After paying down your mortgage for years, you might have a nice chunk of equity in your home. Equity is the current market value of your home minus what you owe on it. So, if your place is worth $300,000 and you have $200,000 left to pay on your mortgage loan, you have $100,000 of equity.
Tapping your home equity can free up cash to pay down debt or undertake renovations, among other purposes. But that money isn’t liquid unless you do a cash-out refinance, get a home equity line of credit (HELOC), take out a home equity loan, or sell your home outright. (Learn more about the different types of loan below.)
If you’re interested in getting a home equity loan or a HELOC, we’ve rounded up the best lenders that can provide you with one. But before we share that list, there are some important points you need to know about home equity loans first.
Important Points To Know About Home Equity Loans
Before applying for a home equity loan or a HELOC, make sure you understand the pros and cons of these financial products and the differences between them:
- A home equity loan is a lump-sum payment, while a HELOC is a pool of money that can be drawn down incrementally as needed. HELOCs can have a variable interest rate, while home equity loans typically have a fixed interest rate.
- Lenders may allow you to borrow 85 to 90% of your equity. Every lender is different, and the amount you’re allowed to borrow will depend on the lender’s policies and your own financial habits, credit score, home value, payment history, and more.
- You need to own at least 20% of your home outright to be considered for most home equity loans. So, for example, if you bought a house with just 5% down and it hasn’t appreciated much in value since then, you probably won’t qualify.
- You might wind up owing more than your home is worth. This could happen if property values decline after you take out your home equity loan or HELOC, and it’s a risk you need to consider.
- Your home is used as collateral when you get a home equity loan or a HELOC. If you aren’t able to make your loan payments, it’s possible that your home could be put in foreclosure.
- A home equity loan is debt, and using a HELOC is debt. Even though you’re accessing money you’ve earned or acquired through your home’s appreciation, it’s still debt and an added monthly payment you need to make. (Another term for a home equity loan is a “second mortgage.”) It’s best to fully consider the pros and cons before deciding to take on this obligation.
- There could be tax benefits to a home equity loan if you use it to improve your home. Make sure to double-check with a knowledgeable accountant before taking one out.
- Home equity loans and HELOCs usually have competitive interest rates. You might be able to get a lower rate on one of these products than on a personal loan or credit card, mostly because you’re using your house as collateral.
- You can use funds from a home equity loan or a HELOC for anything. There are generally no restrictions on how you use the funds from your home equity loan or HELOC.
The 5 Best Home Equity Loan Companies
A variety of different lenders offer home equity loans and HELOCs, and you can always start by requesting a quote from the company that offered you your primary mortgage. But shop around–there’s no rule that you have to take out a home equity loan or a HELOC from your original lender. Below are some of the best companies that offer home equity loans and HELOCs.
- Best Cost Transparency: Discover
- Best Customer Experience: Navy Federal Credit Union
- Fastest Approval and Funding: Figure
- Highest Customer Satisfaction: Regions Bank
- Best Customer Perks: BB&T
Home Equity Loan Company Reviews
We’ve gathered the five top picks for the best home equity loan companies. Learn more about them, why they made the list, and what types of home equity loans they offer.
Discover Home Equity Loans: Best Cost Transparency
Discover has been around for more than 30 years. It made the list because it has a commitment to transparency when it comes to home equity loan fees. In fact, according to ConsumersAdvocate.org, “Unlike many of its competitors, Discover doesn’t charge application, origination, or appraisal fees, and requires no cash due at closing.” This means no surprise charges for borrowers.
Discover also offers a range of repayment plans, from 10 to 30 years of fixed payments. You should have good credit and adequate equity in your home before applying for a Discover home equity loan. Once you do, you’ll get assigned a banker who will help you through the application process.
Navy Federal Credit Union: Best Customer Experience
Navy Federal is a credit union, which means it is a membership-owned financial corporation. In order to become a member of Navy Federal Credit Union, you have to meet certain criteria, namely being associated with the military.
If you’re eligible and want to apply for a HELOC or home equity loan, Navy Federal Credit Union is known for its attention to the customer experience. Navy Federal Credit Union ensures all of its customers have a smooth application process through the HomeSquad, a customized digital experience that you can use to apply for your home equity loan. It will create a checklist for you to help keep your paperwork organized, and you’ll have team members helping you every step of the way.
This system of combining technology with personalized attention helped Navy Federal Credit Union earn a spot on this list.
Figure: Fastest Approval and Funding
If you want to get a home equity line of credit quickly, try Figure. Figure is a newer mortgage company that offers mortgage refinance loans as well as HELOCs. However, it does not offer home equity loans at this time.
You can apply for a HELOC in five minutes, and Figure even offers same-day approval. You can get funding in as little as five days as well. According to Figure, obtaining a traditional HELOC could take 30 to 45 days, so it truly is among the fastest in the industry.
Keep in mind, though, speed doesn’t always mean the lowest rates. If you have time to shop around, it’s wise to do so. Figure does have some fees that other lenders don’t, a tradeoff for its quick approval time. It depends on your priorities, and if getting a HELOC as quickly as possible is one of yours, Figure might be a good fit for you.
Regions Bank: Highest Customer Satisfaction
According to the 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study, Regions Bank took the top honors, beating out national industry heavyweights. This study rated loan offerings and terms, customer interaction, the billing process, and more.
In addition to HELOCs, Regions Bank also offers home equity loans. In fact, it has a handy tool that helps you decide which loan product might be best for you. Unfortunately, it doesn’t have branches in every state, but if you live near one, this could be a great option for you.
BB&T Review: Best Customer Perks
Ranked third in the 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study, BB&T offers both home equity loans and HELOCs. We value it as one of our top picks due to the great perks it offers.
For example, there is no prepayment penalty if you want to pay back your loan early. BB&T will also pay the appraisal fee for you to get the current value of your house, a benefit that could save you several hundred dollars. The company also has many different options when it comes to HELOCs, including both fixed-and variable-rate loans and no-closing-cost options.
How We Found the Best Home Equity Loan Companies
Not every mortgage lender offers home equity loans and HELOCs, so our first step was identifying which lenders carried one or both of these types of products. Then, we checked the rankings on ConsumersAdvocate.org to see which companies came up first in a nationwide search for the best home equity loans. We also relied heavily on the most up to date 2019 J.D. Power and Associates U.S. Home Equity Line of Credit Satisfaction Study.
Some other factors we considered were client satisfaction, customer service, variety of loan offerings, perks, price transparency, and overall customer experience. Here’s why these qualities are important in a lender:
When you take out a HELOC or home equity loan, you’re taking out a second mortgage. That means paperwork and fees. Some banks roll many of these fees into your loan so you might not notice them or feel their impact as much. However, it’s still important to know about them so you can adequately compare lenders. That’s why we value lenders that are upfront about their fees and clearly state what they charge.
Going through the process of getting a home equity loan can involve a lot of work. However, lenders can go a long way to ensure their clients are satisfied. They can also ensure excellent customer service and make the process as smooth as possible. The lenders who made this list all put significant effort into customer satisfaction.
Banks constantly compete against each other when it comes to interest rates and other perks, such as convenient account access, competitive fixed interest rates, and no prepayment penalty options. Naturally, we ranked companies that provided the most customer friendly service advantages higher.
HELOC vs. Home Equity Loan vs. Cash-Out Refinance
There are three main ways for people to get equity out of their homes: HELOCs, home equity loans, and cash-out refinances. Each one of these lending products requires that you have equity in your home, but they are all a little bit different.
A HELOC is a home equity line of credit. Much like a credit card, you only use it when you need it. It’s not a lump sum payment, and the interest rate can be variable, although some lenders on this list do offer fixed-rate HELOCs. The pros are that HELOCs typically offer a low interest rate and are easy to get if you have good credit and adequate equity in your home. The con is that the payments can be variable and unpredictable depending on how much you borrow.
Home Equity Loan
A home equity loan is a lump-sum amount that you pay back in equal installments. The benefit of signing up for a home equity loan is that you will have a set repayment amount. Rates are typically lower than a credit card or personal loan if you have a good credit score, but you will have to use your house as collateral.
A cash-out refinance is when you replace your mortgage with an entirely new mortgage. The way it works is that you make a loan for a larger amount than what your home is worth, and you cash out the additional amount. With this option, you won’t have two mortgages, but it’s a more time-intensive process and could involve more fees and closing costs.
Summary: Best Home Equity Loans
Getting a home equity loan or a HELOC is a major financial decision. This is because you use your home as collateral, and if you fail to pay these loans back, it’s possible that the bank will foreclose on your home. There’s also the risk of a market downturn, which can cause your home to drop in value. Having two mortgages out on a home that drops in value brings the risk of owing more on the home than it’s worth.
Even so, many homeowners use home equity loans every year in order to free up cash flow or boost their home’s value through renovations. In those instances, using a home equity loan could be a decision that helps your finances long term.
Ultimately, whether or not a home equity loan is right for you will come down to your personal financial situation, how much equity you have in your home, and what you’d like to use it for. If you decide to move forward with the process, consider the companies below.