How to find the best home equity loan rates

Thinking about using your home’s equity to obtain affordable financing?

Take the time to research and compare home equity loan rates. By understanding the rates and terms of your loan options, you can make a smart choice and responsibly consolidate your debt, renovate your home or finance a lifelong goal.

What is a home equity loan rate?

A home equity loan rate is the interest rate you pay on the amount you borrow through a home equity loan.

Typically, home equity loan rates are fixed, meaning that they are established when the loan application is approved. These are determined by factors that include the amount you are borrowing, the value of your home and your current mortgage balance (together known as your equity), and your income and credit score.

Discover® Home Loans offers home equity loans with low, fixed rates.

How are home equity loan rates calculated?

In general, rates are calculated based on your current home value, mortgage balance, payment term, loan amount, verifiable income and credit history. A loan applicant with a large amount of equity in their home and an excellent credit score is likely to get a lower rate than an applicant with little home equity and a spotty credit history. However, individual loan providers may use different qualifications to determine home equity loan rates.

To see the lowest home equity rate your financial status and home equity can earn, try out the monthly payment calculator from Discover Home Loans.

Finding the best home equity loan rates

The biggest factor in most home equity loan decisions is the annual percentage rate (APR). Do your homework and compare home equity quotes from multiple lenders to find the best APR. Locking in a rate at just half a percentage point lower can mean saving a lot of money over the entire loan term.

But the APR isn’t the only factor to consider in comparing loan options. For example, there’s a significant difference between a fixed and an adjustable rate loan. With a fixed rate you know what your monthly payment is every month without question, which makes it easier to responsibly manage this debt. Adjustable rates can fluctuate with the market, meaning that a year from now your rate could be higher or possibly lower than the day you signed up for the loan.

Another factor is the fees and closing costs associated with the loan. Some home equity loans have application fees, and appraisal and closing costs. Others have prepayment penalties for making extra payments during the loan term or paying off the loan before the full term.

If you plan to hold the loan for its full duration, paying origination fees on a loan with a lower APR may make sense. If you plan to pay down the loan quickly, a lower or no fee loan may be a better option. These costs can vary from state to state and from lender to lender so be sure to follow up with a loan officer to receive an accurate quote for your situation before making your decision. Discover Home Loans does not charge application, origination, or appraisal fees, and no cash is required at closing.

Finally, consider the customer service aspects of taking out and managing the home equity loan. If the rates are equal, but one lender offers a personal banker, online account management and automatic payments you may want to take advantage of these additional services.

Home equity loan rates shouldn’t be confused with home equity line of credit (HELOC) rates. A HELOC lets you borrow up to a fixed amount and withdraw your money as you need it over a specified time period (versus in a lump sum). The rates, terms and monthly payments for some home equity credit lines can be variable instead of fixed.

Discover Home Loans offers a home equity loan product, but does not offer HELOCs.