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Borrowers looking for a cost-effective way to access a large sum of money haven’t had many attractive options in recent years. Thanks to a combination of high interest rates inflation and a raised one federal funds rate To combat this, rates on borrowing products have skyrocketed. Today, personal loans average around 12%, while credit card rates are over 20%. However, homeowners can still get single-digit financing by accessing their accounts. home equity.
With a home equity loan Or Home Equity Line of Credit (HELOC)owners can draw on hundreds of thousands of dollars in equity (on average) and they can do so at cost-effective rates. And while a home equity loan has some unique features, there is a compelling argument in favor open a HELOC nowthanks to his variable interest ratewhich many expect to decline in the coming weeks and months. But how much would a home equity line of credit cost homeowners who use it to borrow $25,000 now? That’s what we’ll calculate below.
Considering taking out a home equity line of credit? Find out now what interest rate you could qualify for here.
How much would a $25,000 per month home equity line of credit cost?
When calculating the potential HELOC costsIt is essential to understand that the rate with which you open the line of credit is likely to change over time. repayment period (often monthly). So it is unlikely that the numbers you initially calculate will remain constant.
However, before borrowing any amount of money, it is essential to assess the potential costs so you know what you can and cannot afford. The current average HELOC interest rate is 9.32%So, here’s how much you could expect to pay over two different repayment periods (assuming the rate doesn’t change):
- 10-year HELOC at 9.32%: $321.04 per month for a total of $13,524.22 in interest paid
- HELOC over 15 years at 9.32%: $258.35 per month for a total of $21,502.58 in interest paid
If you have excellent credit and choose this borrowing option, you can expect to pay between $258.35 and $321.04 per month. But that payment could drop, perhaps significantly, if the Fed decides to cut its federal funds rate. And while that won’t directly impact what borrowers bid for home equity loan products, rates on home equity loans and HELOCs should also drop as a result.
Get started with a low-rate HELOC online today.
What about cash-out refinancing?
If you’re not interested in a home equity loan or HELOC, a refinancing with withdrawal of funds is an option you might want to consider. With this option, you take out a new mortgage for more than you currently owe. You then use the new loan to pay off the old one and take the difference between the two as cash for yourself.
The problem with this type of financing option? It involves giving up your current mortgage rate for the current average rate. And if your mortgage rate is currently below 6.53% (the average on a 30-year loan), you would be giving up a low rate for a higher rate in order to get that extra cash. So be sure to calculate the potential benefits before you take action to make sure it’s really better than a home equity loan or home equity line of credit.
The essentials
If you need $25,000 now and have equity in your home, a home equity line of credit may be your best bet for securing that financing. Not only will the monthly payments be manageable (less than $325 per month for qualified borrowers), but the likelihood of those payments going down is significant now that inflation is slowing and interest rate cuts are on the horizon. Plus, if you use a home equity line of credit for an IRS-qualified purpose, you may be able to deduct interest you paid on the line of credit when you filed your taxes for 2024.
Have more questions about home equity lines of credit? Learn more about your options here now.
