The equity in your home is a valuable asset. Like with any asset, you must use it wisely to get the most value out of it.
This is important because a 1-percentage-point difference in the annual percentage rate on a $50,000, 10-year home equity loan could make a difference of more than $3,000 over the life of the loan.
And there are a variety of factors that affect the rate you get.
“There’s a lot of variability depending on the loan length, amount and percentage of existing home equity desired by the borrower,” says Meagan McCollum, associate professor of finance at the University of Tulsa.
Below are five steps that can help you get the best home equity loan rate.
[SEE: Best Home Equity Loans]
1. Check Your Credit Report and Other Qualifications
Before you start shopping for rates, take a look at the qualifications for a home equity loan. Those qualifications will have a lot to do with the interest rate you can get — and whether you can get a loan at all.
Credit Score and Report Details
Your credit score is a big factor in how risky lenders consider you to be. The higher the risk, the higher the interest rate they are likely to charge.
So look at your credit history. Besides checking your credit score, look at your credit reports from each of the three major credit bureaus (Equifax, Experian and TransUnion). See if there are any inaccuracies in those reports that need to be addressed.
Financial Resources and Obligations
A lender will want to look at your income history and any financial assets you have, such as bank accounts, retirement accounts and other investments. These give an idea of your ability to make loan payments.
A lender will balance these resources against any debt you already have. A key metric here is your debt-to-income ratio, which measures how much of your monthly income goes toward debt payments.
Loan-to-Value Ratio
Since your home will act as collateral for a home equity loan, a lender will want to measure the value of that property compared with the amount of debt attached to it. This is called the loan-to-value ratio.
That debt would include both the new loan plus the remaining balance on any existing loans for the home.
“Typically, lenders will not allow a combined loan-to-value ratio over 85% (and many lenders set their limits lower),” says McCollum. “This means your existing mortgage plus the amount of the new home equity loan can’t exceed more than 85% of your home’s current appraised value.”
You’ll likely need a new appraisal to calculate your loan-to-value ratio. For starters, you could estimate it by looking at the recent sale prices of comparable homes in your neighborhood.
[READ: Best HELOC Lenders]
2. Consider the Loan Term Length You Need
Determine how long the loan’s repayment term should be based on how much you can afford to put toward the payments each month.
Generally, longer-term loans have higher interest rates. According to Ken Flaherty, senior manager of retail lending for financial data firm Curinos, as of the second quarter of 2025, average home equity loan rates ranged from 8.28% to 9.04%, depending on the length of the term.
When comparing rates, specify the length of the loan so you can get the most accurate information.
3. Keep Track of the Rate Environment
As you start shopping for a loan, keep an eye on what’s happening broadly with mortgage rates. If rates are expected to rise in the near future, you may want to act quickly and secure your loan before they do, since home equity loans tend to have fixed rates. Or, it may make sense to hold off a bit if rates are expected to fall.
While the direction of rates can be uncertain, factors such as the Federal Reserve’s monetary policy, macroeconomic conditions and market conditions can all influence the rate environment.
“We are definitely in a ‘wait and see’ moment,” says Jennifer Beeston, executive vice president of national sales at Rate.com. “Between the uncertainty surrounding the outcome of the tariffs coupled with pending budget legislation, making a forecast would be a coin toss. Until we see the end result of these two factors it is impossible to know where rates are going to go.”
4. Find Mortgage Lenders with Competitive Home Equity Rates
As you start putting together information on lenders, you can use advertised rates as a starting point. Be sure to check not only multiple lenders but different types of lenders as well, including online lenders, community banks and credit unions.
“There is a lot of rate variability in the home equity space, so you want to make sure to do an apples-to-apples comparison,” Beeston says.
When you’ve narrowed your search to a few possible lenders, see if you can prequalify for a home equity loan. This will give you the most accurate rate you can expect and won’t affect your credit.
[READ: Best Home Improvement Loans]
5. Take Into Account Fees and Other Terms
When shopping for a home equity loan, focusing on interest rates is natural. However, there are other factors that greatly affect the cost of your loan.
For one thing, home equity loans may come with a variety of fees, such as:
— Application fees
— Origination fees
— Appraisal fees
— Document preparation fees
To get a true comparison, compare each loan option’s APRs.
Finally, besides comparing costs, watch out for any loan terms that may restrict you in the future, like prepayment penalties. “In both home equity loans and HELOCs, you could be subject to a prepayment penalty fee if you pay off the loan early, which is a feature that is very rare and prohibited on most first mortgages,” McCollum says.
A prepayment penalty could prove a costly restriction if you want to sell or refinance your home or pay your loan off early for any other reason.
Putting the Plan in Action
Taking these steps should help you find a home equity loan that fits your budget and has a competitive APR.
Home equity loans generally stretch over a period of several years. Doing some up-front homework can save you a lot of money and stress over those years by getting you a cost-effective loan you can live with. That way, you can best enjoy the benefits of whatever you use the loan for.
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How to Get the Best Rate on a Home Equity Loan in 2025 originally appeared on usnews.com
