Is a $100,000 HELOC or home equity loan cheaper now?
If you've been looking for an inexpensive way to borrow a large, six-figure sum of money in recent years, you've had few ways to do so.
As inflation soared, interest rates surged alongside it, making everything from rates on personal loans to credit cards react accordingly. Now, personal loans come with average rates close to 13% while credit cards are near a record 23%. Home equity loan rates, however, remain relatively low. And after a Fed rate cut in September, and others possible for November and December, this could become even cheaper for homeowners in the remainder of 2024. Combined with the average home equity amount sitting close to $330,000 right now, this is likely the best way to borrow a large amount of money right now.
Home equity loans and home equity lines of credit (HELOCs) are two of the most popular ways to do so. But these products don't operate in the same fashion. Accordingly, they come with different interest rates and different considerations for borrowers as well. So, is a $100,000 HELOC or home equity loan cheaper right now? That's what we'll calculate below.
See what home equity loan rate you could qualify for here now.
Is a $100,000 HELOC or home equity loan cheaper now?
HELOCs and home equity loans have rates that are close to each other but not identical. The average HELOC rate as of October 3 is 8.94% while the average home equity loan rate is 8.37%. Here's what monthly payments on both would look like, timed to two popular repayment terms:
HELOCs:
- 10-year HELOC at 8.94%: $1,263.51 per month
- 15-year HELOC at 8.94%: $1,010.70 per month
Home equity loans:
- 10-year home equity loan at 8.37%: $1,232.91 per month
- 15-year home equity loan at 8.37%: $977.13 per month
So, right now, home equity loans are the cheaper way to borrow $100,000 worth of home equity. You'll save around $30 a month with a 10-year home equity loan and around $34 with the 15-year option.
The details are important, though. HELOC rates, while currently higher than home equity loans, are variable and subject to change each month. That's a distinct advantage currently as additional rate reductions appear likely. Home equity loans, meanwhile, have fixed rates that borrowers will need to refinance (and pay to refinance) if they want to secure a lower rate in the future. It's critical, then, to weigh these rate structures carefully. What may seem cheaper on paper this week could soon become more expensive.
Start comparing your HELOC and home equity loan options online today.
What about cash-out refinancing?
It may be tempting to skip the calculations required with home equity loans and HELOCs and simply pursue a cash-out refinance instead. This occurs when you apply for a mortgage loan larger than your current balance. You then use the new loan to pay off the old one and keep the difference between the two as cash. But that would require you to give up your current mortgage rate to whatever is now available for qualified borrowers. And if you have a rate under 6% now, it will likely mean exchanging it for a higher one to get that cash. Consider the ramifications of doing so, first, to better determine if this option is truly better than a home equity loan or HELOC.
The bottom line
Right now, a home equity loan is slightly cheaper then a HELOC to borrow $100,000 worth of home equity. But that can and likely will change as the rate climate continues to decline. So monitor the market closely, calculate your costs now as well as what they could be in the near future and weigh the pros and cons of cash-out refinancing to best determine your path forward. And remember to only borrow as much as you can afford to repay as you could risk losing your homeownership if you can't make your payments to the lender.
