Any affiliate links to products on this page are from partners who pay us a commission (see our advertiser disclosure and partner list for more information), but our opinions are our own. Find out how we rate mortgages and write an unbiased product review.
Current mortgage rates are slightly lower than current HELOC rates.
If you're looking to finance home improvements or repairs, a mortgage is an affordable way to do so. Compared to other options, mortgage interest rates are usually lower than personal loan rates and credit card interest rates.
Current mortgage interest rates
We track mortgage rates from 11 different lenders to help borrowers understand the range of rates currently available to them.
Factors that affect mortgage interest rates
Like mortgage and other consumer interest rates, home equity loan rates are influenced by both the borrower's financial situation and larger macroeconomic factors.
When you get a mortgage interest rate quote from a mortgage lender, your interest rate will be determined by factors such as:
Your credit score, your debt-to-income ratio, the amount of equity in your home and how much of it you want to borrow, the term of the loan, the state you live in, and the current economic situation.
Compare current rates
Because a home equity loan is a type of secured debt, it often has a lower interest rate than many other types of debt, such as credit cards.
However, interest rates vary widely between mortgage lenders, so it's important to shop around and get multiple interest rate quotes to compare.
Home loan introduction
What is a Home Equity Loan?
A home equity loan is a type of second mortgage that allows you to borrow against the equity in your home.
How do home equity loans work?
Home equity loans work by leveraging the equity you've built in your home. When you have a mortgage, you don't own the home outright. Instead, a portion of the home's value is tied up in the loan. The portion that's not tied up in the loan is called equity.
To determine how much equity you have in your home, subtract your current mortgage balance from your home's value: if your home is worth $500,000 and you have a mortgage balance of $300,000, you have $200,000 in equity.
You can only borrow a portion of your equity, and lenders typically won't allow your total LTV ratio to exceed 80% or 90%.
Mortgage funds are received in a lump sum and repaid in equal installments over the life of the loan. Mortgage interest rates are usually fixed.
How to get the best mortgage rate
Improve your credit score
Your credit score is a key factor in determining the interest rate on any loan, including a mortgage, and you can build a good credit score over time by paying off your debts on time and keeping your credit utilization ratio low.
One relatively easy way to improve your credit score is to pay off your credit card debt, which will reduce the amount of credit you have available. You can also contact your credit card issuer to see if you qualify for an increase in your credit line, which will also lower your utilization ratio.
Compare different lenders
If you're looking to get a mortgage, shopping around for three or four lenders to compare interest rates could save you a lot of money. But make sure you consider the bigger picture: A lender with a low interest rate but high closing fees might not be the best fit after all.
Consider the loan term
The shorter the loan term, the lower the interest rate. However, many borrowers prefer a longer term because it gives them more time to repay the loan and lower their monthly payments.
Types of mortgages
The term “home equity loan” can refer to any type of loan that allows you to borrow against the equity in your home, including standard home equity loans as well as home equity lines of credit (HELOCs) and cash-out refinancing.
HELOC and Home Equity Loans
A HELOC is another type of second mortgage. A home equity loan is different from a HELOC, and a HELOC works more like a credit card.
With a HELOC, you borrow against your line of credit and accrue interest at a variable rate during the drawdown period. During that period, you can borrow as much as you need, up to the total loan amount. You only pay interest on the amount you borrow.
During the draw period of the HELOC, you'll be required to make payments on the accrued interest. Once the draw period ends, you can no longer borrow from the HELOC and will have to make principal and interest payments to repay the debt.
Second Mortgages and Cash-Out Refinancing
In addition to these second mortgage options, you can also leverage the equity in your home with a conventional mortgage. You can do this with a type of mortgage refinance called a cash-out refinance.
In a cash-out refinance, you replace your current mortgage with a new, larger mortgage. You pay off your existing mortgage with the new loan and receive cash for the remaining loan balance. You must keep a portion of your home's equity, usually at least 20% of the home's value.
As with other types of mortgages, cash-out refinances can come with high closing costs. These costs can range from 3% to 6% of the loan amount.
Pros and cons of each type
Applying for a mortgage
Required documents
The documentation required for a mortgage is similar to that required for a regular mortgage application, including documents showing your income, such as pay stubs and W2 forms. Lenders will also run a credit check.
You may also be asked to provide documentation related to your home and your current mortgage, such as a recent mortgage statement or property tax information.
Application Procedure
Before you apply for a mortgage, you'll want to know how much equity you have in your home, and sites like Realtor.com, Zillow, and Redfin have tools that can help you estimate your home's current value.
Once you submit your application to a lending institution, they will request an appraisal, which will determine the actual value of your home based on current market conditions and similar homes that have recently sold in your area.
The lender will then review your application and appraisal to determine how much they are willing to lend you. If you get final approval, the loan is closed and you can get your money.
Current mortgage rates FAQ
Average mortgage rates fluctuate based on current market conditions, but the rate you actually get will also depend on your financial situation. If you can get a mortgage rate that's close to or below the current average rate, you're likely getting a good rate.
Mortgage lenders use your credit score to determine the risk of a borrower. Because lending to someone with a low credit score increases risk, lenders compensate by charging more in the form of a higher interest rate.
According to the IRS, if you use the mortgage proceeds to “purchase, construct, or substantially renovate” your primary residence or vacation home, you can deduct the interest you pay from your taxes.
The main risk with a mortgage is that your debt is secured by your home, meaning you risk losing your home if you suddenly can't make your loan payments.
The time it takes to obtain a mortgage varies and could take anywhere from a few weeks to a few months to complete.
Molly Grace
Mortgage Reporter
Top Offers from our Partners
Source link