Borrowers who have been waiting for interest rates to drop have found themselves in a fortunate position recently. Between cooling inflation and lackluster employment data, there were expectations that the Federal Reserve would be cutting rates at its September meeting, which led to preemptive reductions in rates across a range of loan products. The anticipation alone was enough to nudge the market, providing relief for borrowers who have been burdened by the high-rate environment in recent years.

Then came the unexpected: The Fed’s rate cut was for 50 basis points, which was double many analysts’ predictions. This substantial reduction triggered an even more significant drop in rates for various loan types, further alleviating the financial strain on borrowers. That included the rates on home equity borrowing options, including home equity loans and home equity lines of credit (HELOCs), which were already some of the most cost-effective borrowing choices available.

But it’s HELOCs, in particular, that offer substantial advantages in today’s fluctuating rate environment. If you’re considering a HELOC, though, you need to understand the potential monthly costs, especially now that rates are on a downward trajectory. Below we’ll break down what you can expect to pay each month on a $100,000 HELOC now that rates are dropping.

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How much will a $100,000 HELOC cost monthly now that rates are falling?

Before calculating the monthly costs, it’s important to understand that HELOC rates are variable, which means they can change regularly after the fixed period ends. In other words, the HELOC rate you start with may not be the rate you pay over the longer term — so your monthly payment at today’s rates may also change over time. 

To calculate the monthly costs of a $100,000 HELOC in the current market, though, we’ll use today’s average HELOC rate of 8.94% to calculate both 10-year and 15-year HELOC repayment terms. Here’s what your monthly HELOC payments could look for each term like using today’s average rates:

• 10-year HELOC at 8.94%: Monthly payment: $1,263.51
• 15-year HELOC at 8.94%: Monthly payment: $1,010.70

The Federal Reserve is also expected to cut rates further over the next few months. Here’s how these monthly payments might change if the Fed slashes rates by another 25 basis points and 50 collective basis points and HELOC rates fall by the same amount:

If rates drop by 25 basis points (to 8.69%):

• 10-year HELOC: $1,250.04 per month
• 15-year HELOC: $995.91 per month

If rates drop by 50 basis points (to 8.44%):

• 10-year HELOC: $1,236.65 per month
• 15-year HELOC: $981.23 per month

These projections demonstrate how even small rate reductions can lead to noticeable savings on your monthly payments, especially over longer loan terms.

Find out how affordable the right HELOC or home equity loan could be now.

Benefits of a HELOC in today’s rate environment

HELOCs offer several key benefits that make them an attractive option in the current economic climate. With rates falling, borrowers stand to gain from lower monthly costs, but the advantages of HELOCs go beyond just rates and include:

• Flexibility in borrowing: A HELOC allows you to draw funds as needed, potentially saving on interest for unused funds. This “draw as you go” feature makes HELOCs ideal for projects or expenses that don’t require a large lump sum upfront.
• Rates can change without refinancing: In a falling rate environment, your HELOC rate may decrease, potentially lowering your monthly payments without the need for refinancing. This is a significant advantage over fixed-rate products, which would require refinancing to benefit from lower rates.
• Interest-only payment options: Many HELOCs offer an initial period where you can make interest-only payments, providing lower initial monthly costs. This can be helpful if you need flexibility in your cash flow early in the loan term.
• Prepayment flexibility: Most HELOCs allow you to pay more than the minimum without penalties, enabling you to reduce your balance faster. 

The bottom line

If you take out a $100,000 HELOC at today’s rates, you would pay between about $1,011 and $1,264 each month depending on the term you choose. And, the falling rate environment could mean that you’re capitalizing on an opportunity for potential savings by opting for a HELOC over a home equity loan (or another type of loan). After all, as rates continue to drop, HELOC borrowers may benefit from automatic rate adjustments without the need for refinancing. This makes HELOCs an attractive option for homeowners looking to leverage their home’s equity in a cost-effective manner — but before you borrow against your home equity, just make sure it’s the right move for your needs and your finances.