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Home equity borrowing is often one of the most cost-effective ways to access extra funding. Due to the home in question serving as collateral, lenders tend to offer low interest rates. However, thanks to inflation and an elevated rate climate in recent years, it has become one of the only ways to borrow money at a low interest rate. Even now, with inflation cooling and a cut to the federal funds rate looming, rates on home equity loans and home equity lines of credit (HELOCs) are significantly lower than popular alternatives like credit cards and personal loans.
With the average homeowner having around $300,000 worth of equity to utilize right now, it's helpful to understand how much it would cost to use this funding. A $100,000 withdrawal, for example, would still leave the median homeowner with hundreds of thousands of dollars worth of equity while providing some much-needed financing in the interim. But how much would a $100,000 HELOC cost right now? That's what we will calculate below.
Find out how much home equity you have to use here.
How much would a $100,000 HELOC cost per month?
When calculating potential HELOC costs, it's critical to remember that rates on this specific borrowing product are variable and subject to change with the overall rate climate (typically once per month). So any figure you calculate now is unlikely to remain the same for the full repayment period. That noted, here's how much a $100,000 HELOC would cost per month if taken now, pegged to two different repayment periods:
- 10-year HELOC at 9.18%: $1,276.52 monthly for a total of $53,182.28 in interest paid
- 15-year HELOC at 9.18%: $1,025.00 monthly for a total of $84,500.41 in interest paid
While the 15-year HELOC option would save you around $250.00 each month, you'd wind up paying around $31,000 over the life of the credit line. And that's assuming rates stay where they are now. If they rise, you could pay more. However, if they drop, the rate and payments on the HELOC will fall, too. So it's important to weigh the pros and cons before getting started.
Learn more about your current HELOC options online now.
Why you should choose a HELOC over a home equity loan now
While a home equity loan comes with a slightly lower interest rate right now (with an average rate of 8.59% now), that difference may not be worth it in the face of an improving rate climate. As noted, interest rates on HELOCs change often. So if interest rates are cut in the months and years to come, as many are anticipating, your HELOC rate will automatically adjust downward.
Home equity loans, meantime, will remain at the rate you opened them with unless you're proactive and refinance the loan. And, even then, you'll need to pay home equity loan refinancing costs— something you won't need to worry about with a HELOC. Granted, a variable rate credit product comes with inherent risk but, in the unique rate climate of 2024, it could be a risk worth taking for many homeowners.
The bottom line
If you open a $100,000 HELOC now, you could wind up with payments ranging between $1,025.00 and $1,276.52 monthly. But that's just an estimate. The rate climate could change and your payments could rise or fall accordingly. The repayment period you choose will also affect how much you need to pay each month. And, remember that the best rates and terms are reserved for those with the highest credit scores, so if your credit isn't in top shape, you can expect to pay more too, regardless if you choose a HELOC or a home equity loan.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
