Is a $100,000 home equity loan worth it?
It's not easy to find a cost-effective way to borrow $100,000.
Many credit card companies will prevent most borrowers from accessing a credit line anywhere close to that amount. And with the average credit card interest rate now just over 23%, a record high, it wouldn't make sense for users to borrow that amount with a credit card even if they were allowed to. Meanwhile, personal loans come with their own set of restrictions, reducing the likelihood that many will be able to get a $100,000 personal loan right now. And while rates on these products are much better than credit cards, they're still approaching 13% in today's rate climate.
A $100,000 home equity loan for those who own homes, then, becomes the natural next recourse. In these borrowing circumstances, however, the home in question serves as collateral, so you'll want to carefully consider borrowing this much money in advance before signing the formal loan application. But is a $100,000 home equity loan worth it now? For many borrowers, it may be. Below, we'll explain why.
See what home equity loan interest rate you could qualify for here.
Is a $100,000 home equity loan worth it?
While borrowing from your home equity requires careful consideration, a $100,000 home equity loan could be worth it for you for all of the following reasons:
It won't drain all of your equity: The average homeowner has around $330,000 worth of home equity right now. So if you decide to borrow $100,000 of it, you won't have drained all of your equity, allowing you to then use it in the future, too. And considering that lenders typically limit borrowers to 80% of their equity, you may be able to borrow upwards of $200,000 right now. A $100,000 home equity loan, then, could provide a stable balance by covering a series of major expenses while still allowing you to maintain a healthy portion of the equity in your home.
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It could improve your financial situation: A home equity loan interest rate of 8.35% may not seem like a bargain, particularly compared to what rates were in recent years. But take a step back and compare it to what you're paying on some of your other existing debts.
In many circumstances, like with personal loans and credit card debt, you may be better off paying it off via home equity. Credit card interest rates are almost three times higher than home equity loans (on average) right now. So calculate the monthly costs of paying down that debt with a home equity loan versus continuing with a credit card. In many cases, it may be worth borrowing with a home equity loan.
But it's not just useful for paying off debt. In some situations, a $100,000 home equity loan could help you start a business, pay for a college education or even buy a second home. In these instances, the long-term benefits of using a $100,000 home equity loan would easily outweigh any monthly costs.
The payments could soon become cheaper: Interest rates are on the decline again after the Federal Reserve issued a half a percentage point cut in September. And it's poised to issue another cut this week. While this will affect all borrowing products, it will take a long time to get personal loan and credit card rates back into the single-digit range.
Home equity loans are already there, however, and they could soon become cheaper. Plus, a home equity loan rate is fixed, meaning that it will remain the same even if rates rise again in the future. This predictability is a major advantage for those looking to borrow a six-figure sum, allowing them to accurately budget their payments for the long term.
The bottom line
A $100,000 home equity loan could be valuable for a wide swath of homeowners. But it is a large amount of money withdrawn from one of your most important assets so it's critical that you approach this borrowing circumstance cautiously and strategically. By doing so, you'll improve your chances of success, both during the loan application process and over the full repayment period.
Have more questions? Learn more about your current home equity loan options here.
