Is a $50,000 HELOC or Home Loan Cheaper Now?

In recent years, if you were looking for a cheap way to borrow a large sum of money, there weren’t many attractive options to explore. If inflation rose, rates for mortgages, personal loans, credit cards and more rose with it. But while interest rates on the last two products rose into double digits, equity borrowing remained relatively cheap. Home loan rates and home equity lines of credit (HELOC). remained below 10% even as inflation reached its highest level in decades mortgage interest to the highest level since 2000.

However, now with inflation decline and the issuance of the Federal Reserve interest rate cutsmakes this unique loan option even cheaper for homeowners. Considering the average homeowner has more than $300,000 in equity now it’s also a smart way to access a large sum of money. But if a homeowner wants to withdraw, say, $50,000, which way would be cheaper? HELOC or equity loan? Below we’ll outline the potential costs, as well as some of the nuances that borrowers should consider.

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Is a $50,000 HELOC or Home Loan Cheaper Now?

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

Mortgage loans:

• Mortgage loan with a term of 10 years at 8.39%: $616.99 per month
• 15-year mortgage 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 loans are now slightly cheaper, but… difference between the two types of loans is critical to understand. Have mortgage loans fixed interest rates that will not change during the term of the loan unless refinanced by the borrower. That is a plus in an environment where interest rates are falling, but it could be a disadvantage now that interest rates are falling again. HELOCs, meanwhile, have variable rates that are adjusted monthly without the borrower having to take any action. That is a unique advantage now that new interest rate cuts are looming, but it will have to be measured against the lower costs of a mortgage loan.

Bottom line: Home loans are currently cheaper for qualified borrowers. But if you lock in a rate now and the overall climate continues to cool, a HELOC could become the cheaper alternative. So calculate your costs carefully and weigh your risk appetite to narrow down your choice. And don’t forget that refinancing home equity loans isn’t free. Usually that will be the case costs between 1% and 5% of your total loan amount. But HELOC rates can rise just as easily as they fall, so trying to take advantage of a cool 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 in home equity with a home equity loan instead of a HELOC. But the interest rate environment is constantly changing and this could change quickly, especially if the Federal Reserve makes additional rate cuts in November and December. So start calculating your costs now and pay close attention to daily rates so you can benefit from the cheapest mortgage product possible. And remember that your home serves as collateral in either borrowing situation, so only take out an amount you’re happy to pay back or you risk losing your property in the process.