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Borrowers have waited patiently for much of the last two years for interest rates to be cut. And, last week, they finally were. After raising the federal funds rate to its highest level in decades, the Federal Reserve last week issued its first cut since 2020. While still elevated compared to recent years, the range between 4.75% and 5% is welcome news for borrowers who have been contending with high rates on everything from mortgages to credit cards.
One cost-effective way to access extra money against this backdrop has been to borrow from your home equity. Interest rates on both home equity loans and home equity lines of credit (HELOCs) have been in the single digits for much of the last two years, even as rates on personal loans averaged over 12% and rates on credit cards hit record highs of over 20%.Â
But now, with interest rates finally reduced – and the likelihood that they could be cut again when the Fed meets in November and December – some borrowers may want to start calculating their potential monthly costs with this sort of financing option. And it could be smart to do so with a HELOC, which has a variable rate that is likely to fall further as rates are reduced. Below, we’ll break down what a $50,000 HELOC could cost per month now that rates are cut.
Start by seeing how low of a HELOC rate you’d be eligible for here now.
How much would a $50,000 HELOC cost per month now that rates are cut?
For starters, it’s critical to remember that HELOC rates are variable, as mentioned. That’s a major benefit in today’s rate climate, as additional reductions appear likely. However, that evolving rate makes it difficult for borrowers to calculate their potential monthly payments with any certainty. With HELOC rates typically changing every month, your payment on a $50,000 line of credit could and likely will change until it’s paid back. That said, here’s what you could expect to pay each month at today’s average rate, spread out over two common repayment periods (assuming the rate doesn’t change):
- 10-year HELOC at 9.26%: $640.44 per monthÂ
- 15-year HELOC at 9.26: $514.90 per month
It’s also important to note that today’s HELOC interest rates aren’t materially different than what they were around this time last year, proving that last week’s interest rate cuts still need some time to reverberate through the economy – and that additional reductions may be required for savers to feel substantial relief. Last October, for example, the average HELOC rate was 9%. At that point, however, inflation was much higher and interest rate cuts were far off. Now, the next cut could just be weeks away.
Start exploring your HELOC options online now.
What about a home equity loan?
Home equity loans come with fixed rates, which could be attractive for buyers unsure about today’s changing rate climate. And, right now, those average rates are slightly lower than HELOCs, coming in at 8.46%. But because that rate is fixed, borrowers won’t automatically be positioned to take advantage of rate cuts as they would be with a variable HELOC. Instead, home equity loan borrowers will need to refinance to secure a lower rate. And that refinance will come at a cost between 1% to 5% of the total loan amount. So it’s important to weigh the savings of a lower rate now versus what can be achieved with a HELOC that will automatically adjust on its own (for free).Â
The bottom line
Monthly payments on a $50,000 HELOC will range between $514.90 and $640.44 for qualified borrowers, depending on the repayment period. And those payments could fall further as additional rate cuts are issued. But there’s no guarantee that they won’t rise further, thanks to the variable rate structure of the line of credit. As noted, additional reductions will take time to reflect, too. So take all of these factors into account before taking out a HELOC and be sure to only withdraw an amount that you can comfortably afford to repay as your home serves as collateral in these circumstances and you could lose it if you don’t pay back all that you’ve borrowed.
