Home Equity Loan Guide

The popularity of home equity loan is surging because homeowners want to get the best rates for home improvements, investments, debt consolidation, education, and medical bills without having to refinance their low rate first mortgage. Homeowners come to the RefiGuide to find the best home equity loan companies online while shopping for competitive rates and terms with no application fees.

How Does a Home Equity Loan Work?

Homeownership has long been considered a cornerstone of building wealth in America, and for good reason. Beyond providing shelter, your home can serve as a powerful financial tool through home equity loans. As of early 2026, with homeowners holding record levels of equity—approximately $36 trillion nationwide according to Federal Reserve estimates—understanding how home equity loans work has become more important than ever for millions of Americans looking to fund major expenses, consolidate debt, or invest in their properties.

This comprehensive guide explores everything you need to know about home equity loans in 2026, from basic definitions to current market rates, qualification requirements, and whether this financial product is the right choice for your situation.

What is a Home Equity Loan?

A home equity loan, often called a “second mortgage,” allows homeowners to borrow money using the equity in their home as collateral. Home equity is the difference between your home’s current market value and the outstanding balance on your mortgage. For example, if your home is worth $400,000 and you owe $200,000 on your mortgage, you have $200,000 in home equity.

Unlike your primary mortgage which you used to purchase your home, a home equity loan provides you with a lump sum of cash that you can use for virtually any purpose. The loan is secured by your property, which means you’re putting your home on the line—if you fail to repay the loan, the lender can foreclose on your home.

Key Characteristics of Home Equity Loans

• Fixed interest rate: Unlike variable-rate products, home equity loans typically come with a fixed interest rate that remains constant throughout the life of the loan, making budgeting predictable.
• Lump sum distribution: You receive the entire loan amount upfront in one payment.
• Fixed repayment term: Most home equity loans have repayment periods ranging from 5 to 30 years, with 10, 15, and 20-year terms being most common.
• Equal monthly payments: Your payment amount stays the same each month, consisting of both principal and interest.
• Lower interest rates: Because your home serves as collateral, home equity loans typically offer lower interest rates than unsecured debt like personal loans or credit cards.

Average Home Equity Loan Rates in 2026

As of January 2026, home equity loan rates have been gradually declining following the Federal Reserve’s monetary policy adjustments throughout 2025. According to Bankrate’s national survey of major lenders, current average rates are:

• 5-year term: 7.98% APR
• 10-year term: 8.16% APR
• 15-year term: 8.11% APR

Industry analysts, including Bankrate’s Senior Industry Analyst Ted Rossman, predict that home equity loan rates will continue to trend downward in 2026, with forecasts averaging around 7.75% by year-end. However, borrowers with excellent credit and strong financial profiles can already secure rates in the low-to-mid 6% range by shopping around with multiple lenders.

These rates, while higher than the historic lows seen in 2021-2022 when some rates dipped near 4%, remain significantly more affordable than credit cards (averaging over 20% APR) or personal loans (typically 10-12% APR).

What Types of Home Equity Loans Are Available?

Home equity loans and HELOC credit lines are very popular in today’s market of rising interest rates. When mortgage rates rise, homeowners are less likely to refinance their low mortgage rates and more likely to take out an equity loan or second mortgage.

When it comes to tapping into your home’s equity, lenders offer several distinct products, each designed for different financial needs and preferences. Understanding these options is crucial for making the right choice.

1. Traditional Home Equity Loan (AKA Second Mortgage)

This is the most straightforward option. You receive a lump sum of money upfront and repay it with fixed monthly payments over a predetermined term. The interest rate remains constant throughout the loan period, providing payment stability and predictability. This option works best when you know exactly how much money you need and prefer the certainty of fixed payments.

2. Home Equity Line of Credit (AKA HELOC)

While technically a different product, HELOCs are worth understanding in comparison to traditional home equity loans. A HELOC functions more like a credit card—you’re approved for a maximum credit limit and can borrow as much or as little as you need during a “draw period” (typically 10 years). You only pay interest on the amount you actually use. HELOCs usually have variable interest rates that fluctuate with market conditions.

Current HELOC rates in 2026 average around 7.25-7.44%, though these are variable rates that can change over time. After the draw period ends, you enter a repayment period (typically 20 years) where you can no longer borrow and must repay the balance.

3. Fixed-Rate HELOC

Some mortgage lenders now offer hybrid products that combine the flexibility of a HELOC with the stability of fixed rates. With a fixed-rate HELOC, you can lock in portions of your balance at a fixed rate while keeping the remainder variable. This option provides flexibility while protecting against interest rate increases.

4. Cash-Out Refinance (Actually a 1st Mortgage)

While not technically a home equity loan, a cash-out refinance serves a similar purpose. You replace your existing mortgage with a larger one and receive the difference in cash. This can be advantageous if current mortgage rates are lower than your existing rate, but it means giving up a favorable rate if you refinance a low-rate mortgage from previous years.

What is the Difference Between a Home Equity Loan vs. Line of Credit?

While both home equity loans and HELOCs allow you to borrow against your home’s equity, they function very differently and suit different financial situations. Understanding these differences is essential for choosing the right product. HELOC versus the home equity loan,

Choosing between these products depends on your specific needs. If you need a specific amount for a one-time expense and want payment predictability, a traditional home equity loan is typically the better choice. If you need ongoing access to funds or aren’t sure exactly how much you’ll need, a HELOC offers more flexibility.

Qualification Requirements for Home Equity Loans

Qualifying for a home equity loan requires meeting several criteria. Lenders evaluate your application based on multiple factors to assess risk and determine loan terms.

Credit Score Requirements

Minimum credit score: Most lenders require a FICO score of at least 620-680, though some may accept scores as low as 620. However, to qualify for the best rates and terms, you’ll typically need a score of 740 or higher. Borrowers with scores in the 700+ range have significantly better approval odds and can secure interest rates that are one to two percentage points lower than those with minimum qualifying scores.

Loan-to-Value (LTV) Ratio

Average LTV for home equity loans: 80-85%. The loan-to-value ratio represents the percentage of your home’s value that you’re borrowing. Most lenders cap home equity loans at 80-85% combined loan-to-value (CLTV), meaning your first mortgage plus your home equity loan cannot exceed 80-85% of your home’s appraised value.

For example, if your home is worth $400,000 and you owe $200,000 on your first mortgage, an 80% CLTV would allow you to borrow up to $120,000 ($400,000 × 0.80 = $320,000 max total debt, minus $200,000 existing = $120,000 available). Some specialized lenders offer high-LTV products up to 90% or even 100%, but these typically come with higher interest rates and stricter requirements.

Debt-to-Income Ratio (DTI)

Lenders typically require a debt-to-income ratio of 43% or less, though some may accept up to 50% with compensating factors. Your DTI is calculated by dividing your total monthly debt payments (including the new home equity loan payment) by your gross monthly income. A lower DTI indicates you have more income available to manage debt payments comfortably.

Additional Requirements

• Sufficient equity: Typically 15-20% equity minimum (corresponding to 80-85% LTV)
• Stable income: Proof of consistent employment and income through pay stubs, W-2s, or tax returns
• Home appraisal: Professional valuation of your property to confirm current market value
• Property insurance: Homeowners insurance must be maintained throughout the loan term
• Primary residence: Most lenders prefer the property to be your primary residence, though some offer loans for second homes or investment properties

Is a Home Equity Loan a Good Idea?

Whether a home equity loan makes sense depends entirely on your individual financial situation, goals, and how you plan to use the funds. Like any financial tool, home equity loans have both significant advantages and potential risks.

When Home Equity Loans Make Sense

1. Home Improvements That Increase Property Value

Using a home equity loan to fund renovations that increase your home’s value can be an excellent investment. Kitchen remodels, bathroom upgrades, adding square footage, or replacing a roof not only improve your living experience but can also boost your property’s resale value. Additionally, interest paid on home equity loans used for home improvements may be tax-deductible under current IRS rules.

2. High-Interest Debt Consolidation

If you’re carrying high-interest credit card debt (averaging over 20% APR in 2026) or personal loans, consolidating this debt with a home equity loan at 7-8% can save you thousands of dollars in interest. For example, consolidating $30,000 in credit card debt at 22% APR into a home equity loan at 8% APR could save you approximately $300-400 per month in interest charges.

3. Major One-Time Expenses

Large, unavoidable expenses like medical bills, college tuition, or business investments may warrant a home equity loan if you lack other lower-cost financing options. The predictable payment structure helps with budgeting for these significant costs.

When to Avoid Home Equity Loans

1. Discretionary Spending or Depreciating Assets

Using your home’s equity for vacations, luxury purchases, or vehicles is generally inadvisable. These expenses don’t build wealth and you’ll be paying for them long after their value has diminished. As Bankrate senior analyst Ted Rossman cautions, “You’re putting your home on the line, so don’t do it for something frivolous.”

2. Unstable Income or Employment

If your job security is uncertain or your income is irregular, taking on additional debt secured by your home is risky. Missing payments could lead to foreclosure.

3. Near Retirement or Planning to Move Soon

If you plan to sell your home within a few years, a home equity loan may not make sense. You’ll need to repay the loan when you sell, which could reduce your proceeds. Similarly, entering retirement with new debt isn’t ideal for most people.

Critical Considerations

• • Risk of foreclosure: Your home is collateral—defaulting means potentially losing your home.
  • Closing costs: Expect to pay 2-5% of the loan amount in closing costs, application fees, and appraisal fees.
  • Market risk: If home values decline, you could end up “underwater” owing more than your home is worth.
  • Reduced equity: Borrowing against your home reduces the equity you’ve built, potentially limiting future financial flexibility.

Top 10 Home Equity Loan Lenders in 2026

Based on competitive rates, customer reviews, and overall value, here are the top home equity loan lenders as of January 2026. These rankings consider interest rates, loan terms, customer service, and borrower feedback:

PNC Bank – Best Overall (4.85/5 rating). Offers competitive rates starting around 6.75-7.31% APR for home equity loans, with flexible terms from 5-30 years. PNC provides high borrowing limits (up to $1 million), excellent customer service with 2,200+ branch locations, and low credit score requirements (as low as 620 in some cases). Features introductory rates and the ability to convert variable HELOCs to fixed rates.

Figure – Best for Speed. Rates starting at 7.94% APR (fixed-rate HELOC). Offers extremely fast funding with many borrowers receiving funds within 5 days. 100% online application takes just 5 minutes. Minimum credit score of 640, and typically no in-person appraisal required. Terms from 5-30 years available.

Connexus Credit Union – Best for No Appraisal. Introductory rates as low as 5.99% APR with no appraisal hassle. Offers home equity loans starting at just $5,000 (vs. typical $10,000-25,000 minimums). 90% LTV maximum and 15-year draw period on HELOCs. Credit union membership required but easy to obtain.

BMO (Bank of Montreal) – Strong Regional Option (4.5/5 rating). Multiple term options (5, 10, 15, and 20 years) with competitive rates. Offers HELOCs with lock-in rate feature. Good for borrowers with existing BMO relationships.

LoanDepot – High Loan Limits. Borrow up to $750,000 ($1 million in California). Known for quick  application online. Variety of 2nd-mortgage options and customizable terms.

Regions Bank – Best for Low Costs (4.4/5 rating). No closing costs on home equity products. Consistently below-average APRs. Strong presence in South and Midwest with nearly 1,300 banking offices.

Fifth Third Bank – Flexible Rate Options (4.4/5 rating). Equity Flexline HELOC allows you to lock portions of your balance at fixed rates. 24/7 digital support and award-winning mobile app. However, best rates require 750+ credit score and 70% LTV.

TD Bank – Low Credit Score Acceptance. Accepts credit scores as low as 660 (vs. typical 680-700 requirement). Minimum loan amount of just $10,000 with low $99 origination fee. Available in 15 states plus Washington, D.C.

Rocket Mortgage – Best Digital Experience. Known for easy online application process. Variety of loan options and customizable terms. Strong customer reviews for user-friendly platform, though rates may be slightly higher than traditional banks.

Spring EQ – Specialty Lender. Only lender specializing exclusively in home equity products. Allows borrowing up to 95% LTV (vs. typical 85%). Fast closing in as little as 14 days (average 21 days). Good option for non-traditional situations.

Note: Rankings are based on a combination of advertised rates as of January 2026, customer satisfaction ratings from industry review sites (Bankrate, NerdWallet, Money Magazine), Better Business Bureau ratings, and product features. Individual experiences may vary, and rates are subject to qualification. Always compare offers from multiple lenders before making a decision.

Takeaways on Home Equity Loans and Credit

Home equity loans can be powerful financial tools when used responsibly for the right purposes. With Americans holding record levels of home equity and rates continuing to moderate in 2026, now may be an opportune time to consider tapping into your home’s value—especially for home improvements, debt consolidation, or other value-building investments.

However, it’s crucial to remember that your home serves as collateral for these loans. Careful consideration of your financial stability, loan purpose, and ability to repay is essential before proceeding. Shop around with at least three lenders, compare rates and terms, and ensure you understand all costs involved.

The key to success with home equity loans is matching the right product to your specific needs, securing competitive rates through comparison shopping, and maintaining disciplined repayment habits. When used strategically, a home equity loan can help you achieve important financial goals while leveraging one of your most valuable assets—your home.

The RefiGuide will help you find the best lenders for home equity loans online with no lending fees.

Frequently Asked Questions About Home Equity Loans

Are there closing costs with a home equity loan?

Yes, home equity loans typically include closing costs ranging from 2% to 5% of the loan amount. These may cover appraisal fees, title search, credit checks, and origination fees. Some lenders offer no-closing-cost options, which may come with slightly higher interest rates to offset the waived fees.

Can you get a home equity loan without refinancing your mortgage?

Yes, one of the main points of getting an equity loan is to tap into your home’s equity without refinancing your first mortgage. This holds true for investment properties as well. One of the biggest benefits of home equity loans is leaving your mortgage alone and getting cash out through the second mortgage transactions. Sometimes the most competitive home equity loan rates are achieved when a borrower holds steady on their primary mortgage.

What do appraisers look at for a home equity loan?
Appraisers evaluate the property’s condition, square footage, number of rooms, location, comparable property sales, and any improvements made. These factors help determine your home’s current market value. An appraiser’s job is to report the current market value of a property while providing comparable homes that have sold recently. This helps lending underwriters consider the risk when approving a home equity line of credit or loan. The most important factor for an underwriter when considering appraisal is home value. In order to determine an accurate combine loan to value (CLTV) the bank needs an appraisal that is trust worthy.

What documents are needed for a home equity loan?
Common documents include proof of income, tax returns, property deed, homeowner’s insurance, a recent mortgage statement, and a credit report.

How does a home equity loan work for home improvements?
Most home equity loan programs provide all the funds up-front based on your home’s equity that you can use for home improvements. It typically has fixed monthly payments and interest, making it easier to budget for renovation costs.

Can you pull equity out of your home without refinancing?
Yes, you can access your home’s equity without refinancing through an equity loan or a home equity line of credit, both of which use your home as collateral.

Do home equity loans require homeowners insurance?
Yes, in most cases the home equity loan lenders require homeowners insurance on the property to protect against damage or loss since the home serves as collateral.

How long does it take for a home equity loan?
The process typically takes two to six weeks, depending on the lender, required documentation, appraisal, and underwriting. Many self-employed borrowers report the process taking longer as the underwriter is reviewing additional income documentation in many instances.

Who does home equity loans on manufactured homes?

Many borrowers are looking for a home equity loan on a manufactured or modular home. We even get questions like, “Who does home equity loans on mobile homes? The list of banks and lenders changes all the time, but the RefiGuide can help connect with banks and lenders offering manufactured home equity loans this year. In some cases closing costs may be higher when taking out a second lien against a manufactured, modular or mobile home.

Can I get home equity loan on an inherited property?

The answer is yes, but approving a HELOC or equity loan on an inherited property may be more complex. Many times there will be multiple borrowers and the risk factor is higher with inherited properties because the default rate is higher. Therefore the home equity loan lender requires more equity and a lower loan to value (LTV). In many cases you can expect higher home equity loan closing costs as well. Lenders may require proof of ownership, property value, and clear title.

How to pay off a home equity loan faster?
Paying more than the minimum payment, making biweekly payments, or applying extra payments directly to the principal can help you pay off the loan faster and reduce interest costs.

What is a home equity investment?
A home equity investment agreement allows a third-party company to invest in a portion of your home’s future value in exchange for cash upfront, without monthly payments or interest. The investor gains from your property’s appreciation when you sell. This popular new equity sharing agreement, that investors are offering a select group of homeowners, called a home equity investment. The borrower gets a lump-sum of cash and there is no mortgage payment.

What is the combined loan-to-value requirement for home equity credit loans?
Most lenders require a combined loan-to-value (CLTV) ratio of 85% or less for home equity credit loans, such as HELOCs. This means the total of your existing mortgage and the new home equity credit line must not exceed 85% of your home’s appraised value. Some lenders may allow higher CLTVs for strong-credit borrowers.

What is a closed-end home equity loan?

A closed-end home equity loan is a second mortgage that provides a lump-sum payout with a fixed interest rate and repayment term. Unlike a HELOC, which offers a revolving credit line, a closed-end loan has set monthly payments over a fixed period—usually 5 to 30 years. It’s ideal for borrowers needing predictable payments.

Can you have more than one home equity loan? Yes, it’s possible to have more than one home equity loan, but it depends on your home’s available equity, credit profile, and lender guidelines. Most lenders require a combined loan-to-value ratio under 85%. Having multiple home equity loans increases your risk and may affect approval, so careful financial planning is essential.  There are still a few hard money lenders that offer 3rd-mortgages but the rates are much higher, the closing costs are higher and they require a lot more equity.

Can I get a home equity loan for construction?  Yes, you can use a home equity loan to fund construction projects or renovations. The fixed rate and predictable payments make it ideal for budgeting large improvement costs. Ensure you have sufficient equity and a clear construction plan, as some lenders may request contractor bids or cost estimates.

Are there home equity loans for self-employed?  Yes, self-employed borrowers can qualify for home equity loans, though documentation may vary. Many lenders offer alternative verification methods, such as bank statements, asset-based underwriting, no doc and stated income equity loan programs. A strong credit score, consistent income, and sufficient equity improve approval chances for self-employed applicants.

Is a Home Equity Loan Still Tax Deductible in 2026?

Homeowners frequently ask, “Is home equity loan interest tax-deductible?” The tax deductibility of home equity loan or Home Equity Line of Credit interest has changed in recent years due to the Tax Cuts and Jobs Act (TCJA). The 2025 tax year, the deductibility of interest on home equity loans or HELOCs depends on how the funds are used. Plus, the interest on the equity loan may be tax deductible if it is used to renovate your home or build a new home. Note there were tax law changes in 2018 that have restricted the tax deduction for equity. If the money is used for something other than home renovation, the interest is not tax deductible anymore.

According to the IRS: From 2018 to 2026, the interest paid on home equity loans or HELOCs linked to your primary or secondary residence, when utilized for purchasing, constructing, or significantly enhancing the property, qualifies as home acquisition debt and may be eligible for tax deductions, subject to specific dollar restrictions.

It’s essential to consult a tax professional or use tax preparation software to determine the specific deductibility of home equity loan interest in your situation. It’s important to remember that home equity loan requirements are set by banks and lender and that tax laws are created by Congress and the IRS. Tax laws can change, and individual circumstances can vary, so getting expert advice is recommended to ensure compliance with current tax regulations.

What is the Monthly Payment on a $50,000 Home Equity Loan?

To determine the monthly expense for a $50,000 equity loan at the prevailing average interest rate of 8.8% for a 30-year home equity loan with a fixed interest rate, would be $395.14 for 360 months. The monthly payment for this loan is under the assumption of no fees and closing costs thus the APR is 8.8%. The payment for a $50,000 equity loan on a 20 year term would be $441.86 for 240 months based on a 8.75% fixed rate with an APR of 8.75% based on no closing costs or fees as well.

The $50,000 home equity loan payment on a 15 year term would be $499.72 for 180 months based on a 8.75% fixed rate with an APR of 8.75% based on no lending fees or closing costs. The RefiGuide will help you shop for the cheapest equity home loans available with your borrowing credentials.

Please Note: The home equity loan qualifications are contingent upon creditworthiness and adherence to lending program directives. Not all programs are accessible in every state or for all loan sums. The home equity loan rates and the terms of the program are susceptible to modification without prior notice, per market conditions and banking guidelines. Shop today’s second mortgage rates from competitive lending companies. We always suggest negotiating closing costs, origination fees and home equity loan rates.  Read more about home equity transactions from the FTC.

References

Bankrate. (2025, December). Forecast: Home equity rates drop to three-year lows. Retrieved from https://www.bankrate.com/home-equity/home-equity-rates-forecast/

CBS News. (2026, January). What’s a good home equity loan interest rate in 2026? Retrieved from http://www.cbsnews.com/news/whats-good-home-equity-loan-interest-rate-in-2026/

Federal Reserve. (2025). Survey of consumer finances: Homeowner equity statistics. Washington, DC: Board of Governors of the Federal Reserve System.

Money. (2026, January). 7 best home equity loans. Retrieved from https://money.com/best-home-equity-loans/

Share on Facebook

Tweet

Follow us