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There are multiple factors to consider when comparing your HELOC and home equity loan options now. Getty Images/iStockphoto
For most of the last two and a half years, home equity borrowing was one of the better ways to borrow money. As inflation surged and the federal funds rate rose alongside it, rates on borrowing products soared. And while home equity interest rates weren’t immune, they remained much lower than credit cards and personal loans thanks to the home in question serving as collateral.
But with the first cut to the federal funds rate in more than four years just issued — and others looking likely for when the Fed meets again in November and December — the economic climate is changing again. Understanding this dynamic and the potential for it to affect home equity loans and home equity lines of credit (HELOCs), then, prospective borrowers should take a broader look at these two products. Below, we’ll break down everything to consider for each right now.
See what home equity loan interest rate you could qualify for here.
HELOCs vs. home equity loans: Everything to consider right now
Not sure how to take the next step in your home equity borrowing process? Here’s what to think about for both of these products currently:
HELOCs
A higher rate: HELOC interest rates, while almost three times cheaper than credit cards and many percentage points lower than personal loans are still a bit higher than home equity loans right now (averaging 8.68% versus home equity loans at 8.35% as of November 1). While that difference doesn’t seem major on paper, it could lead to a big difference in savings over a 10- or 15-year repayment period
HELOC interest rates, while almost three times cheaper than credit cards and many percentage points lower than personal loans are still a bit higher than home equity loans right now (averaging 8.68% versus home equity loans at 8.35% as of November 1). While that difference doesn’t seem major on paper, it could lead to a big difference in savings over a 10- or 15-year A rate that could change: HELOCs have variable interest rates monthly
HELOCs have A revolving line of credit: A HELOC works deduct it from your taxes
Explore your best HELOC options online today.
Home equity loans
A lower rate: As noted, home equity loan interest rates are slightly lower than HELOCs right now. And while the difference between 8.35% and 8.68% is unlikely to make a major difference in your monthly payments, the savings will add up over time. You won’t need to be able to exploit a cooling rate climate as you would with a variable rate HELOC, however, so do your due diligence to find the lowest rate home equity loan possible.
As noted, home equity loan interest rates are slightly lower than HELOCs right now. And while the difference between 8.35% and 8.68% is unlikely to make a major difference in your monthly payments, the savings will add up over time. You won’t need to be able to exploit a cooling rate climate as you would with a variable rate HELOC, however, so do your due diligence to find the lowest rate home equity loan possible. A fixed rate that may need to be refinanced: A cooling rate climate is a plus for borrowers, but for home equity loan users, it will come with a cost. That’s because home equity loan rates are fixed, and if rates fall after you’ve already secured your loan, as they seem likely to this November, you’ll have to refinance amount to
A cooling rate climate is a plus for borrowers, but for home equity loan users, it will come with a cost. That’s because home equity loan rates are fixed, and if rates fall after you’ve already secured your loan, as they seem likely to this November, you’ll have to Access to a large sum of money: The average home equity amount
The bottom line
HELOCs and home equity loans are smart and advantageous tools for homeowners right now. But they’re not especially simple to use or to open, and borrowers will need to take a smart approach to ensure that they’re both getting the best rate and product and that they’re not overleveraging themselves to secure it. By truly understanding the above elements of each product now, borrowers can better determine if this is their best recourse for accessing a large amount of financing today.
HELOCs vs. home equity loans: Everything to consider right now
