as you can.

Buy the Moving Supplies You Need

You’ll also need to pick up some other items for packing, including heavy-duty packing tape, a marker for labeling things, and bubble wrap for fragile items. If you’re not hiring a moving company, you might consider renting a dolly, which can make moving heavy items much easier, plus furniture pads to protect your belongings from scratches and dings. Sheets and towels can also be used to protect furniture and as padding inside of boxes.

Start Packing

At this point, it’s probably safe to start packing the things you aren’t currently using — out of season clothes, most of your dishes, extra blankets, towels, framed photos, and decorations. You’ll want to leave out the essentials so you’re not looking through boxes to find things you use on a daily basis.

Recommended: How to Move Across the Country

1 Week Before the Move

Tie Up Any Loose Ends

Finalize Important Details

By now, you’ve likely already canceled your local services, subscriptions and memberships, but there will likely still be a few loose ends to tie up. Think about how you can make the transition into your new life as seamless as possible. For example, do you need to switch banks? If you have a pet, you may want to select a vet in your new neighborhood in case your pet needs care soon after you move.

Confirm Bookings

You’ll have a lot of things to do before moving, but it’s important to take some time to double check all of your bookings. Confirm when your movers are coming, what time your flights are booked (if applicable), and that you’ve arranged for your new utilities to turn on. There are a lot of moving parts that come with a move, so it’s easy to get booking details mixed up or to let things fall through the cracks.

1 Day Before the Move

Pack Your Final Belongings and Say Goodbye

Pack Up

Pack up any of the remaining items you’ve left out for day-to-day living and make sure all your boxes and suitcases are ready to go for the move.

Create a Folder of Important Documents

Have a folder ready for the move that includes your old lease (if you’re renting), along with the new signed lease, the contract for the movers, and all receipts from the move.

Say Goodbye — Your Way

Consider ordering your favorite local takeout, having friends over for a farewell drink, and giving thanks to everything this home has provided for you. It deserves it.

Move-In Day Checklist

Embrace a Blank Slate

Make Sure Everything Arrived

On move-in day, you’ll want to focus on finalizing your move. There will be plenty of time later to rearrange furniture and to organize your new walk-in closet. Instead, you may want to concentrate on making sure all of your belongings made it from your old home to your new one, so you can start fresh tomorrow without making a trip back to grab that last box you forgot.

Clean Up

As tempting as it can be to start unpacking right away, this can be a great time to give your new home a deep clean. Once you unpack, it won’t be so easy to clean the inside of every cabinet and to vacuum every inch of carpet. This may not be one of the most fun things to do when moving, but it can be a good way to make your new house more homey.

Recommended: 32 Inexpensive Ways to Refresh Your Home Room by Room

Unpacking Checklist

Unpack and Get To Know Your New Home

Unpack

Now that the hustle and bustle of the move is over, you can focus on unpacking and taking your time to find the right spots for all of your belongings. Unpacking in the reverse order of how you packed allows you to access your most-needed belongings first.

Think Ahead

While you’re unpacking, you’ll get a lot more familiar with your new home and all of its needs. Keep a pen and paper at hand so you can create a post-moving to-do list. Take note of any repairs you want to make now and create a maintenance checklist you can refer back to in the future.

The Takeaway

Moving can be stressful, but you avoid ever feeling completely overwhelmed by making a moving checklist well ahead of your move date, then tackling each project one at a time.

Moving can also be costly, so you may also want to make a plan for how you’ll pay for your move well in advance. This gives you time to save up what you’ll need or, if necessary, explore financing options. You may be able to get an unsecured personal loan to cover the cost of a move. Sometimes referred to a moving or relocation loan, this type of financing typically comes with fixed rates and set repayment terms, and rates tend to be much lower than credit cards.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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When you’re a renter, it can feel like all the transformative DIY projects are reserved for homeowners. But just because you rent doesn’t mean you can’t spruce up your space.

That’s right: Rental-friendly upgrades exist. And the best part? Many improvements can have a major impact on your space without blowing your budget.

1. Create an Accent Wall

Spicing up your walls doesn’t have to cost a fortune, nor must it require gallons of paint. For just a few bucks a roll, you can buy washi tape and create a custom accent wall that won’t ruin the paint job. Or, if you’re able to spend a few extra dollars, you could also invest in removable wallpaper.

2. Update Light Fixtures

Light fixtures in rentals are notoriously drab and tend to provide uneven lighting. Fortunately, there is no shortage of lighting options to help you brighten up your space. A recessed lighting conversion kit, for instance, is fairly inexpensive, easy to install, and allows you to hang a pendant or other light fixture. Not sure your landlord would approve? You can always buy some decorative lamps or even string lights to help amp up the brightness and style of any room.

3. Install Radiator Shelving

In older units, rusty radiators can be a renter’s nightmare. But luckily, there are some rental upgrades — like installing radiator shelving — that can disguise even the most unattractive units. You can DIY a custom shelving unit to work around your radiator, upgrade some shelving from a local thrift store, or even order one online.

4. Buy Matching Bookshelves

Bookshelves are a simple way to upgrade the decor and add much-needed storage space. Placing tall, matching shelves on either side of a TV, couch, or even a bed could bring some serious style (and space) to a small room, plus allow you to display photos or art without putting holes in the wall.

5. Apply Contact Paper

Do you have older appliances you’d like to freshen up? For just a couple bucks, you can invest in some stainless steel contact paper to make them at least look shiny and new again! Contact paper also comes in a wide variety of colors and styles that you can use to liven up your cabinets and refresh your countertops.

6. Replace Pulls & Knobs

This is another budget-savvy, rental-friendly upgrade that can add some flair to your home. Replace your door handles, kitchen cabinet knobs, and any other pulls with something more your style. Affordable, stylish knobs can be found on sites like Etsy and Amazon, and in stores like Lowe’s and Home Depot. Be sure to hang on to the original knobs so you can swap them back in before you move out.

7. Install a Bike Mount

If you own a bike but are short on storage, install a bike mount or other bike storage solution. Just make sure your landlord is okay with the installation since it may require some drilling.

8. Try Large Floor Mirrors

Sometimes more is more. Exhibit A: an oversized leaning mirror, which can serve double-duty as a luxe decoration and a functional mirror.

9. Invest in Houseplants

Want to add some life to your rental — literally? Look no further than a houseplant. If you don’t have a green thumb, explore hardy varieties, like air plants or even artificial plants.

10. Upgrade Your Showerhead

Installing a new showerhead is a quick, effective way to upgrade your bathroom. You could start reaping the rewards the very first time you turn on the faucet. Make sure to hang on to that original showerhead so you can reinstall it when you move out.

Recommended: How Much Does a Shower Remodel Cost?

11. Set up Room Dividers

Need to carve out space for a home office? Or maybe even make room for a closet? Buying or creating stylish room dividers can provide an instant rental update. And when you need a larger space, simply close the dividers.

12. Use a Pantry Organization System

Help bring order to the busiest spot in your home: the kitchen. Pantry organization systems come in a variety of shapes, sizes, and varieties, so you should be able to find one that works for your home and budget.

13. Update Your Blinds

It can be easy to forget about window coverings. But freshening up your blinds or curtains can add a new visual element to the room, frame a window, or help brighten the space.

14. Install Sticker Flooring

When you’re considering places to upgrade, don’t forget to look down. Changing up the flooring — even temporarily — can make a room feel brand-new. One option to consider if you have a tile floor is removable tile stickers, which come in a variety of styles, sizes, and price points.

15. Create a Kitchen Backsplash

You can also use removable stickers to freshen up a kitchen backsplash, which is a much easier and cheaper option than replacing the tiles. New to this type of project? There are online video tutorials you can watch that will show you how to get the job done.

Recommended: Renovation vs. Remodel: What’s the Difference?

16. Replace Light Switch Covers

Don’t sleep on the small details — sometimes, they can have a major impact. One example of this is swapping out basic light switch covers with ones that match the decor of your rental. Plus, new covers are generally affordable and easy to install.

17. Buy a New Kitchen Faucet

There’s something to be said for upgrading the items in your rental that you use every day, such as the kitchen faucet. Installing a new faucet is a fairly simple DIY project, provided you know how to shut off the water to your sink and use a wrench. If you’re unsure how to do either, though, you can enlist the help of a plumber. Just be sure to put the old faucet in storage so you can swap it back before moving.

18. Find a Stylish Toilet Seat

Let’s be honest: Most rentals come with a basic toilet seat. When yours just won’t do anymore, it may be time to upgrade to something more modern and comfy. You can find a wide variety of options online or in stores.

19. Paint the Molding and Trim

Before selecting color swatches, you may want to double-check with your landlord that painting is allowed. Many landlords welcome you painting your molding and trim, since it’s an easy, affordable way to update a rental.

20. Invest in Good Rugs

Quality rugs can run well into the thousands of dollars. But there are less-expensive options that are also durable and stylish. Besides protecting your flooring, a good rug can also visually anchor a room and help absorb sound.

No matter the price of your rug, you may want to consider purchasing renters insurance to protect it and your other valuables against losses.

The Takeaway

When you’re a renter, you may not be able to rip out walls or change out kitchen cabinets. But there are still simple, effective ways to transform your space without breaking the terms of your lease. While these sorts of jobs tend to be affordable, you can easily rack up quite the bill if you plan on tackling several home improvement projects at once.

That said, if you’re ready to roll up your sleeves and get some renter-friendly updates done, see what SoFi can offer. With a SoFi Home Improvement Loan, you can borrow between $5K to $100K as an unsecured personal loan, meaning you don’t use your home as collateral and no appraisal is required. Our rates are competitive, and the whole process is easy and speedy.

Photo credit: iStock/CreativaStudio

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