Is a $50,000 HELOC or home equity loan cheaper now?

If you were looking for an inexpensive way to borrow a large sum of money in recent years, there weren't many attractive options to explore. As inflation surged, rates on mortgages, personal loans, credit cards and more rose with it. But while rates on the latter two products soared into the double digits, home equity borrowing remained relatively cheap. Home equity loan and home equity lines of credit (HELOC) rates stayed below 10% even as inflation hit a decades-high and mortgage rates moved to their highest level since 2000. 

Now, however, with inflation falling and the Federal Reserve issuing interest rate cuts, this unique borrowing option is becoming even cheaper for homeowners. Considering that the average homeowner has more than $300,000 worth of equity now, it's also a smart way to access a large sum of money. But if a homeowner want to withdraw $50,000, for example, which way would be cheaper – a HELOC or home equity loan? Below, we'll break down the potential costs as well as some nuances borrowers should consider.

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Is a $50,000 HELOC or home equity loan cheaper now?

HELOCs and home equity loans have similar but different interest rates now. The average home equity loan rate is currently 8.39% while the average HELOC rate is now 8.94%. Here's what the monthly payments would be for each if a homeowner withdrew $50,000:

Home equity loans:

• 10-year home equity loan at 8.39%: $616.99 per month
• 15-year home equity loan at 8.39%: $489.15 per month

HELOCs:

• 10-year HELOC at 8.94%: $631.76 per month
• 15-year HELOC at 8.94%: $505.35 per month

On paper, home equity loans are slightly cheaper now, but the difference between the two borrowing types is critical to understand. Home equity loans have fixed interest rates that won't change over the life of the loan unless refinanced by the borrower. That's a plus in a climate in which rates are falling, but it could be detrimental now as interest rates are on the decline again. HELOCs, meanwhile, have variable rates that adjust monthly with no action required by the borrrower. That's a unique advantage now as additional interest rate cuts loom, but it will need to be measured against the lower costs of a home equity loan.

In short: Home equity loans are cheaper for qualified borrowers right this moment. But if you lock in a rate now and the overall climate continues to cool, a HELOC could become the less expensive alternative. So carefully calculate your costs and weigh your risk appetite to narrow down your choice. And remember that home equity loan refinancing isn't free. It will typically cost between 1% and 5% of your total loan amount. But HELOC rates can rise as easily as they can fall, too, so attempting to take advantage of a cooling climate could backfire if rates don't fall as expected.

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The bottom line

Right now, it's cheaper to borrow $50,000 worth of home equity with a home equity loan instead of a HELOC. But the rate climate is constantly evolving and this could soon change, particularly if the Federal Reserve issues additional interest rate cuts in November and December. So start calculating your costs now and pay close attention to daily rates for your opportunity to capitalize on the cheapest home equity borrowing product possible. And remember that your home functions as the collateral in either borrowing circumstance, so only withdraw an amount that you're comfortable repaying or you could risk losing your property in the process.