There have been few cost-effective borrowing options in recent years. As inflation surged, interest rates were risen in tandem. The costs of borrowing with a personal loan, mortgage and credit card all jumped in response. There was, however, one relatively inexpensive way to access large sums of money available to homeowners – their home equity. While cash-out refinancing and reverse mortgages had some inherent risks, home equity loans and home equity lines of credit (HELOCs) offered homeowners a way to access their equity without adjusting their mortgage rate or term.

And the advantage of using home equity loans, in particular, is more pronounced now after the Federal Reserve issued an interest rate cut earlier in September, its first in more than four years. With additional rate cuts possible for their next two meetings in November and December, homeowners may want to start calculating their potential home equity loan costs soon. Below, we’ll calculate how much a $40,000 home equity loan costs per month now that rates are cut.

Start by seeing how low a home equity loan rate you could secure here.

How much would a $40,000 home equity loan cost per month now that rates are cut?

The average home equity loan interest rate as of September 25, 2024, is 8.46% for qualified borrowers. But it’s slightly higher when tied to two common repayment periods. Here’s what borrowers could expect to pay each month for both:

• 10-year fixed home equity loan rate at 8.56%: $497.23 per month
• 15-year fixed home equity loan rate at 8.49%: $393.66 per month

It’s important to note, however, that average home equity loan rates have not dropped significantly from where they were in the spring, for example, when rates on both repayment terms were 8.80%. That’s partially because home equity loan rate reductions were priced in before the Fed issued a formal cut, eliminating the possibility of a major drop post-Fed meeting. But home equity loan rates also don’t fall neatly alongside the Federal Reserve’s actions, either. So don’t expect them to fall precisely by the same amount that the federal funds rate does in November and December.

See what home equity loan rate is available to you online today.

Home equity loan benefits to know now

Not sure if a home equity loan is the preferred option when stacked against a HELOC? There are some home equity loan-specific benefits to know that can help inform your decision-making.

To start, home equity loans have lower rates right now (8.46% versus a HELOC’s average of 9.26%). That’s less than a point difference but it can still add up to major savings when calculated over time. Plus, home equity loans have fixed rates which will remain the same throughout the loan’s full term while HELOCs have variable rates that can adjust monthly based on market conditions. 

That’s a risk when rates are rising, but could be advantageous as rates cool, as they seem to be now. So you’ll need to weigh the fixed, predictable, lower rate of a home equity loan against the variable, higher rate of a HELOC to determine which is best for you now. It’s not an easy decision to make knowing that a HELOC could become less expensive over time but if you don’t like the inherent risk it comes with, a home equity loan could be better.

The bottom line

A $40,000 home equity loan could cost between $497.23 and $393.66 per month now that rates have been cut. But remember that these rates are for qualified borrowers only. If your credit isn’t in top shape you may be offered a higher rate. It’s also critical to remember that, no matter the option you choose, home equity borrowing uses your home as collateral. So only withdraw an amount of money that you feel comfortable repaying to avoid losing your home in the process.