While most Americans have a limited source of borrowing options often topped by personal loans and credit cards, homeowners have a bit more to choose from. Thanks to their home equity, which is now near a record average of around $330,000, owners can tap into their homes to help finance any number of expenses, large or small. And there are multiple ways to do so, ranging from cash-out refinances to reverse mortgages (for homeowners 62 and older) to home equity loans. 

One cost-effective home equity option now is a home equity line of credit, also known as a HELOC. HELOCs work similarly to credit cards, in the sense that you borrow as needed over time versus obtaining one lump sum. But, unlike credit cards, HELOCs come with significantly lower interest rates. And those rates are poised to drop even further as the Federal Reserve issues rate cuts, as they did in September. What would a $20,000 HELOC cost monthly, then, now that rates have been reduced? That’s what we’ll calculate below.

Start by seeing what HELOC rate you qualify for here now.

Here’s what a $20,000 HELOC costs monthly now that rates were cut

Before calculating the potential costs of a HELOC, no matter the amount, it’s important to remember that HELOC rates are variable, meaning that they’ll change over the repayment period. While this is a major disadvantage when interest rates are climbing, it can be a big benefit now with rates on the decline again. 

That said, it’s difficult to predict with certainty what your HELOC rate will be in the months and years ahead, as rates will change over that time. Here’s what a $20,000 HELOC costs monthly now that rates were cut, tied to two common repayment periods:

• 10-year HELOC at 8.94%: $252.70 per month
• 15-year HELOC at 8.94%: $202.14 per month

But what happens if the Fed issues a rate cut of 25 basis points in November and another by the same amount in December? While HELOC rates won’t directly fall by the same amounts, it’s helpful to know what those payments could potentially look like if you wait. Here’s what they’d be if today’s rates are reduced by 25 basis points:

• 10-year HELOC at 8.69%: $250.01 per month 
• 15-year HELOC at 8.69%: $199.18 per month

And here’s what they’d be if HELOC rates drop by a total of 50 basis points from where they are currently:

• 10-year HELOC at 8.44%: $247.33 per month 
  
• 15-year HELOC at 8.44%: $196.25 per month

So not only are HELOCs relatively inexpensive now, but the monthly payments are likely to become even cheaper in the months to come. Still, it doesn’t make sense to wait. Because HELOCs adjust independently (unlike home equity loans which will need to be refinanced), you’ll automatically enjoy a lower rate when it drops. Don’t hesitate to open a HELOC now.

Get started here today.

The bottom line

Right now, a HELOC comes with monthly payments between approximately $203 and $253, and those payments could potentially drop by a few dollars in the months ahead. But it’s important to remember that the best HELOC rates, just like the best rates on any other borrowing product, will be reserved for those with the highest credit scores. So if your credit isn’t in top shape now, you may not be offered the above rates. And remember that your home is the collateral in these borrowing circumstances so it’s critical that you only withdraw an amount of home equity that you can easily afford to pay back.