What to Look for in Affordable Home Equity Loans in 2025
When taking out a second mortgage, it is wise to prioritize affordability. Learn the critical factors to consider when comparing the best home equity loans available and determining which suits your budget.
Low-Cost vs. Affordable Home Equity Loans
Low-cost home equity loans are different from affordable ones. Low-cost means inexpensive, while affordable is more synonymous with manageable. Low-cost loans incur fewer and lower fees but can be more challenging to repay. On the other hand, affordable loans come with higher costs, but their monthly installments are easier to handle.
Low-cost and affordable home equity loan programs are not mutually exclusive. Borrowers with stellar credentials should be able to negotiate for the most favorable loan terms to pay less in every sense of the word.
Meanwhile, less creditworthy borrowers often can only choose between paying more interest and shouldering higher monthly mortgage payments because they lack the strong bargaining power to steer the negotiation in their direction.
How to Compare the Best Home Equity Loan Programs
Consider the following to find a home equity loan you qualify for and that suits your needs:
Loanable Amount
Know the minimum and maximum amounts a financial institution lends. Many set the limit to 80% of equity, while others extend the cap to 90%. The lower your primary mortgage’s principal balance, the more equity you have and the more you can borrow through a secondary mortgage.
Minimum Requirements
Learn about your prospective lender’s minimum debt-to-income (DTI) ratio and credit requirements. They define how creditworthy you are. Most mortgage providers are risk-averse, so they charge higher interest rates to do business with less creditworthy applicants.
Interest Rate
Research the lowest interest rates you qualify for. Lenders have different risk appetites and business goals. For-profit organizations generally charge higher interest rates because they prioritize their shareholders’ interests, whereas financial cooperatives like credit unions aim to lower the borrowing costs for their members.
Term
Find out the maximum number of months you can repay your loan. The longer the term, the more monthly installments you will have and the more manageable they will be. The projected total interest payment over the life of your loan is proportional to its term length. Longer terms are more affordable but cost more in fees.
Fees
Go beyond the interest rate and understand what else you must pay. Taking out a home equity loan may entail one-time expenses, such as appraisal and origination fees or recurring costs like private mortgage insurance premiums. Some lenders disclose annual percentage rates (APRs) instead of interest rates to demonstrate a more accurate picture of the cost of borrowing. The APR factors in the interest rate and specific fees associated with the loan.
Prepayment Penalty
Ask about any fees for zeroing out your loan before its scheduled maturity date. Prepaying your second mortgage early is a sound strategy for lowering your principal balance more quickly and paying less interest overall. Some lenders discourage borrowers from taking this route through penalties to maximize profits.
What Are the Most Affordable Home Equity Loans Available?
These three home equity loan programs are the best for borrowing against your home without disturbing your primary mortgage and enjoying manageable monthly payments.
1. Real Estate Equity Loan From PSECU
This home equity loan from PSECU is fixed-rate, gives you access to at least $5,000 and lets you borrow up to 90% of your property’s appraised value, less all liens on it. It has no application or appraisal fees and may entitle you to tax benefits. PSECU refinances secondary mortgages if you borrow $5,000 more than your current home equity loan balance.
This member-owned digital bank offers an easy, streamlined application process. Its digital-first approach and progressive mindset combine to help you achieve more. It puts its members over profits, making it a refreshing alternative to traditional banks.
PSECU welcomes members from anywhere. This not-for-profit organization values fairness, honesty, transparency and integrity. Its team is down-to-earth, conversational and passionate about financial education.
2. Home Equity Loan From Discover
Discover lets you borrow up to $300,000 until your loan-to-value ratio reaches 90%. It charges zero closing costs, offers fixed interest rates and permits lengthy loan terms. You can qualify for this home equity loan if you have good credit and your DTI ratio is above 43%.
Discover can complete the transaction in six weeks. It can confirm your initial eligibility within one to two weeks after uploading your requirement documents. Its underwriting process takes about four weeks. Discover can release the funds to your account within a week after approving your application.
You can apply online or over the phone. The latter option allows you to speak with a trained representative to ask questions and learn about your options before committing to a home equity loan.
3. Home Equity Loan From Rocket Mortgage
Rocket Mortgage can lend you up to $500,000 through its fixed-rate home equity loan. The main condition is that you should have paid enough of your primary mortgage’s principal balance if you owe anything on your property.
The company is the largest retail mortgage lender in the United States and requires a credit score of 680 or above. Its DTI ratio requirement is less than 45%, which means your monthly debt payments should not account for more than 44% of your gross monthly income.
This financial institution applies the exact closing costs to primary and secondary mortgage borrowers, ranging from 2% to 6% of the loan amount. It charges a higher interest rate when you take out a home equity loan than when you refinance your primary mortgage. Rocket Mortgage is digital-only. It lacks physical branches but makes up for it through speedy transactions. The company takes pride in facilitating faster closings than the industry average.
Best Home Equity Loans at a Glance
| Provider | Minimum Loanable Amount | Terms | Minimum credit score | Application Fees | Prepayment Penalty |
|---|---|---|---|---|---|
| PSECU | $5,000 | Five, 10, 15 and 20 years | Undisclosed | None | Undisclosed |
| Discover | $35,000 | 10, 15, 20 and 30 years | 680 | None | None |
| Rocket Mortgage | $45,000 | 10, 15, 20 and 30 years | 680 | Yes | None |
Take Out an Affordable Home Equity Loan
Home equity loans from PSECU, Discover and Rocket Mortgage are affordable in unique ways. Use each lender’s mortgage calculator to know your projected monthly payments, the rate you qualify for and when you can receive the funds.
- by Matt Watts
