Here's how much you'd save by using a home equity loan
For much of the last two years, borrowers have had limited options. Thanks to growing inflation and higher interest rates designed to cool it, borrowers have gotten stuck paying more for everything from home and car loans to personal loans and credit cards. And with inflation on the rise again – and interest rates stuck at their highest point in 23 years – it can feel like there aren't any viable borrowing options left.
However, homeowners have one low-cost alternative worth pursuing now: their home equity. By using a home equity loan or home equity line of credit (HELOC) right now, owners can access significant sums of money at a much lower rate than they would have secured with other credit options. And they may be able to tap into hundreds of thousands of dollars since the average owner has around $300,000 of home equity right now (around $190,000 of which is accessible).
To fully understand the cost-savings of this option, however, borrowers need to first compare it to other popular alternatives. Below, we'll break down how much you could save by using a home equity loan right now.
See how much you could borrow with a home equity loan here today.
Here's how much you'd save by using a home equity loan
To truly understand the savings potential of a home equity loan you'll need to know the average interest rate it comes with. As of April 18, the average home equity loan rate is 8.59%. The average credit card interest rate is now 20.71% and the average personal loan interest rate is 12.18%. Here's what the interest costs for borrowing $10,000 using all three options would cost:
- Home equity loans: A 10-year, $10,000 home equity loan would cost you $124.47 per month for a total of $4,396.11 in interest paid over that time. But unlike credit cards and personal loans, the interest you pay on the loan may be tax-deductible if you use it for qualifying home repairs, renovations and improvements.
- Credit cards: To pay off a $10,000 credit card balance over the same period, you'd have to pay $197 a month ($72.53 more per month than a home equity loan). But the difference in interest paid is even more stark when comparing overall rate costs – $13,758 in total versus the $4,396.11 for home equity loans (or $9,361.89 in extra interest costs when using credit cards).
- Personal loans: While not nearly as expensive as credit card borrowing right now, personal loans still pale in comparison to the cost savings home equity loans offer. A $10,000 personal loan paid off in a decade would cost borrowers $144.51 monthly and $7,341.61 over the life of the loan (or $20.04 more monthly and $2,945.50 more overall than a home equity loan).
It's important to note, however, that rates can change for these borrowing products. Credit card interest rates will evolve and you can refinance personal loans to secure better terms. But you can also refinance home equity loans and rates there will remain the same, even in the face of a developing rate climate. It makes sense, then, to lock in a low home equity loan rate while they're still available.
Get started with a low interest home equity loan here now.
The bottom line
With inflation still problematic and interest rates higher than they've been in years, borrowers should thoroughly explore all options in order to save money. Home equity loans are some of the best to pursue thanks to the significant savings they offer both in monthly interest costs and over the life of the loan.
As with all borrowing options, however, it's crucial to thoroughly research this possibility as your home will be used as the collateral. If you can't afford to pay back what you borrow you could risk losing your home in the process. But if you have a well-thought-out payment plan ready, the savings potential of home equity loans clearly makes it beneficial for many borrowers right now.
