Home Equity Loan Rates for November 14, 2022: Rates see another rise

Sometimes referred to as a second mortgage, a home equity loan uses your home as collateral against a one-time payment. The terms of this loan depend on a number of factors including your credit rating, the market value of your home, market conditions and more.

Earlier this month, the Federal Reserve raised interest rates by 0.75% to a target range of 3.75% to 4%. When these rates rise, it is not uncommon for lending rates to rise as well.

This week’s home equity interest rates

Home equity rates rose again this week after the Fed’s latest move to curb inflation. Here you can see this week’s average home equity interest rates compared to last week’s interest rates, as well as the best home equity interest rates in your area.

What is a Home Loan?

With a home loan, you can borrow the market value of your home and receive a one-off payment in return. For homeowners looking to fund larger projects or more expensive expenses, home equity loans can be an invaluable tool, especially because home equity loans typically have lower interest rates than other types of loans, such as student loans or personal loans.

Some cases where you might consider a home equity loan:

1. DIY Projects: Adding a patio to your home or remodeling your bathroom or kitchen can be important value drivers and help you get an even better return on your investment should you decide to sell your home. However, these upgrades can also be costly and may not exactly fit your budget. Using a home equity loan to finance these projects gives you the flexibility to pay them off over time and gives you the option of using your home as collateral for a home equity loan to help meet the cost of these projects cover up.
2. Study costs: Home equity loans typically have lower borrowing rates, making them an attractive option for covering college expenses. The downside: You could also miss out on certain loan protection and forgiveness programs available to federal student loan borrowers. Going this route can save you money, but there are still financial risks, so tread carefully.
3. Debt Consolidation: Paying off high-interest debt can be difficult when you’re paying more interest each month than you pay on your principal balance. Using a home equity loan to simplify multiple loan payments and potentially earn a lower interest rate could save you tons over the life of your repayment period.
4. Emergency costs: It’s important to have an emergency fund to cushion you if you fall, but building a decent cushion takes time. For example, if you find yourself in a situation where you need to cover unexpected medical expenses, a home equity loan could be a relatively inexpensive option to do so. However, it’s important to develop a plan for how you’ll pay off that loan once all is said and done.

How do I calculate my equity?

To find out how much equity you have in your home, you need to calculate the difference between the market value of your home and the amount you still owe. Let’s say your current outstanding mortgage balance is $150,000 and the current market value of your home is $350,000. that means you have about $200,000 of equity in your home.

Remember that the market value of your home will fluctuate over time as you pay off your mortgage, the condition of your home changes, or the housing market and property values ​​in your own neighborhood change. By keeping a close eye on your mortgage balance and how your neighborhood and the economic climate around you is changing, you can get a more accurate reading of how your home equity is changing over time.

Pros and cons of home equity loans

While home equity loans offer homeowners an additional way to finance major purchases, they are not without their own risks. A home equity loan still requires you to use your home as collateral. If you don’t have a solid repayment strategy, or your home’s equity takes a drastic drop, you could still end up paying thousands in interest or owing more than your property is worth.

Pro: Home equity loans usually have fixed interest rates. Consistent payment amounts can make the repayment feel more manageable.

Pro: Interest on home equity loans can be tax deductible. Who doesn’t love a tax time giveaway? If you use your home equity loan to pay for home improvement expenses and you meet the requirements of the IRS, you can cut your tax bill a bit.

Cons: Using your home as collateral is a risky move. Defaulting on a home equity loan could mean losing your home.

Cons: If your home’s value goes down, you could end up with more debt. Negative equity is a real thing. If you borrow a large amount and the value of your home falls below that amount, you could find that you owe more than your home is actually worth.

Before taking out a home equity loan, weigh the potential risks and rewards to determine if it makes the most sense for your long-term financial plan.

frequently asked Questions

What credit rating do you need for a home loan?

A FICO score of at least 680 is typically required by most lenders for a home equity loan.

Are home equity interest rates higher than mortgage interest rates?

Home equity interest rates are slightly higher than mortgage rates because these loans are only repaid after the primary mortgages have been paid off in full. If the house goes into foreclosure, the lender holding the home loan won’t get paid until the first mortgage lender is paid.

Are home equity loans tax deductible?

The interest you pay on home equity loans may also be tax-deductible for the first $750,000 for singles ($375,000 if married file separately). To qualify for this deduction, you must use the funds to “purchase, build, or substantially improve your home” and itemize your returns, according to the IRS.