How much would a $50,000 home equity loan cost per month now that rates are cut?
Before borrowing a large sum of money, it's critical to calculate the potential monthly costs. This has always been a best practice but particularly so in recent years as interest rates soared, making borrowing with a credit card or personal loan much more expensive than in prior years. With inflation hitting a decade-high and interest rates surging alongside it, it was difficult to find a cost-effective borrowing source. It was difficult, but not impossible for homeowners, who were able to find a cost-effective option via their home equity. While interest rates on credit cards and personal loans were in the double digits, home equity loans and home equity lines of credit (HELOCs) were often well below 10%.
And now, with inflation dramatically cooler than what it was in 2022, the Federal Reserve has started what appears to be a series of cuts to the federal funds rate. The first one, issued in September, was a larger-than-expected 50 basis point reduction. Two others, possibly for 25 basis points each, are in play for when the Fed meets again in November and December.
Understanding this dynamic, then, homeowners should start calculating the monthly costs of a home equity loan now. And with the average homeowner having close to $215,000 worth of equity to utilize, a $50,000 home equity loan will allow them to maintain a healthy portion of equity while still covering many major expenses. So, how much would a $50,000 home equity loan cost per month now that rates are cut? That's what we'll break down below.
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How much would a $50,000 home equity loan cost per month now that rates are cut?
The average home equity loan interest rate is 8.37% as of October 8, but it's slightly higher for two common repayment terms. A 10-year home equity loan interest rate is averaging 8.47% right now while a 15-year home equity loan interest rate comes in at 8.38%. Here's what payments on a $50,000 home equity loan would look like each month, then, tied to both repayment periods:
- 10-year home equity loan at 8.47%: $619.13 per month
- 15-year home equity loan at 8.38%: $488.86 per month
While the 15-year loan term will result in monthly payments $130 lower than the 10-year loan, the longer term will also result in approximately $38,000 spent in interest during that time while the 10-year loan will have a total interest cost of around $24,000 – a $14,000 difference between the two. So, it's critical to weigh the short-term benefits versus the longer, more expensive interest you'll need to pay.
In many cases, the 10-year loan may make more sense. That said, as interest rates are cut, rates on home equity loans will fall too, just not in direct proportion, so these loans could and likely will become cheaper in the coming months.
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The bottom line
A $50,000 home equity loan comes with payments between $489 and $620 per month now for qualified borrowers. However, there is an emphasis on qualified borrowers. If you don't have a good credit score and clean credit history you won't be offered the best rates and terms. Do your best to get your credit in shape, then, before applying. Since home equity loan rates are fixed (unless you refinance), it makes sense to do all you can to get the lowest rate possible to avoid having to pay to refinance at a later date.
Have more questions? Learn more about your best home equity loan options here.
