How much would a $40,000 HELOC cost monthly now that rates are cut?
Borrowing costs are gradually coming down again. That seems to be the economic message resonating throughout the country after the Federal Reserve issued a 50 basis point rate cut on September 18, double what many economists had expected. The cut followed a series of encouraging reports from the Bureau of Labor Statistics showing a consistently cooling inflation rate. If the trends continue, the Fed could issue additional rate cuts when it meets in November and December.
While the Fed doesn't directly dictate the rates private lenders offer borrowers, its actions are a major influencer. And for homeowners looking to access large sums of money, it's helpful to know that interest rates on products like home equity loans and home equity lines of credit (HELOCs) will also start to fall now. Understanding this dynamic, borrowers may want to start calculating the potential monthly costs of a HELOC, in particular. Since this product has a variable rate subject to change monthly, the low rates HELOCs are known for could drop even lower soon. For reference, below we'll break down how much a $40,000 HELOC will cost monthly now that rates are cut.
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How much would a $40,000 HELOC cost monthly now that rates are cut?
The average HELOC interest rate is 8.94% right now, down by more than 25 basis points from where it was earlier in September. That said, calculating future costs of a HELOC is difficult, if not impossible, due to the variable rate. Using today's average, then, and two different repayment periods, here's what it could cost monthly assuming the rate remains constant:
- 10-year HELOC at 8.94%: $505.41 per month
- 15-year HELOC at 8.94%: $404.28 per month
As noted, rates on private borrowing products won't precisely move the way the federal funds rate does. But considering that HELOC rates are variable and the realistic potential for two additional reductions of 25 basis points each, it's helpful to know where these costs could be heading in the months to come. Here's what your monthly HELOC payment would be if rates fall by another 25 basis points:
- 10-year HELOC at 8.69%: $500.02 per month
- 15-year HELOC at 8.69%: $398.36 per month
And here's what they would be assuming a half a percentage reduction from today's average:
- 10-year HELOC at 8.44%: $494.66 per month
- 15-year HELOC at 8.44%: $392.49 per month
And because of the way a HELOC is structured, you'll automatically see your rate and payment adjust. If you need the money now you don't need to wait for rates to drop. No refinancing or closing costs will be required. So don't delay. Take advantage of this opportunity as rates are declining.
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The bottom line
A HELOC is a cheap way to access large sums of money and it could be cheaper as rates continue to fall. WIth the average homeowner having approximately $320,000 worth of equity, there's likely a lot of money to utilize. But don't forget one of the primary reasons that home equity borrowing is cheaper than the alternatives – it's because your home serves as collateral in these circumstances. So be judicious with how much you ultimately withdraw and make sure that any amount borrowed can comfortably be repaid or you could risk losing your home in the process.
Have more questions? Learn more about your HELOC options here.
