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Home equity borrowing has been one of the least expensive ways to access large sums of money in recent years. And it’s seemingly about to become even cheaper. With the Federal Reserve issuing its first rate cut in more than four years in mid-September and other reductions appearing likely for when it meets again in November and December, rates on borrowing products are on a downward trend. Home equity loan and home equity line of credit (HELOC) rates won’t be immune from this trajectory.
Against this backdrop, many homeowners may be considering the benefits of a HELOC, in particular. HELOC rates are variable and they’re likely to change each month. While that was largely a detractor in the rate climate of 2022 to now, it’s a distinct advantage today as rates appear on the decline. With the average homeowner in possession of approximately $330,000 worth of equity today, a HELOC for $80,000 could make sense. It will still allow homeowners to maintain a healthy amount of equity to potentially use in the future while still allowing them to cover current expenses today.
So, how much will an $80,000 HELOC cost per month now that rates are cut? That’s what we’ll calculate below.
See what HELOC rate you could qualify for here.
How much will an $80,000 HELOC cost per month now that rates are cut?
When calculating the potential costs of a HELOC, it helps to do so with various potential rates to better determine affordability. After all, in these borrowing circumstances, your home serves as collateral so you’ll want to be certain that you can afford the payments. Here’s what a $80,000 HELOC will cost per month now, assuming the rate remains constant:
- 10-year HELOC at 8.94%: $1,010.81 per month
- 15-year HELOC at 8.94%: $808.56 per month
While rates won’t fall directly in line with the federal funds rate, here’s what those payments could be assuming a 25 basis point reduction:
- 10-year HELOC at 8.69%: $1,000.03 per month
- 15-year HELOC at 8.69%: $796.73 per month
And here’s what they could look like with a half a percentage point reduction from today’s averages:
- 10-year HELOC at 8.44%: $989.32 per month
- 15-year HELOC at 8.44%: $784.98 per month
So, not only are HELOCs an affordable option for homeowners now, but the monthly payments could make this an even cheaper option as the months progress. Waiting, then, doesn’t make sense. Instead, if you need the money, open a HELOC now and position yourself for lower payments in the months to come.
Don’t forget about the tax benefits
If you’re planning on using your HELOC for specific home repairs and renovations, don’t get too focused on today’s rates and what they could be shortly. While it’s critical that you can comfortably afford to repay what you borrow, if you use your HELOC for specific, IRS-eligible home project, you’ll be able to deduct the interest you paid on the line of credit when you file your taxes for the year (or years) in which it was used. This is a major benefit that HELOCs and home equity loans have that other credit products simply do not. So use it wisely.
The bottom line
If you take out an $80,000 HELOC now you’ll pay between $809 and $1,011 per month. But those payments could fall as the rates on the product decline as part of the larger rate climate. Just go into the process clear-eyed, because rates could fall on HELOCs as easily and as quickly as they can rise, so you’ll want to be prepared to pay accordingly.
Start researching your HELOC options online now to learn more.