How much will a $150,000 home equity loan cost per month now that rates are falling?

Homeowners currently have a valuable asset at their disposal: their home equity. With home values rising steadily over the last few years, homeowners now have a lot of equity to tap into — about $327,000 on average. The amount of accessible equity — which is the total that can be borrowed against while maintaining a 20% equity cushion — now amounts to $214,000. That high amount of equity, coupled with the recent interest rate cut by the Federal Reserve, has made this an opportune moment to consider a home equity loan.

Home equity loans are generally one of the most cost-effective borrowing options, as these loans are secured by the equity in your home, meaning that the rates are typically lower compared to options like credit cards and personal loans. And the recent 50 basis point reduction in the Fed's benchmark rate pushed home equity loan rates down further, making them even more attractive. So, if you've been planning to borrow money from your home's equity, this could be a good time to make your move.

Before you take out a home equity loan, though, it's important to understand the monthly costs associated with this type of borrowing. So, how much would a $150,000 home equity loan cost today now that rates have fallen? Below we'll break down what those payments could look like based on today's rates.

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How much will a $150,000 home equity loan cost per month now that rates are falling?

Unlike home equity lines of credit (HELOCs), which offer variable rates that can change with the wider rate environment, most home equity loans come with fixed rates, so the rate you start your loan with is the rate you'll end with (unless you refinance your home equity loan at some point). That keeps your payments consistent from month to month. 

With a home equity loan, the cost of your monthly payments depends heavily on the loan term and the interest rate you're offered. There are two common home terms to choose from: 10-year and 15-year loan terms, with today's 10-year loan terms offering average rates of 8.50% and 15-year loan terms offering average rates of 8.41%. Here's what the monthly payments would look like on each option using today's average rates: 

• 10-year home equity loan at 8.50%: With this rate and term, the monthly payments would be $1,859.79 per month
• 15-year home equity loan at 8.41%: With this rate and term, the monthly payments would be $1,469.21 per month

As illustrated above, opting for the shorter 10-year home equity loan would result in paying off the loan faster, but you would have higher monthly payments to contend with. On the other hand, if you choose a 15-year term, your monthly payments will be more manageable, but you will pay more in interest over the longer term.

But those are just the monthly costs at today's rates. There are expectations that the Fed could cut rates even further over the next few months. Here's what your monthly payments could look like if the Fed slashes rates by another 25 basis points and 50 collective basis points and home equity loan rates fall by the same amount:

If home equity loan rates drop by 25 basis points:

• 10-year home equity loan at 8.25%: With this rate and term, the monthly payments would be $1,839.79 per month
• 15-year home equity loan at 8.16%: With this rate and term, the monthly payments would be $1,447.37 per month

If home equity loan rates drop by 50 basis points:

• 10-year home equity loan at 8.00%: With this rate and term, the monthly payments would be $1,819.91 per month
• 15-year home equity loan at 7.91%: With this rate and term, the monthly payments would be $1,425.70 per month

Given the potential savings, it may be tempting to try and wait for rates to drop before borrowing. However, it can be difficult to time the market, as interest rates are impacted by a lot more than just the Fed — and there's always a risk that rates could rise in the future. So, if you need to borrow money soon, it may be worth securing a favorable rate now instead.

Find out how affordable the right home equity loan could be now.

The bottom line

If you plan to take out a $150,000 home equity loan at today's average rates, your monthly payments would range from $1,469.21 to $1,859.79 depending on the loan term you choose. And, the Fed is expected to cut rates further over time, which could help to drive down the costs of a home equity loan even more. But if you're planning to wait, you may want to think twice about that strategy. While you could potentially save on interest charges by waiting for rates to drop further, it's a risky bet. For many borrowers, it could make more sense to lock in a good rate now — and if rates fall in the future, there's always the option to refinance and capitalize on the savings.