Florida home equity loans and HELOCs

Home equity loans, also called second mortgages, can be used for large out-of-pocket expenses, such as home improvements or debt consolidation. Home equity lines of credit, or HELOCs, can also be a decent option if you want a flexible borrowing method. And cash-out refinancing can help you access your hard-earned home equity.

But some states have unique regulations around these borrowing methods, and Florida is one of them.

How home equity loans work in Florida

Home equity loans and HELOCs function pretty much the same across the U.S., with a few differences in Florida.

Home equity loans typically allow you to borrow up to 80% of your home’s estimated value, minus your remaining mortgage balance. You get the amount in a lump sum, and terms can vary between five to 30 years, depending on the amount you borrow. Most are fixed-rate loans.

Florida regulations

Special regulations around home equity loans are:

• Must keep at least 20% equity in your primary home at all times.
• Only one home equity loan or HELOC against your property at a time.
• One cash-out refinance per year.

If you have investment properties or a second home, these regulations don’t apply.

How much can I borrow with a home equity loan?

Florida requires that you keep at least 20% of equity in your home while using a HELOC, home equity loan or cash-out refi.

To calculate how much you can borrow, you need to know your home’s estimated value and your mortgage balance. Then, see if you have equity. You’ll need at least 20% equity to qualify with the majority of lenders.

Here’s the formula:

For example: Say your home is valued at $250,000 and you owe $175,000 on your mortgage — that’s around $75,000 in equity, or about 30%, which meets the typical 20% equity requirement.

Most lenders allow you to borrow up to 80% of your home’s value, so that’s $200,000. Then we subtract your mortgage balance from $200,000, and we’re left with $25,000, which is the estimated amount you could borrow with our example.

How HELOCs work in Florida

HELOCs are a line of credit, with a borrowing limit of 80% of your home’s value in Florida. They have a draw period, usually around five to 10 years, then a repayment period around 15 to 20 years, depending on your lender and the loan details. During the draw period, you make interest-only payments on what you’ve borrowed.

HELOCs are nearly always variable-rate loans, meaning your rate moves with the prime rate. The prime rate as of December 2022 is 7%, and is usually around 3% to 4%, but it varies.

For example, if you took on a HELOC with a 2% margin, that means your rate at the time of writing would be around 9%. And if the prime rate went down to 4%, your rate would be around 6%.

Most HELOCs come with introductory rates, lasting up to six to 12 months, which can be as low as 0.99% APR. In Florida, the law mandates that rates on these loans can’t exceed 18%. And the best HELOCs come with low introductory rates, flexible repayment terms and few fees.

How cash out refinance loans work in Florida

A cash-out refinance involves paying off your current mortgage with a new, larger loan, and getting some equity in cash.

Most lenders require that you maintain at least 20% equity in your home, meaning you can finance up to 80% of your home’s value. Additionally, in Florida you can only do a cash-out refinance once every 12 months.

For example, say your home was valued at $200,000 and you owe $100,000 on your mortgage. The borrowing limit would be 80% of your home’s value, or around $160,000. If you did a cash-out refinance loan for $120,000, the equity you could cash out would be around $20,000.

Many borrowers use cash-out refinancing for debt consolidation, home remodeling or student tuition.

Compare home equity loan or HELOC interest rates in Florida

Use our comparison tool to look at different lenders near you. First, select Home equity loan, HELOC or Cash-out refinance. Enter in your information to see personalized rates from top lenders side-by-side.

How to get a low interest rate in Florida

Here are three strategies that can increase your chances of nailing down a lower rate on a home equity borrowing method:

1. Increase your credit score. The best rates are available for borrowers who have a credit score of 740 and up and debt-to-income ratios of under 43%. The higher your credit score and the lower your DTI, the better for securing a lower rate. See tips on boosting your credit score.
2. Shop around. Not all lenders are created equal, so always browse and compare lenders to find the lowest rate. Remember to add up potential costs, such as origination fees, prepayment penalties, closing costs and late fees to see which lender has the better deal.
3. Maximize the amount of your line. You can often get a better rate on a loan if you agree to a larger and longer loan. Just be sure to compare the overall costs, and don’t overextend yourself just for a lower interest rate — a longer loan term means a longer commitment.

Home equity loan alternatives

HELOCs aren’t the only way to access extra cash. If you have less than 20% equity in your home or don’t want to use your home as collateral, consider these other financing options.

• Personal loans. An unsecured loan for as little as $500 or as much as $100,000 that can be used for any purpose. But interest rates will likely be higher than for a home equity loan or HELOC. Compare the top personal loan lenders.
• Credit card advances. These typically have much higher APRs than HELOCs, but the convenience can be worth it if you need fast cash. To avoid paying interest for 12 to 18 months, apply for an introductory 0% APR credit card, and compare the best credit cards.
• Peer-to-peer (P2P) loans. This is like a personal loan, but your loan is funded by another individual instead of a bank. Requirements for P2P loans may be looser than a bank loan, but there’s no guarantee of funding.
• Crypto-backed loans. If you own cryptocurrency, you may be able to borrow against these assets without having to sell them and pay capital gains tax. Compare the best crypto lending platforms to learn more.