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Borrowers have been waiting patiently for much of the past two years for interest rates to be cut. And last week, they finally were. After raising the policy rate, banks decided to cut the policy rate. federal funds rate at its highest level in decades, the Federal Reserve released last week his first haircut since 2020. While still high compared to recent years, the 4.75% to 5% range is welcome news for borrowers who have faced high rates on everything from mortgages to credit cards.
In this context, a cost-effective way to access extra money has been to borrow from your home equity. Interest rate on both home equity loans And Home Equity Lines of Credit (HELOCs) Interest rates have been in the single digits for most of the past two years, although personal loan rates have averaged more than 12% and credit card rates have hit record highs of more than 20%.
But now that interest rates have finally been cut — and are likely to be cut again at the Fed’s November and December meeting — some borrowers may want to start calculating their potential monthly costs with this type of financing option. And it might make sense to do so with a home equity line of credit, which has a variable rate That amount is expected to drop further as rates drop. Below, we’ll break down what a $50,000 per month home equity line of credit could cost now that rates have dropped.
Start by seeing what HELOC rate you would qualify for here and now.
How much would a $50,000 per month home equity line of credit cost now that rates have been cut?
To start, it’s essential to remember that HELOC rates are variable, as mentioned earlier. This is a major benefit in the current rate climate, as further reductions seem likely. However, this changing rate makes it difficult for borrowers to calculate their potential monthly payments with any certainty. HELOC rates typically change monthlyYour payment on a $50,000 line of credit could and likely will change until you pay it off. That said, here’s what you might expect to pay each month at today’s average rate, spread over two common repayment periods (assuming the rate doesn’t change):
- 10-year HELOC at 9.26%: $640.44 per month
- HELOC 15 years at 9.26: $514.90 per month
It’s also important to note that current HELOC interest rates aren’t significantly different than they were this time last year, suggesting that last week’s interest rate cuts still need some time to work their way through the economy—and that additional cuts may be needed for savers to feel substantial relief. Last October, for example, The average HELOC rate was 9%. At that time, however, inflation was much higher and interest rate cuts were still a long way off. Today, the next cut could come in a few weeks.
Start exploring your HELOC options online now.
What about a home equity loan?
Home equity loans come with fixed rates, which could be attractive to buyers who aren’t sure how current interest rates will move. And right now, those average rates are slightly lower than HELOCs, at 8.46%. But because that rate is fixed, borrowers won’t automatically be able to take advantage of rate drops like they would with a variable HELOC. Instead, home equity loan borrowers will have to refinance to get a lower rate. And this refinancing will be done at a cost between 1% and 5% of the total loan amountSo it’s important to compare the savings you can get from a lower rate today to what you can get from a home equity line of credit that will adjust automatically (for free).
The essentials
Monthly payments on a $50,000 home equity line of credit will range from $514.90 to $640.44 for eligible borrowers, depending on the repayment term. And those monthly payments could get even lower as additional rate cuts are granted. But there’s no guarantee they won’t increase further, thanks to the line of credit’s variable rate structure. As mentioned earlier, additional reductions will also take time to be reflected. So consider all of these factors before taking out a home equity line of credit and make sure you only withdraw an amount you can comfortably afford to repay, since your home is used as collateral in these circumstances and you could lose it if you don’t repay the full amount you borrowed.
