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Both a HELOC and a home equity loan could make sense now, but one of these equity borrowing options could be cheaper in today’s rate environment. Getty Images/iStockphoto
Loans secured by the equity in your home are often very affordable. This was true even as rates climbed in the post-pandemic era thanks to surging inflation, which caused the Federal Reserve to raise the benchmark rate. While most debt became more expensive at that point, borrowing against equity remained cheaper than credit cards and personal loans.
With the Fed now making moves to slash rates, including a 50 basis point cut in September and other rate cuts expected throughout 2024 and 2025, the home equity loan forecast is becoming even more favorable. Rates are already down off recent peaks and are expected to decline further this fall and beyond.
If you want to take advantage of falling rates, be aware there are two ways to tap home equity without impacting your current mortgage. You could take out a home equity loan, paying a fixed rate to borrow a lump sum. Or you could take out a home equity line of credit (HELOC) with a variable rate offering a line of credit to draw from as you need it
Home equity loan rates and HELOC rates can differ, though, as do the ways these loans are structured, so the big question to ask is whether a home equity loan or HELOC is better as rates fall. Here’s what you need to know to get your answer.
Take out a home equity loan with a low rate now.
Why a HELOC could be cheaper as rates are cut
As of October 8, 2024, the national average rate on a HELOC is 8.94% while the overall average rate for home equity loans is 8.37%. Although HELOC rates are a bit higher than home equity loan rates, this trend isn’t likely to hold.
HELOCs vs. home equity loans: Which is cheaper as rates are cut?
