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Today’s mortgage rates
Average mortgage rates edged higher yesterday. It was a modest increase by any standards but tiny by comparison with Wednesday’s big jump.
First thing, it was looking as if mortgage rates today could fall. But that could change later in the day.
Current mortgage and refinance rates
Find your lowest rate. Start here
Our table is having technical problems. But we’re working hard to fix them.
Program | Mortgage Rate | APR* | Change |
---|---|---|---|
30-year fixed VA | 7.222% | 7.262% | +0.05 |
Conventional 20-year fixed | 7.007% | 7.058% | +0.07 |
Conventional 10-year fixed | 6.51% | 6.584% | +0.09 |
Conventional 30-year fixed | 7.127% | 7.173% | +0.07 |
30-year fixed FHA | 7.056% | 7.1% | +0.09 |
Conventional 15-year fixed | 6.64% | 6.713% | +0.1 |
5/1 ARM Conventional | 6.785% | 7.888% | +0.08 |
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here. |
Should you lock your mortgage rate today?
Markets have turned gloomy over the prospects of the Federal Reserve cutting general interest rates over the next few months. And that’s been pushing mortgage rates higher.
So, for now, my personal rate lock recommendations remain:
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- LOCK if closing in 45 days
- LOCK if closing in 60 days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So, let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
- The yield on 10-year Treasury notes fell to 4.50% from 4.55%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
- Major stock indexes were falling this morning. (Good for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
- Oil prices increased to $87.42 from $85.57 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
- Gold prices climbed to $2,414 from $2,361 an ounce. (Good for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Because gold tends to rise when investors worry about the economy.
- CNN Business Fear & Greed index — fell to 51 from 54 out of 100. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So, lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to decrease. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Find your lowest rate. Start here
What’s driving mortgage rates today?
Today
Two economic reports are scheduled for this morning.
The March import price index (IPI) landed at 8:30 a.m. Eastern. And that would normally be bad for mortgage rates. Markets had been expecting it to hold steady at 0.3% and it came in at 0.4%.
So, how come mortgage rates were falling first thing? Well, it’s too early to be sure. But those rates often move in the opposite direction after a sharp movement one way or the other. That’s simply markets reflecting on the change and deciding they over-reacted.
This morning’s other report isn’t due until 10 a.m. Eastern. And that means I won’t have time before my deadline to assess its likely impact on markets. They were expecting the preliminary consumer sentiment index for April to improve slightly to 79.9% from 79.4%.
A lower figure may help mortgage rates to fall while a higher one could push them upward. But this is one of those reports that rarely move those rates far unless they contain shockingly good or bad data.
Mortgage rates might also be affected by earnings reports later from three of the biggest U.S. banks, JPMorgan Chase, Wells Fargo and Citigroup. If they all tell a really positive story, stock market reactions could spill over into the bond market that largely determines mortgage rates.
Next week
We’ve had April’s two most important reports over the last six days. And, taken together, they were pretty bad for mortgage rates.
Next week’s reports aren’t typically as influential by a long way. But a couple of them (retail sales and industrial production) could move mortgage rates higher if they feed markets’ current pessimism over Fed rate cuts — or push them downward if they contradict it.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Apr. 11 report put that same weekly average at 6.88%, up from the previous week’s 6.82%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the four quarters of 2024 (Q1/24, Q2/24 Q3/24 and Q4/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Mar. 19 and the MBA’s on Mar. 22.
Forecaster | Q1/24 | Q2/24 | Q3/24 | Q4/24 |
Fannie Mae | 6.7% | 6.7% | 6.6% | 6.4% |
MBA | 6.8% | 6.6% | 6.3% | 6.1% |
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
- Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
- Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
- Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
- When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
- Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
- Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
- Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
- Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
- Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
- Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
- Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
- Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
- Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
- Interest rate
- Annual percentage rate (APR)
- Monthly mortgage payment
- Loan origination fees
- Rate lock fees
- Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
So, for the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
- Conventional home loans — minimum 620 credit score
- FHA loans — minimum 500 credit score (with a 10% down
payment) or 580 (with a 3.5% down payment) - VA loans — no minimum credit score, but 620 is common
- USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
Indeed, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
- Conventional home loans require a down payment between 3%
and 5% - FHA loans require 3.5% down
- VA and USDA loans allow zero down payment
- Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account as evidence of their financial circumstances. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. And this gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders. And it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Those mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Source: themortgagereports.com
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Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
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Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates have largely held steady after a stronger-than-forecasted jobs report on Friday. The 30-year fixed-rate mortgage was 7.24% APR today, down -0.02 percentage points from last week, according to data from Curinos analyzed by MarketWatch Guides.
In its monthly report on job growth, the Bureau of Labor Statistics announced an employment gain of 303,000 new jobs for March with the unemployment rate decreasing slightly from 3.9% to 3.8%. These “eye-popping” numbers could mean the Federal Reserve will hold off even longer on lowering interest rates, said Steve Wyett, chief investment strategist at BOK Financial in an email sent to MarketWatch.
While positive for the overall economy, this does not seem to be welcome news for the housing market. Joel Kan, the Mortgage Banker Association’s deputy chief economist, said in a report on Wednesday that today’s relatively high mortgage rates have continued to slow down home buying. Refinance rates are also 5% lower than last year.
Here are today’s average mortgage rates:
- 30-year fixed mortgage rate: 7.24%
- 15-year fixed mortgage rate: 6.58%
- 5/6 ARM mortgage rate: 7.03%
- Jumbo mortgage rate: 7.20%
Current Mortgage Rates
Product | Rate | Last Week | Change |
30-Year Fixed Rate | 7.24% | 7.26% | -0.02 |
15-Year Fixed Rate | 6.58% | 6.52% | +0.06 |
5/6 ARM | 7.03% | 7.01% | +0.02 |
7/6 ARM | 7.24% | 7.18% | +0.06 |
10/6 ARM | 7.28% | 7.22% | +0.06 |
30-Year Fixed Rate Jumbo | 7.20% | 7.14% | +0.06 |
30-Year Fixed Rate FHA | 6.91% | 6.97% | -0.06 |
30-Year Fixed Rate VA | 6.96% | 7.03% | -0.07 |
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Monday, April 08, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.02
The average 30-year fixed-mortgage rate is 7.24%. Since the same time last week, the rate is down, changing -0.02 percentage points.
At the current average rate, you’ll pay $681.50 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.26%.
15-year fixed-rate mortgages are up, +0.06
The average rate you’ll pay for a 15-year fixed-mortgage is 6.58%, an increase of +0.06 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.58% will cost approximately $875.51 per $100,000 borrowed. With the rate of 6.52% last week, you would’ve paid $872.21 per month.
5/6 adjustable-rate mortgages are up, +0.02
The average rate on a 5/6 adjustable rate mortgage is 7.03%, an increase of +0.02 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 7.03% will cost approximately $667.32 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are up, +0.06
The average jumbo mortgage rate today is 7.20%, an increase of +0.06 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product | Monthly P&I per $100,000 | Last Week | Change |
30-Year Fixed Rate | $681.50 | $682.85 | -$1.35 |
15-Year Fixed Rate | $875.51 | $872.21 | +$3.30 |
5/6 ARM | $667.32 | $665.97 | +$1.35 |
7/6 ARM | $681.50 | $677.43 | +$4.07 |
10/6 ARM | $684.21 | $680.14 | +$4.07 |
30-Year Fixed Rate Jumbo | $678.79 | $674.73 | +$4.06 |
30-Year Fixed Rate FHA | $659.27 | $663.29 | -$4.02 |
30-Year Fixed Rate VA | $662.62 | $667.32 | -$4.70 |
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
- Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
- Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
- Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
- Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
- Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
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3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
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More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
Source: marketwatch.com
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When researching personal loans, you may see the terms APR (Annual Percentage Rate) and interest rate used interchangeably. However, they are not the same thing. The interest rate refers to the cost of borrowing money, expressed as a percentage of the principal amount, but it doesn’t include any other fees or charges.
APR, on the other hand, includes not only the interest rate but also other fees and charges you may incur when borrowing money. This makes the APR a more important number to look at that interest rate.
Read on for a closer look at APR vs interest rate, what it means when these two numbers are different, and what it means when they are the same.
What Is Interest?
Interest is the cost you pay for the privilege of taking out a loan — the money you’ll owe along with the principal, or the amount of money you’re borrowing.
Interest is expressed in a rate: a percentage that indicates what proportion of the principal you’ll pay on top of the principal itself. Interest may be simple — charged only against the principal balance — or compound — charged against both the principal balance and accrued interest itself. Typically, personal loan rates are an expression of simple interest.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
Loan APR vs Interest Rate
So what’s the difference between an APR vs. an interest rate?
APR stands for Annual Percentage Rate and specifically designates how much you’ll spend, as a proportion of the principal, over the course of one year. Furthermore, the APR includes any additional charges on top of interest, such as origination or processing fees, which a straight interest rate does not.
In other words, APR is a specific type of interest rate expression — one that’s more inclusive of additional costs.
Interest Rate | APR |
---|---|
Expression of how much will be paid back to the lender in addition to repaying the principal balance | Expression of how much will be paid back to the lender in addition to repaying the principal balance |
Includes interest only | Expresses cost of the loan over one year including any additional costs, such as origination fees |
Why Is My Personal Loan APR Different Than the Interest Rate?
If your personal loan’s APR differs from its interest rate, that indicates that there are additional fees, such as origination fees, included in the total amount you’re being charged. If there were no fees, the APR and interest rate would be identical.
How Important Is APR vs Interest Rate?
A loan’s APR is generally more important than its interest rate because APR reflects the true cost of the loan — it accounts for interest as well as any fees tacked on by the lender. Looking at APR also allows you to compare two loan offers apples to apples. One loan may have a lower interest rate than another loan but if the lender tacks on high fees, then it may not actually be the better deal.
APR vs Interest Rate on Revolving Credit Accounts
Personal loans aren’t the only financial product that involve APR and interest rate. Revolving credit accounts — including credit cards — also have interest rates expressed as APR. However, with credit cards, these two rates are one and the same: APR is just the interest rate, and the terms can be used interchangeably.
Credit card issuers may charge other fees, e.g., cash advance fees, late fees, or balance transfer fees as applicable to individual usage. But it’s impossible to predict the type or amount of fees that might be charged to any one card holder.
Although these two expressions are the same, it’s important to understand that the interest rate on credit cards and other revolving credit accounts is usually compound interest, which is precisely why it can be so easy to spiral into credit card debt. When interest is charged on the interest you’ve already accrued, the total goes up quickly.
A single credit card account can have multiple APRs, depending on how the credit is used.
• Purchase APR: the standard APR for general purchases.
• Cash advance APR: the rate charged for cash advances made to the card holder.
• Balance transfer APR: may begin as a low or zero promotional rate, but increase after the introductory period ends.
• Penalty APR: may be charged if a payment is late by a predetermined number of days.
💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.
What Is a Good Interest Rate for a Personal Loan?
The interest rate on your personal loan — or any financial product — will vary based on a wide variety of factors, including your personal financial history (such as your credit score and income) as well as which lender you choose, how big the loan is, and whether or not it’s secured with collateral.
The average personal loan rate is currently about 12% APR. However, the rate you receive could be higher or lower, depending on your financial situation and the lender you choose.
Getting a Good APR on a Personal Loan
To get the best rate on your personal loan, there are some financial factors you can influence over time. Here are some action items to consider.
Improving Your Credit
It’s been said before, but it’s true: the higher your credit score, generally the better your chances are of achieving favorable loan terms and lower interest rates — not to mention qualifying for the loan at all. While there are loans out there for borrowers with bad credit and fair credit, improving your credit profile can make borrowing money more affordable.
Paying Down Your Debts
One way you may be able to improve your credit is to pay down your debts. And along with the opportunity to bolster your credit, paying down debt can also improve your chances of being approved for a loan because your debt-to-income ratio is one factor lenders look at when qualifying you for a loan. What’s more, paying down debt can make keeping up with your monthly loan payments a lot easier, since you’ll have more leeway in your budget.
Be Careful When Applying for Credit
Applying for too much credit at once can be a red flag for lenders and ding your credit score, so if you’re getting ready to apply for a personal loan, auto loan, or mortgage, try to limit how many times you’re having your credit score pulled. Typically, prequalifying for a loan involves a soft credit pull, which won’t impact your credit.
While credit scoring models do allow for rate shopping, it’s still a good idea to compare multiple lenders over a limited amount of time — a 14-day period is recommended — to find the lender that works best for your financial needs. If done in a short window of time, multiple hard credit pulls for the same type of loan will count as just one.
Recommended: Soft vs Hard Credit Inquiry
The Takeaway
Personal loans and other financial lending products come at a cost: interest. That’s the amount you’ll pay on top of repaying the principal balance itself. Interest is expressed in a percentage rate, most commonly APR, which includes both the interest and any other fees that can increase the cost of the loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Why is my personal loan APR different than the interest rate?
If the annual percentage rate (APR) on your personal loan is different from the interest rate, it means the lender is charging additional fees, such as origination fees or others.
How important is APR vs interest rate?
The annual percentage rate (APR) is generally the more important figure to look at, since it includes additional costs incurred in getting the loan, such as fees. The APR will give you a more holistic picture of the price of the loan product.
What is a good APR and interest rate for a personal loan?
Personal loan interest rates vary widely but currently average around 12% APR. Depending on your personal financial history, the type and amount of the loan you’re borrowing, and your lender, the rate you receive could be higher or lower.
Photo credit: iStock/Charday Penn
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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com
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A home equity loan is a lump sum of money you can borrow at a fixed rate based on the equity, or ownership stake, in your home. If you already paid off 15% to 20% of your house, this one-time installment loan can be used to cover major expenses, from home renovations to paying off debt.
Home equity loans have fixed interest rates, so your monthly payments are predictable and easy to budget for. But because your home acts as collateral for the loan, you could risk foreclosure if you fall behind on repayments.
I’ve spoken with experts about the advantages and disadvantages of home equity loans, how they work and where to find the best rates. Here’s what I’ve uncovered.
This week’s home equity loan rates
Here are the average rates for home equity loans and home equity lines of credit as of March 27, 2024.
Loan type | This week’s rate | Last week’s rate | Difference |
---|---|---|---|
10-year, $30,000 home equity loan | 8.73% | 8.73% | None |
15-year, $30,000 home equity loan | 8.70% | 8.70% | None |
$30,000 HELOC | 9.01% | 8.99% | +0.02 |
Current home equity loan rates and trends
Though home equity loan rates will vary depending on the lender and loan type, their rates are generally lower than personal loans or credit card annual percentage rates.
Home equity loan rates aren’t directly set by the Federal Reserve, but adjustments to the federal funds rate impact the borrowing cost for financial products like home equity loans and home equity lines of credit, aka HELOCs.
Since March 2022, the Fed has hiked its benchmark rate a total of 11 times in an attempt to slow the economy and bring inflation down, driving home equity loan rates up alongside. Though the Fed has kept interest rates steady since last summer, home equity loan rates have remained elevated for borrowers. Home equity rates are likely to stay high until the central bank begins cutting interest rates, projected for later this year.
With home equity loans, you tap into your equity without giving up the rate on your primary mortgage, making them a popular alternative to cash-out refinances. If you use a home equity loan to install solar panels or renovate your kitchen, you get the added benefit of increasing your home’s value.
“Most homeowners with mortgages in 2024 are choosing home equity loans or HELOCs, instead of a cash-out refinance, to avoid losing their attractive interest rates,” said Vikram Gupta, head of home equity at PNC Bank.
Best home equity loan rates of March 2024
Lender | APR | Loan amount | Loan terms | Max LTV ratio |
---|---|---|---|---|
U.S. Bank | From 8.40% | Not specified | Up to 30 years | Not specified |
TD Bank | 7.99% (0.25% autopay discount included) | From $10,000 | 5 to 30 years | Not specified |
Connexus Credit Union | From 7.20% | From $5,000 | 5 to 15 years | 90% |
KeyBank | From 10.29% (0.25% autopay discount included) | From $25,000 | 1 to 30 years | 80% for standard home equity loans, 90% for high-value home equity loans |
Spring EQ | Fill out application for personalized rates | Up to $500,000 | Not specified | 90% |
Third Federal Savings & Loan | From 7.29% | $10,000 to $200,000 | Up to 30 years | 80% |
Frost Bank | From 7.3% (0.25% autopay discount included) | $2,000 to $500,000 | 15 to 20 years | 90% |
Regions Bank | From 6.75% to 14.125% (0.25% autopay discount included) | $10,000 to $250,000 | 7, 10, 15, 20 or 30 years | 89% |
Discover | 6.99% for 1st liens, 7.99% for 2nd liens | $35,000 to $300,000 | 10, 15, 20 or 30 years | 90% |
BMO Harris | From 8.84% (0.5% autopay discount not included) | From $25,000 | 5 to 20 years | Not specified |
Best home equity loan lenders of March 2024
U.S. Bank
Good for nationwide availability
U.S. Bank is the fifth largest banking institution in the US. It offers both home equity loans and HELOCs in 47 states. You can apply for a home equity loan or HELOC through an online application, by phone or in person. If you want a loan estimate for a home equity loan without completing a full application, you can get one by speaking with a banker over the phone.
- APR: From 8.40%
- Max LTV ratio: Not specified
- Max debt-to-income ratio: Not specified
- Min credit score: 660
- Loan amount: $15,000 to $750,000 (up to $1 million for California properties)
- Term lengths: Up to 30 years
- Fees: None
- Additional requirements: Subject to credit approval
- Perks: You can receive a 0.5% rate discount by enrolling in automatic payments from a U.S. Bank checking or savings account.
TD Bank
Good for price transparency
Primarily operating on the East Coast, TD Bank offers home equity loans and HELOCs in 15 states. You can apply for a TD Bank home equity loan or HELOC online, by phone or by visiting a TD Bank in person. The online application includes a calculator that will tell you the maximum amount you can borrow based on the information you input. You can also see a full breakdown of rates, fees and monthly payments. No credit check is required for this service.
- APR: From 7.99% (0.25% autopay discount included)
- Max LTV ratio: Not specified
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: From $10,000
- Term lengths: Five to 30 years
- Fees: $99 origination fee at closing. Closing costs only application to loan amounts greater than $500,000.
- Additional requirements: Loan amounts less than $25,000 are available only for primary residence property use.
- Perks: You will receive a 0.25% discount if you enroll in autopay from a TD personal checking or savings account.
Connexus Credit Union
Good branch network
Connexus Credit Union operates in all 50 states, but it offers home equity loans and HELOCs in 46 states (excluding Alaska, Hawaii, Maryland and Texas). The credit union has more than 6,000 local branches. To apply for a home equity loan or HELOC with Connexus, you can fill out a three-step application online or in person. You won’t be able to see a personalized rate or product terms without a credit check.
- APR: From 7.20%
- Max LTV ratio: 90%
- Max-debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: From $5,000
- Term lengths: Five to 15 years
- Fees: No annual fee. Closing costs can range from $175 to $2,000, depending on your loan terms and property location. It has returned loan payments fees of $15, convenience fees of $9.95 (for paying by debit or credit card online) and $14.95 (for paying by phone) and a forced place insurance processing fee of $12.
- Additional requirements: Because Connexus is a credit union, its products and services are only available to members. Member eligibility is open to most people: you (or a family member) just need to be a member of one of Connexus’s partner groups, reside in one of the communities or counties on Connexus’s list or become a member of the Connexus Association with a $5 donation to Connexus’s partner nonprofit.
- Perks: Flexible membership options
KeyBank
Good online application user experience
Based in Cleveland, KeyBank offers home equity loans to customers in 15 states and HELOCs to customers in 44 states. Aside from a standard home equity loan, KeyBank offers a few different HELOC options. The KeyBank application allows you to apply for multiple products at one time. If you’re not sure whether KeyBank loans are available in your area, the application will tell you once you input your ZIP code. If you’re an existing KeyBank customer, you can skim through the application and import your personal information from your account.
- APR: From 10.29% (0.25% client discount included)
- Max LTV ratio: 80% for standard home equity loans, 90% for high-value home equity loans
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: From $25,000
- Term lengths: One to 30 years
- Fees: Origination fee of $295. Closing costs aren’t specified.
- Additional requirements: Borrowers must be at least 18 years of age and reside in one of the states KeyBank operates in.
- Perks: KeyBank offers a 0.25% rate discount for clients who have eligible checking and savings accounts with them.
Spring EQ
Good option for high debt-to-income ratio limits
Spring EQ was founded in 2016 and serves customers in 38 states. Spring EQ offers home equity loans and HELOCs. Spring EQ doesn’t display rates for its home lending products online — you must complete an application to see your personalized rate. The Spring EQ loan application process is simple though. Customers can see an extensive breakdown of their loan term and rate options without needing to undergo a credit check or provide their Social Security number.
- APR: Not specified
- Max LTV ratio: 90%
- Max debt-to-income ratio: 50%
- Min credit score: 640
- Loan amount: Up to $500,000
- Term lengths: Not specified
- Fees: Spring EQ loans may be subject to an origination fee of $995 and an annual fee of $99 in some states.
- Additional requirements: Spring EQ does not display rates for its home lending products online — you must complete an application to see your personalized rate.
- Perks: Spring EQ has a higher maximum DTI ratio than most other lenders — compare 50% with the typical 43% average.
Third Federal Savings & Loan
Good option for rate match guarantee
Third Federal Savings & Loan first opened in 1938. Today, the bank offers home equity loans in eight states and HELOCs in 26 states. Third Federal offers a lowest rate guarantee on its HELOCs and home equity loans, meaning Third Federal will offer you the lowest interest rate relative to other similar lenders or pay you $1,000. You can apply for a home equity loan or HELOC on the Third Federal website. You won’t have to register an account to apply, but you’re still able to save your application and return to it later.
- APR: From 7.29%
- Max LTV ratio: 80%
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: $10,000 to $200,000
- Term lengths: Five to 30 years
- Fees: Home equity loans and HELOCs with Third Federal have an annual fee of $65 (waived the first year). There are no application fees, closing fees or origination fees.
- Additional requirements: Specific requirements aren’t listed.
- Perks: If you set up autopay from an existing Third Federal account, you’ll be eligible for a 0.25% rate discount.
Frost Bank
Good option for Texas borrowers
Frost Bank’s home equity loans and HELOCs are only available to Texas residents. You can apply for a home equity loan or HELOC on the Frost Bank website, but you’ll need to create an account. According to the website, the application will only take you 15 minutes.
- APR: From 7.3% (0.25% autopay discount included, only available for 2nd liens)
- Max LTV ratio: 90%
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: $2,000 to $500,000
- Term lengths: 15 or 20 years
- Fees: No application fee, annual fee or closing costs. Frost Bank does charge a $15 monthly service fee, which can be waived with a Frost Plus Account.
- Additional requirements: Borrowers must reside in Texas. The bank also requires proof of homeowners insurance.
- Perks: 0.25% rate discount for clients who enroll in autopay from a Frost Bank checking or savings account. However, this feature is only available for second liens.
Regions Bank
Good rate discounts
Regions Bank is one of the nation’s largest banking, mortgage and wealth management service providers. Regions offers home equity loans and HELOCs in 15 states. You can apply for a Regions home equity loan or HELOC online, in person or over the phone. You’ll have to create an account with Regions to apply. Before you create an account, though, you can use the bank’s own rate calculator to estimate your rate and monthly payment.
- APR: From 6.75% to 14.125%(0.25% autopay discount included)
- Max LTV ratio: 89%
- Max debt-to-income ratio: Not specified
- Min credit score: Not specified
- Loan amount: $10,000 to $250,000
- Term lengths: Seven, 10, 15, 20 or 30 years
- Fees: No closing costs and no annual fees. Late fees apply for 5% of the payment amount. There is a returned check fee of $15 and an over limit fee of $29.
- Additional requirements: Not specified.
- Perks: Rate discounts between 0.25% and 0.50% to those who elect to have their monthly payments automatically debited from a Regions checking account.
Discover
Good option for no fees or closings costs
Discover is known primarily for its credit cards, but it also offers home equity loans — available in 48 states. The lender does not offer HELOCs at all. You can apply for a home equity loan from Discover online or over the phone. The application process takes approximately six to eight weeks in total, according to Discover’s website.
- APR: 6.99% for first liens, 7.99% for second liens
- Max LTV ratio: 90%
- Max debt-to-income ratio: 43%
- Min credit score: 620
- Loan amount: $35,000 to $300,000
- Term lengths: 10, 15, 20 and 30 years
- Fees: None
- Additional requirements: Specific requirements not listed.
- Perks: The lender charges no origination fees, application fees, appraisal fees or mortgage taxes.
BMO Harris
Good option for second liens
BMO Harris products and services are available in 48 states (all but New York and Texas). BMO Harris offers home equity loans and three variations of a HELOC. You can apply for a home equity loan or HELOC online or in person, but in order to get personalized rates, you’ll have to speak with a representative on the phone. Getting personalized rates doesn’t require a hard credit check.
Home equity loans from BMO Harris are only available as second liens. If you have already paid off your mortgage, a rate-lock HELOC from BMO Harris may be a better option.
- APR: From 8.84% (0.5% autopay discount not included)
- Max LTV ratio: Not specified
- Max debt-to-income ratio: Not specified
- Min credit score: 700
- Loan amount: From $5,000
- Term lengths: Five to 20 years
- Fees: There is no application fee. BMO Harris will also pay closing costs for loans secured by an owner-occupied 1-to-4-family residence. If you pay off your loan within 36 months of opening, you may be responsible for recoupment fees.
- Additional requirements: Home equity loans are only available as a second lien (meaning you can’t be mortgage free)
- Perks: If you enroll in autopay with a BMO Harris checking account, you’ll be eligible for a 0.5% rate discount.
What is a home equity loan?
A home equity loan is a fixed-rate installment loan secured by your home as a second mortgage. You’ll get a lump sum payment upfront and then repay the loan in equal monthly payments over a period of time. Because your house is used as a collateral, the lender can foreclose on it if you default on your payments.
Most lenders require you to have 15% to 20% equity in your home to secure a home equity loan. To determine how much equity you have, subtract your remaining mortgage balance from the value of your home. For example, if your home is worth $500,000 and you owe $350,000, you have $150,000 in equity. The next step is to determine your loan-to-value ratio, or LTV ratio, which is your outstanding mortgage balance divided by your home’s current value. So in this case the calculation would be:
$350,000 / $500,000 = 0.7
In this example, you have a 70% LTV ratio. Most lenders will let you borrow around 75% to 90% of your home’s value minus what you owe on your primary mortgage. Assuming a lender will let you borrow up to 90% of your home equity, you can use the formula to see how that would be:
$500,000 [current appraised value] X 0.9 [maximum equity percentage you can borrow] – $350,000 [outstanding mortgage balance] = $100,000 [what the lender will let you borrow]
A standard repayment period for a home equity loan is between five and 30 years. Under the loan, you make fixed-rate payments that never change. If interest rates go up, your loan rate remains unchanged.
Second mortgages such as home equity loans and HELOCs don’t alter a homeowner’s primary mortgage. This lets you borrow against your home’s equity without needing to exchange your primary mortgage’s rate for today’s higher rates.
Home equity loans have fixed interest rates, which is a positive if you’re looking for predictable monthly payments. The rate you lock in when you take out your loan will be constant for the entire term, even if market interest rates rise.
Reasons to get a home equity loan
A home equity loan is a good choice if you need a large sum of cash all at once. You can use that cash for anything you’d like — it doesn’t have to be home-related.However, some uses make more sense than others.
- Home renovations and improvements: If you want to upgrade your kitchen, install solar panels or add on a second bathroom, you can use the money from a home equity loan to pay for the cost of these renovations. Then, at tax time, you can deduct the interest you pay on the loan — as long as the renovations increase the value of your home and you meet certain IRS criteria.
- Consolidating high-interest debt: Debt consolidation is a strategy where you take out one large loan to pay off the balances on multiple smaller loans, typically done to streamline your finances or get a lower interest rate. Because home equity loan interest rates are typically lower than those of credit cards, they can be a great option to consolidate your high-interest credit card debt, letting you pay off debt faster and save money on interest in the long run. The only downside? Credit card and personal loan lenders can’t take your home from you if you stop making your payments, but home equity lenders can.
- College tuition: Instead of using student loans to cover the cost of college for yourself or a loved one, you can use the cash from a home equity loan. If you qualify for federal student loans, though, they’re almost always a better option than a home equity loan. Federal loans have better borrower protections and offer more flexible repayment options in the event of financial hardship. But if you’ve maxed out your financial aid and federal student loans, a home equity loan can be a viable option to cover the difference.
- Medical expenses: You can avoid putting unexpected medical expenses on a credit card by tapping into your home equity before a major medical procedure. Or, if you have outstanding medical bills, you can pay them off with the funds from a home equity loan. Before you do this, it’s worth asking if you can negotiate a payment plan directly with your medical provider.
- Business expenses: If you want to start a small business or side hustle but lack money to get it going, a home equity loan can provide the funding without many hoops to jump through. However, you may find that dedicated small business loans are a better, less risky option.
- Down payment on a second home: Homeowners can leverage their home’s equity to fund a down payment on a second home or investment property. But you should only use a home equity loan to buy a second home if you can comfortably afford multiple mortgage payments over the long term.
Experts don’t recommend using a home equity loan for discretionary expenses like a vacation or wedding. Instead, try saving up money in advance for these expenses so you can pay for them without taking on unnecessary debt.
Pros
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One lump sum payment of total loan up front.
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Fixed interest rate, meaning you won’t have to worry about your rate rising over the repayment period.
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Typically lower interest rate than credit cards or personal loans.
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Little to no restrictions on what you can use the money for.
Cons
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Your home is used as collateral, meaning it can be taken from you if you default on the loan.
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If you’re still paying off your mortgage, this loan payment will be on top of that.
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Home equity loans can come with closing costs and other fees.
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May be hard to qualify for if you don’t have enough equity.
Home equity loan vs. HELOC
Home equity loans and HELOCs are similar but have a few key distinctions. Both let you draw on your home’s equity and require you to use your home as collateral to secure your loan. The two major differences are the way you receive the money and how you pay it back.
A home equity loan gives you the money all at once as a lump sum, whereas a HELOC lets you take money out in installments over a long period of time, typically 10 years. Home equity loans have fixed-rate payments that will never go up, but most HELOCs have variable interest rates that rise and fall with the prime rate.
A home equity loan is better if:
- You want a fixed-rate payment: Your monthly payment will never change even if interest rates rise.
- You want one lump sum of money: You receive the entire loan upfront with a home equity loan.
- You know the exact amount of money you need: If you know the amount you need and don’t expect it to change, a home equity loan likely makes more sense than a HELOC.
A HELOC is better if:
- You need money over a long period of time: You can take the money as you need it and only pay interest on the amounts you withdraw, not the full loan amount, as is the case with a home equity loan.
- You want a low introductory interest rate: Although HELOC rates may increase over time, they also typically offer lower introductory interest rates than home equity loans. So you could save money on interest charges.
Home equity loans vs. cash-out refinances
A cash-out refinance is when you replace your existing mortgage with a new mortgage, typically to secure a lower interest rate and more favorable terms. Unlike a traditional refinance, though, you take out a new mortgage for the home’s entire value — not just the amount you owe on your mortgage. You then receive the equity you’ve already paid off in your home as a cash payout.
For example, if your home is worth $450,000, and you owe $250,000 on your loan, you would refinance for the entire $450,000, rather than the amount you owe on your mortgage. Your new cash-out refinance home loan would replace your existing mortgage and then offer you a portion of the equity you built (in this case $200,000) as a cash payout.
Both a cash-out refi and a home equity loan will provide you with a lump sum of cash that you’ll repay in fixed amounts over a specific time period, but they have some important differences. A cash-out refinance replaces your current mortgage payment. When you receive a lump sum of cash from a cash-out refi, it’s added back onto the balance of your new mortgage, usually causing your monthly payment to increase. A home equity loan is different — it doesn’t replace your existing mortgage and instead adds an additional monthly payment to your expenses.
Who qualifies for a home equity loan?
Although it varies by lender, to qualify for a home equity loan, you’re typically required to meet the following criteria:
- At least 15% to 20% equity built up in your home: Home equity is the amount of home you own, based on how much you’ve paid toward your mortgage. Subtract what you owe on your mortgage and other loans from the current appraised value of your house to figure out your home equity number.
- Adequate, verifiable income and stable employment: Proof of income is a standard requirement to qualify for a HELOC. Check your lender’s website to see what forms and paperwork you will need to submit along with your application.
- A minimum credit score of 620: Lenders use your credit score to determine the likelihood that you’ll repay the loan on time. Having a strong credit score — at least 700 — will help you qualify for a lower interest rate and more amenable loan terms.
- A debt-to-income ratio of 43% or less: Divide your total monthly debts by your gross monthly income to get your DTI. Like your credit score, your DTI helps lenders determine your capacity to make consistent payments toward your loan. Some lenders prefer a DTI of 36% or less.
A home equity loan is better if:
- You don’t want to pay private mortgage insurance: Some cash-out refinances require PMI, which can add hundreds of dollars to your payments, but home equity loans don’t.
- You can’t complete a refinance: With rates rising, it’s possible that your mortgage rate is lower than current refinance rates. If that’s the case, it likely won’t make financial sense for you to refinance. Instead, you can use a home equity loan to take out only the money you need, rather than replacing your entire mortgage with a higher interest rate loan.
A cash-out refinance is better if:
- Refinance rates are lower than your current mortgage rate: If you can secure a lower interest rate by refinancing, this could save you money in interest, while providing access to a lump sum of cash.
- You want only one monthly payment: The amount you borrow gets added back to the balance of your mortgage so you make only one payment to your lender every month.
- Less stringent eligibility requirements: If you don’t have great credit or you have a high debt-to-income ratio, or DTI, you may have an easier time qualifying for a cash-out refi compared with a home equity loan.
- Lower interest rates: Cash-out refinances sometimes offer more favorable interest rates than home equity loans.
Tips for choosing a lender
You’ll want to consider what type of financial institution best suits your needs. In addition to mortgage lenders, financial institutions that offer home equity loans include banks, credit unions and online-only lenders.
“Select a lender that makes you feel comfortable and informed with the home equity loan process,” said Rob Cook, vice president of marketing, digital and analytics for Discover Home Loans. “Look at what tools a lender makes available to borrowers to help inform their decision. For many borrowers, being able to apply and manage their application online is important.”
One option is to work with the lender that originated your first mortgage as you already have a relationship and a history of on-time payments. Many banks and credit unions also offer discounted rates and other benefits when you become a customer.
Some lenders offer lower interest rates but charge higher fees (and vice versa). What matters most is your annual percentage rate because it reflects both interest rate and fees.
Ensure the specific terms of the loan your lender is offering make sense for your budget. For example, be sure the minimum loan amount isn’t too high — be wary of withdrawing more funds than you need. You also want to make sure that your repayment term is long enough for you to comfortably afford the monthly payments. The shorter your loan term, the higher your monthly payments will be.
“Costs and fees are an important consideration for anyone who is looking for a loan,” Cook said. “Homeowners should understand any upfront or ongoing fees applicable to their loan options. Also look for prepayment penalties that might be associated with paying off your loan early.”
No matter what, it’s important to talk to numerous lenders and find the best rate available.
How to apply for a home equity loan
Applying for a home equity loan is similar to applying for any mortgage loan. You’ll need both a solid credit score and proof of enough income to repay your loan.
1. Interview multiple lenders to determine which lender can offer you the lowest rates and fees. The more companies you speak with, the better your chances of finding the most favorable terms.
2. Have at least 15% to 20% equity in your home. If you do, lenders will then take into account your credit score, income and current DTI to determine whether you qualify as well as your interest rate.
3. Be prepared to have financial documents at the ready, such as pay stubs and Form W-2s. Proof of ownership and the appraised value of your home will also be necessary.
4. Close on your loan. Once you submit your application, the final step is closing on your loan. In some states, you’ll have to do this in person at a physical branch.
FAQs
As of March 27, average home equity loan rates are 8.73% for a $30,000 10-year home equity loan and 8.70% for a $30,000 15-year home equity loan — higher than the average rate for a 30-year fixed rate mortgage, which is currently 7.01%. Both home equity rates and mortgage rates started off at historic lows at around 3% at the beginning of 2022 and have been consistently climbing in response to the Federal Reserve aggressively raising the benchmark interest rate.
Most lenders will allow you to borrow anywhere from 15% to 20% of your home’s available equity. To calculate your home equity, subtract your remaining mortgage balance from the current appraised value of your home. How much equity a bank or lender will let you take out depends on a number of additional factors such as your credit score, income and DTI ratio. For most homeowners, it can take five to 10 years of mortgage payments to build up enough tappable equity to borrow against.
A home equity loan can affect your score positively or negatively depending on how responsibly you use it. As with any loan, if you miss or make late payments, your credit score will drop. The amount by which it will drop depends on such factors as whether you’ve made late payments before. However, HELOCs are secured loans that are backed by your property, so they tend to affect your credit score less because they’re treated more like a car loan or mortgage by credit-scoring algorithms.
Lenders are currently offering rates that start as low as 5% to 6% for borrowers with good credit, but rates can vary depending on your personal financial situation. A lender will base your interest rate on how much equity you have in your home, your credit score, income level and other aspects of your financial life such as your DTI ratio, which is calculated by dividing your monthly debts by your gross monthly income.
Home equity loans can be used for anything you choose to spend the money on. Typical life expenses that people usually take out home equity loans for are to cover expenditures such as home renovations, higher education costs like tuition or to pay off high-interest charges like credit card debt. There’s a bonus for using your loan for home improvements and renovations: the interest is tax deductible.
You can also use a home equity loan in the event of an emergency like unplanned medical expenses. Whatever you chose to use your loan for, keep in mind that taking out a large sum of money that accrues interest is an expensive choice to carefully consider, especially because you’re using your home as collateral to secure the loan. If you can’t pay back the loan, the lender can seize your home to repay your debt.
Methodology
We evaluated a range of lenders based on factors such as interest rates, APRs and fees, how long the draw and repayment periods are, and what types and variety of loans are offered. We also took into account factors that impact the user experience such as how easy it is to apply for a loan online and whether physical lender locations exist.
Source: cnet.com
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Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates have moved gradually over the past few weeks, with the 30-year fixed-rate mortgage reaching 7.20% APR today, after standing at 7.45% a month ago, according to data from Curinos analyzed by MarketWatch Guides.
Rates moved upward just before last week’s meeting of the Federal Reserve. While the Fed kept interest rates steady, Chairman Jerome Powell indicated in a press conference Wednesday that the board still expected to cut interest rates three times in 2024 despite “seasonal effects” causing a temporary rise in inflation.
Last month’s home prices rose 9.5% month-over-month for February, the largest increase in a year. The median home price increased 5.7% from last year, to $384,500, the National Association of Realtors reported on Thursday.
Here are today’s average mortgage rates:
- 30-year fixed mortgage rate: 7.20%
- 15-year fixed mortgage rate: 6.46%
- 5/6 ARM mortgage rate: 6.99%
- Jumbo mortgage rate: 7.10%
Current Mortgage Rates
Product | Rate | Last Week | Change |
30-Year Fixed Rate | 7.20% | 7.19% | +0.01 |
15-Year Fixed Rate | 6.46% | 6.48% | -0.02 |
5/6 ARM | 6.99% | 6.98% | +0.01 |
7/6 ARM | 7.17% | 7.14% | +0.03 |
10/6 ARM | 7.20% | 7.22% | -0.02 |
30-Year Fixed Rate Jumbo | 7.10% | 7.09% | +0.01 |
30-Year Fixed Rate FHA | 6.93% | 6.90% | +0.03 |
30-Year Fixed Rate VA | 6.98% | 6.98% | 0.00 |
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Friday, March 29, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are up, +0.01
The average 30-year fixed-mortgage rate is 7.20%. Since the same time last week, the rate is up, changing +0.01 percentage points.
At the current average rate, you’ll pay $678.79 per month in principal and interest for every $100,000 you borrow. You’re paying more compared to last week when the average rate was 7.19%.
15-year fixed-rate mortgages are down, -0.02
The average rate you’ll pay for a 15-year fixed-mortgage is 6.46%, a decrease of -0.02 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.46% will cost approximately $868.91 per $100,000 borrowed. With the rate of 6.48% last week, you would’ve paid $870.01 per month.
5/6 adjustable-rate mortgages are up, +0.01
The average rate on a 5/6 adjustable rate mortgage is 6.99%, an increase of +0.01 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 6.99% will cost approximately $664.63 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are up, +0.01
The average jumbo mortgage rate today is 7.10%, an increase of +0.01 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product | Monthly P&I per $100,000 | Last Week | Change |
30-Year Fixed Rate | $678.79 | $678.11 | +$0.68 |
15-Year Fixed Rate | $868.91 | $870.01 | -$1.10 |
5/6 ARM | $664.63 | $663.96 | +$0.67 |
7/6 ARM | $676.76 | $674.73 | +$2.03 |
10/6 ARM | $678.79 | $680.14 | -$1.35 |
30-Year Fixed Rate Jumbo | $672.03 | $671.36 | +$0.67 |
30-Year Fixed Rate FHA | $660.61 | $658.60 | +$2.01 |
30-Year Fixed Rate VA | $663.96 | $663.96 | $0.00 |
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
- Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
- Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
- Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
- Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
- Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
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3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
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More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
Source: marketwatch.com
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Personal loans are useful tools because you can use them for just about anything. From covering emergency car repairs to paying for home renovations to consolidating high-interest credit card debt, personal loans can be a game-changer for your finances. But, as with any kind of loan, personal loans typically come with fees.
But are loan fees bad? Not always. In fact, you may be able to secure a lower interest rate on your personal loan by paying a fee upfront — which will save you money in the long run.
Here, you’ll learn about personal loan options and the impact each can make on your finances so you can decide what suits you best.
Personal Loan Origination Fees, Explained
Personal loan origination fees serve as startup costs for initiating a loan. These are one-time fees that lenders charge to cover costs such as applications and underwriting. These fees often range from 1% to 6% but may go as high as 10%.
Not every personal loan has an origination fee, however. Often, borrowers with an excellent credit score can qualify for personal loans without fees (or at least much lower fees).
Some lenders make origination fees optional. At first glance, this might seem like a no-brainer. You might think, “Why should I pay a loan fee if I don’t have to?” But often, lenders may offer you a lower interest rate if you pay an origination fee upfront. This can save you money in the long run.
• A smart strategy: Look at the loan annual percentage rate (APR), which represents the true cost of the loan. The origination fee and interest rate are both bundled into this rate. This makes it easier to compare loans with and without origination fees to determine which is actually the better deal.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
Personal Loan Origination Fee Example
To see how an origination fee affects your loan, here’s an example — one loan with an origination fee and one without.
In this scenario, your personal loan terms are as follows:
• Amount borrowed: $50,000
• Interest rate: 10%
• Loan term: 5 years
With an origination fee of 0%, you’d pay a total of $63,741.13 over the next 60 months, which is the term of the loan.
But what if there’s a 5% origination fee? You’ll still pay $63,741.13, but you’ll either pay $2,500 out of pocket upfront or have $2,500 deducted from the loan amount — borrowing only $47,500.
But remember, some lenders may offer you a lower interest rate in exchange for paying an origination fee. In this instance, in the scenario above, the lender may drop the interest rate from 10% to 7%. In that case, your total loan would look like:
• Amount borrowed: $50,000
• Interest rate: 7%
• Loan term: 5 years
The total payments over 60 months would be $59,403.60, or $4,337.53 less by paying the $2,500 origination fee. So that equals a savings of $1,837.53 once you deduct the fee. In this way, you can see why the answer to “Are loan fees bad?” may be “Not necessarily.”
Recommended: Personal Loan Terminology
How Are Loan Fees Determined?
Lenders consider a number of factors when calculating origination fees for personal loans, including:
• Credit score: Unsurprisingly, your credit score plays a big role in determining your origination fee. Lenders see borrowers with strong credit as less of a risk, so fees are generally lower.
• Debt-to-income ratio: The amount of debt you have compared to the amount of money you make is your debt-to-income ratio (DTI). This helps lenders determine how capable you are of meeting your monthly loan repayment commitment. The higher your DTI, the larger risk you are perceived to be — and that may be reflected in your origination fees.
• Cosigner: Even if your credit isn’t in great shape, you can still potentially lower your origination fee (and interest rate) by having a cosigner with stronger credit.
• Loan details: The amount you’re borrowing and the length of the loan can also impact personal loan origination fees.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
How Are Loan Fees Paid?
If you choose a personal loan with an origination fee, you usually pay in one of two ways:
Taken Out of the Funds You Receive
In this scenario, you pay the whole amount of the origination fee at the start of the loan. Rather than dig in your pockets to come up with the cash, it’s usually subtracted from the amount you borrow.
For instance, if you borrow $20,000 and there’s a 5% origination fee, you’d owe $1,000. Lenders will typically instead give you $19,000, because they’ve taken the fee out of the funds they are lending you. However, you’ll have to pay back the full $20,000, plus interest.
Keep this in mind when taking out the loan. If you need the full $20,000, you should actually request a slightly larger loan so that, after the origination fee, you walk away with $20K.
Note: In some instances, a lender may require an out-of-pocket payment for the origination fee.
Rolled Into the Loan
Alternatively, lenders may simply roll the origination fee into the loan. In the example above, you’d receive $20,000 at the start of the loan, but with a 5% origination fee built into the loan, the personal loan principal (the amount you have to pay back) is $21,000.
Recommended: Where to Get a Personal Loan
How to Compare Loan Terms
No matter what you plan to use a personal loan for, it’s wise to comparison-shop carefully. Simply because one loan comes with an origination fee and another one doesn’t, that doesn’t mean you should go with the fee-free option. In fact, in the long run, a personal loan with an origination fee could be cheaper. Here’s how to find the best personal loan offer for you:
1. Shop Around
First and foremost, it’s a good idea to get quotes from multiple lenders. Most lenders allow you to get prequalified online, without impacting your credit score. Having a handful of offers allows you to weigh your options and make an informed decision.
2. Compare APRs
It can be tempting to see that one loan has a high origination fee, one has a moderate fee, and one has no fee at all — and simply choose the loan without the fee. However, origination fees are a part of a loan’s APR, which also includes the interest rate and gives you a better idea of the true cost of the loan.
To truly compare apples to apples, focusing on APR is your best bet.
3. Think about Loan Length
Shorter loan terms tend to have lower interest rates, but because you’re paying off the loan in a shorter amount of time, monthly payments will be higher. Conversely, you may find a lower monthly payment with an extended term, but then you’ll likely be paying more interest over the life of the loan.
It’s a good idea to play around with each loan you’re considering to see how various loan lengths will affect your monthly payments and the total amount you’ll spend over the life of the loan.
Other Types of Loan Fees
Origination fees may be the most common type of personal loan fee we consider, but there are other fees to review in the terms and conditions from a lender before signing on the dotted line. These fees may include:
• Prepayment penalties: Some lenders charge you for paying off the loan early. Why? When you pay it off early, the lender makes less money from interest, so it’s in their best interest to keep the loan active as long as possible. Many lenders, however, do not charge prepayment penalties, so shop around.
• Late fees: You have a monthly obligation to make your fixed payment on a personal loan. Just as with credit cards and student loans, you may be charged a late fee if you miss your payment date.
• Monthly service fee: Some lenders charge a service or payment processing fee, depending on how you pay each month.
The Takeaway
While the thought of paying fees on top of interest when borrowing money can be overwhelming, personal loan origination fees aren’t always a bad thing. In fact, many lenders with origination fees can offer you lower interest rates, meaning you may spend less money in the long run by choosing a personal loan with an origination fee. Experts suggest comparing multiple loans and their APRs, which reflect the total cost of the loan, to get a better idea of the right loan for you. That can help you answer the question, “Should I pay a loan fee?” by focusing on the big-picture cost of your loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
Photo credit: iStock/milorad kravic
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com
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When it comes to picking a new credit card, there’s one detail you should not overlook: the card’s annual percentage rate, or APR. This represents the rate lenders charge to borrow, including fees and interest. But credit cards don’t have one single rate, and it may be hard to evaluate what’s a good deal and what isn’t.
In general, a good APR is one that’s below the current average interest rate, which is 21.47%, according to the latest data from the Federal Reserve at the start of 2024. However, what’s a good APR will also depend on the type of credit card, the various rates that could be assessed, and your own creditworthiness. This guide will take you through the details.
What Is an Annual Percentage Rate (APR)?
The APR on a credit card represents the total cost of the loan expressed in annual terms. A credit card’s APR includes the interest rate as well as any fees, including for late payments, foreign transactions, or returned payments.
Taking these fees into account when applying for a credit card helps to provide a fuller picture of what the loan may actually cost over its lifetime.
Keep in mind that APR is distinct from interest rate, which is simply the additional cost of borrowing money. Like APR, interest rate is typically expressed as a percentage of the principal. However, when looking at the average credit card interest rate vs. the average APR, you’re not comparing apples to apples.
For example, if a consumer takes out a $1,000 loan with a 10% simple interest rate and a one-year term, they will pay $1,100 over the lifetime of the loan — the principal $1,000 plus interest of $100.
While this example is extremely simplified, it’s helpful in demonstrating the difference between a simple interest rate and a not-so-simple APR calculation. If the consumer calculates the cost of the same $1,000 loan, considering the various fees that go into the APR, the number will likely be higher than the stated interest rate.
How Is APR Determined?
Knowing how APR is determined is an important part of understanding how credit cards work. A credit card’s APR is largely determined based on an individual’s financial specifics when they open the account.
• The lender will look at the person’s credit score and credit history, as well as factors like their payment history and debt-to-income (DTI) ratio, which represents how much of an individual’s gross income is already going toward debt payments. In general, someone with a good payment history and credit score and a lower DTI ratio will qualify for a better APR.
• However, APR isn’t only based on a borrower’s creditworthiness. Lenders will also take into account the current US prime rate, which is used to set rates on consumer loan products. Typically, a lender will take this rate and then bump it up a bit to minimize risk and increase profits.
• Lastly, APR will vary based on the type of credit card. If you know what a credit card is, you’ll know all credit cards aren’t created equal. For instance, a credit card that offers lucrative rewards (like travel points or cash back) will generally have a higher APR than a more basic card.
When It Matters to Look at APR
If a consumer is comparing two similar loan or credit card offers, they may want to also look at the offer’s APR.
Let’s say a person has two loan offers. Each is a $1,000 loan with an interest rate of 10%. With just that information to compare the two, they seem equal to each other. A little more digging, though, will uncover that Offer A has a $100 origination fee while Offer B only has a $50 origination fee — both of which could be calculated and accounted for in the offer’s APR.
With credit cards, it could be that two cards have the same interest rate, but Card A has no late payment fees, while Card B carries a 20% late payment fee, making its APR potentially higher.
When it comes to APR, the devil really is in the details. And reading the fine print can reveal that the APR could make a difference to your credit card balance and debt management.
Types of Credit Card APR
To further complicate the answer to the question of what’s a good APR for a credit card, it’s important to understand that credit cards have different types of APR. The main one you’re probably going to want to consider when considering your total cost of borrowing is the purchase APR. However, if you’re planning to take out a cash advance or do a balance transfer, you’ll want to look at those APRs as well.
Introductory APR or Promotional APR
Sometimes, cards will offer a lower (or even 0%) APR to new customers for a limited time after they open the account. This APR can apply to purchases or to balance transfers. Introductory or promotional APRs must last at least six months, but they can be longer, too. Once this period is up, the regular APR kicks in.
Purchase APR
The purchase APR is the rate that applies when you use your credit card to make a purchase and then carry a balance into the next billing cycle, perhaps only making the credit card minimum payment. This is the most commonly discussed type of APR, and the main one you’ll want to look out for when comparing credit cards.
Cash Advance APR
A cash advance APR applies if you withdraw money from an ATM or bank using a credit card. Unlike your purchase APR, this APR doesn’t have a grace period, meaning interest starts accruing immediately. Additionally, cash advance APRs tend to be on the higher side.
Penalty APR
If you fail to make your payments on time, the penalty APR will kick in, driving up your card’s previous APR to one that’s often much higher. This is why it’s always important to make your credit card payments on-time — even if you’re in the midst of disputing a credit card charge, for instance.
Balance Transfer APR
A balance transfer APR will apply when you transfer any balances from other cards onto your credit card account. Often, this APR is comparable to the purchase APR, though this can vary depending on the credit card company.
How to Evaluate and Compare APRs
To get a sense of a credit card’s APR, follow these steps:
• First take a look at a card’s purchase APR range, and compare that to other credit cards. For a fair comparison, make sure to look at the same type of credit card. (For example, only compare travel rewards cards to other travel rewards cards, or a credit-building card to another credit-building card.)
• Then, get into the nitty-gritty and look at the APR for different types of transactions. Even one credit card can have varying APRs on different transactions. For example, a card may have a different APR on late payment penalties than it does for balance transfers or cash advances.
• Evaluate each APR and compare those to any other offer you may have in front of you to ensure you pick the most competitive option. It’s a good idea to attempt to seek out the lowest rate possible for your financial situation. That way, you can feel confident using your credit card for what you need to use it for — which might include paying taxes with a credit card.
Low vs High APR Credit Cards
As you’re evaluating credit card APRs, it’s important to keep in mind that some credit cards tend to have higher APRs than others. For example, rewards credit cards generally have higher APRs, but provide value through perks, discounts, points, or other benefits.
On the other hand, many low-interest cards come with fewer perks. But again, these cards can save someone money in the long run if they need to carry a balance from, say, covering a large purchase at an establishment that accepts credit card payments.
Low-interest cards also tend to be reserved for those with higher than average credit scores, so they may be harder to qualify for with lower credit.
What Is a Good APR for a Credit Card?
According to the Federal Reserve, the U. national average credit card APR was 21.47% in December 2023. It’s reasonable to assume that an APR at or below the national average is considered “good.”
That said, qualifying for a “good” APR may hinge on a consumer’s credit score. For instance, someone with a below-average credit score may have a different definition of a good APR for a credit card compared to someone whose score is excellent.
APR and interest rates also change alongside federal interest rates changes. Because of this, it’s important for consumers to find the most recent data available on average credit card APR to ensure they aren’t relying on out-of-date information to inform their decision.
How to Avoid Paying APR
The APR a person qualifies for typically depends on their individual credit score. This means that those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they’re totally out of luck, but they might be offered the same card at a higher APR.
However, there are a few ways a person can improve their chances of qualifying for a lower APR, and that starts by doing the work to build one’s credit score.
Tips for Qualifying for a Better APR
The APR a person qualifies for typically depends on their individual credit score. This means that those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they’re totally out of luck, but they might be offered the same card at a higher APR.
However, there are a few ways a person can improve their chances of qualifying for a lower APR, and that starts by doing the work to improve their credit score.
• One step is to check your credit report regularly for accuracy. US federal law allows consumers to get one free credit report annually from each of the three credit reporting agencies. Look out for any incorrect or suspicious charges. Even if you’d thought you’d resolved an issue related to a credit card skimmer, for instance, you’ll want to make sure those charges aren’t affecting your credit report in any way.
• You can build your personal credit scores by making debt payments on time and trying to use only 30% of your available credit limit at any given time. Payment history accounts for 35% of the total credit score, and credit utilization — how much of a person’s total credit is being used at a given time — accounts for 30% of the total credit score.
Repairing a poor credit score can take some time, but it’s worth the work.
The Takeaway
Currently, the average credit card APR is 21.47%, and anything below that could be considered a good rate. However, when it comes to what is a good APR for a credit card, the answer is that it depends on a variety of factors. It will also depend on your credit scores and history as well as what type of credit cards and rewards you’re looking for. When you do get a credit card, it’s important to use it wisely so that you don’t wind up getting charged higher penalty rates.
Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What is a bad APR rate?
A bad APR for a credit card is generally one that’s well above the current national average credit card rate. APR for a credit card can vary widely, with some offering APRs as high as a whopping 36%.
What APR will I get with a 700 credit score?
A credit score of 700 is considered in the good range. It’s likely you could qualify for an APR around the average, though of course this will also depend on other factors, including the type of card and the current prime rate.
Does the interest rate on my credit card change?
Your credit card company can increase your interest rate. However, they are not permitted to do so within the first year of opening the account. Additionally, they must give you notice at least 45 days in advance.
What other financial products have an APR?
Many different types of lending products have APR. Beyond credit cards, this can include mortgages, car loans, and personal loans.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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Source: sofi.com
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The allure of a quick loan can be hard to resist when there is a pressing need for immediate cash. The amount of money needed might not be a lot, but it’s needed quickly. Looking for that small loan, though, might lead to lenders who might charge high interest rates and offer loan terms that are difficult to meet.
This is called predatory lending, and it works in the best interest of the lender, not the borrower.
When you know what to look for in a reputable lender, however, it becomes easier to avoid becoming a victim of predatory lending practices.
Guide to Predatory Loans and Avoiding Them
Information and education are a consumer’s best friends when looking for any type of loan. For small loans that seem only to be available through lenders that seem less-than reputable, those two things become even more important.
One piece of information that is important when looking for a loan is knowing what your credit report contains. Consumers can access their credit reports at no charge through AAnnualCreditReport.com. Personally identifiable information, such as your name, current and previous addresses, and your Social Security number, are easy to verify.
Making sure other items on your credit report are accurate is also important because this information is used by lenders to assess your creditworthiness. Lenders want to know how many credit cards and loans you have, if you make your debt payments on time, and other factors.
When you have a picture of your overall creditworthiness, it’s time to find a reputable lender to work with. It’s a good idea to compare several lenders to find one you feel comfortable working with and is a good match for your financial needs.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.
What Is Predatory Lending?
Predatory lending often targets consumers with poor credit, no credit, low incomes, lack of education, and for other unfair and discriminatory reasons.
Lenders who offer financial products that are typically considered predatory loans do not have the best interest of their clients in mind — their goal is to make a profit at the expense of their client, even if that means engaging in misleading tactics.
Predatory lending may often mean a short-term, high-interest loan that a borrower might have difficulty repaying, potentially leading to a cycle of debt.
Recommended: What to Know Before You Borrow Money Online
Predatory Lending Tactics and Practices
Reputable lenders are likely to be transparent about their interest rates, loan terms, and any fees they might charge, such as a personal loan origination fee or prepayment penalties.
Those engaging in predatory lending, however, may not be as transparent. They may try to hide important details about a loan and steer an applicant toward a loan they may not be able to afford.
To make sure a lender is not engaging in predatory lending practices, here’s a look at some things to avoid.
• An unlicensed lender: A reputable lender will be licensed in the state they are doing business in and will be expected to uphold certain professional standards set by the Nationwide Multistate Licensing System (NMLS)®. Consumers can look up the license status of individual and institutional lenders through NMLS Consumer Access℠ .
• Rushing during the loan process: If you feel like a lender is hurrying you along without addressing your questions or concerns, you might wonder if they’re trying to hide some details about the loan terms or trying to approve you for a loan you might not be able to afford. A reputable lender will take the time to make sure you understand the documents you’re signing at the loan closing and that the loan works for your financial needs.
• High interest rates and fees: A lender who offers only a high interest rate, one you don’t feel you can afford, probably doesn’t have your best interests in mind. Doing some research on typical interest rates available for your credit score and common fees charged — and comparing lenders who work within those parameters — is a good way to filter out predatory lenders.
• Overpromising: A lender who tells you they can approve you for a loan regardless of your credit history is likely promising something they won’t be able to deliver on. Lenders typically have thresholds at which they are willing to loan money, outside of which they may decline an applicant.
Recommended: What Is Considered a Bad Credit Score?
Common Types of Predatory Loans
Three common predatory lending examples are payday loans, auto (or title) loans, and subprime mortgages.
Payday loans may come to mind when thinking of predatory loan examples. These types of loans target those who are looking for quick cash and may not think they will qualify for anything else.
Often short-term loans for small amounts, typically $100 to $1,000, payday loans are generally meant to be repaid with the borrower’s next paycheck. They are typically unsecured loans and often have high interest rates. A payday lender may refer to a “fee per $100 loaned” instead of disclosing the annual percentage rate (APR). This tactic hides the extremely high APR that is typical for a payday loan — on average, 400% APR, but can be much higher.
Similar to payday loans, auto title loans are an example of a predatory loan that is often made to an applicant who cannot qualify for a more mainstream loan. The borrower’s vehicle is used as collateral against the loan, with the borrower signing the title over to the lender. If the loan is not repaid, the lender keeps the title and has ownership of the vehicle.
Subprime mortgages are another predatory lending example.
This is a type of mortgage made to a borrower who may not be able to qualify for a conventional mortgage based on the prime rate. Because the lender may perceive this borrower as an increased lending risk, they may offer an interest rate higher than that of a prime mortgage to offset this risk.
What Are Good Lending Practices?
A reputable lender will work with you to find the loan option that best meets your financial needs. That’s not to say it won’t be beneficial to them, but it will be good for both lender and borrower. Just as there are some ways to identify predatory lending, there are ways to identify a lender that does business in an honest manner.
• Licensed lender. Reputable lenders typically display their lending license for potential clients to see. If you’re meeting with a lender in their office, you may see their license framed and displayed on a wall. If you’re working with an online lender, look for their license information on their website. It might be on their About page, Legal page, or FAQ page.
• Answering your questions. When you have questions about a lender’s loan options, terminology in the loan agreement, or general lending questions, a reputable lender will take the time to answer them and help you understand the process.
• Competitive interest rates. Generally, lenders offer a range of rates based on the creditworthiness of each applicant. But they will be competitive with other lenders making the same types of loans.
• Realistic offers. A lender that has your best interest in mind will do what they can to approve you for a loan that you can afford, not one that you will be at risk of defaulting on. A happy client could mean referrals to other potential clients, and that is generally something a lender strives for.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
What Can Be Done if You Are a Victim of a Predatory Loan?
One of the first things you can do if you believe you’re a victim of predatory lending is submit a complaint with the Consumer Financial Protection Bureau (CFPB). The bureau will send the complaint to the lending company and work to resolve the issue. The lending company communicates with both the client and the CFPB about the complaint, generally within 15 days with a final response in 60 days.
All complaints submitted to the CFPB are logged in the public Consumer Complaint Database, which can be a good place to check when comparing lenders you’re considering doing business with.
Personal Loans as an Alternative to Predatory Loans
When you need to borrow money quickly, a predatory loan like a payday loan may not be your only option. Lenders offering personal loans are fairly easy to find in today’s marketplace, and many of them are online lenders, which can make the process more streamlined.
If you’re considering a loan as a method to build your credit, a payday loan may not be the right financial tool. Many payday lenders don’t check an applicant’s credit report when making the loan, nor do they report payments to the credit bureaus. Essentially, even if you make regular, on-time payments, your credit score will not benefit from your diligence.
A reputable personal loan lender, however, will check an applicant’s credit report during the loan approval process and report payments to the credit bureaus. In this case, making regular, timely payments can have a positive affect on your credit profile — and not doing so can have a negative affect.
Recommended: Typical Personal Loan Requirements Needed for Approval
Are Smaller, Short-Term Loans the Same as Predatory Loans?
There are reputable lenders that offer short-term loans for small amounts of money. Predatory lenders will exploit a person’s need for quick cash by trying to trick them into an unfair loan agreement they can’t afford. A reputable lender, on the other hand, will work with you to get a loan for the amount of money you need and that you can afford.
Some lenders do have minimum amounts they will lend, sometimes $3,000 or $5,000. If you don’t need this much money, you’d be better off looking at other lenders. There are lenders that will lend smaller amounts, though — even less than $1,000.
What is the Smartest Way to Get a $5,000 Loan?
A smart way to find a $5,000 unsecured personal loan is to compare interest rates and fees of lenders who loan small amounts. This is easily done through an online personal loan comparison site or by calling a few different lenders. It probably won’t be too difficult to find multiple lenders to compare, as $5,000 is a fairly common personal loan amount.
A good first place to consider is your current bank or credit union. They may offer rate or fee discounts for current customers.
Online lenders may have shorter loan processing times, so if you need the money quickly, that could be a good choice.
Comparing lenders, however, is the smartest thing you can do when you’re looking for a loan.
The Takeaway
There are times in life when a quick infusion of cash is needed to help deal with a financial emergency or other need. To avoid falling victim to predatory lending, it’s a good idea to step back and take some time to compare lenders. Getting a loan from the closest payday lender on the block will likely mean paying extremely high interest rates and fees, and difficulty paying off the loan in a short amount of time.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is predatory lending a crime?
Many states have enacted anti-predatory lending laws. Some states have completely outlawed payday lending, while others have placed caps on the amount lenders can charge. However, many violations go unpunished because consumers aren’t aware of their rights.
What are the most common predatory loans?
The most common types of predatory loans include payday loans, car title loans, and subprime mortgages.
What APR is considered predatory?
Predatory loans generally have interest rates in the triple digits. Loans with annual percentage rates (APRs) no higher than 36% are considered affordable loans.
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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Source: sofi.com