Your home equity could be your financial secret weapon, giving you the ability to borrow a large sum of money relatively quickly. Moreover, when you borrow against your home equity with a home equity loan or home equity line of credit (HELOC), you’ll typically get a lower interest rate than you would on personal loans and credit cards, thanks to the fact that you’re using your home as collateral. 

“HELOCs are great for the flexibility they offer compared to other options,” says Darren Tooley, senior loan officer at Cornerstone Financial Services. “With a HELOC, you are approved for a credit limit, but you don’t have to access the full amount up front and you only have to pay interest on the amount you have borrowed.”  

On the other hand, before you open a HELOC, it’s important to understand how much it will cost you. After all, you’ll have to pay back the money you borrow, so it’s smart to make sure you can afford the payments when they come due. 

Explore how a HELOC can help you gain access to the funds you need. 

How much does a HELOC cost per month?

HELOCs are revolving credit lines with variable interest rates. That means the amount of money you’ll pay per month depends on a couple of different things: 

• Current interest rates: The average HELOC currently comes with a 10.3% interest rate, though your rate may be higher or lower depending on your borrowing profile and the lender you choose to work with.
• Your balance: You can expect a higher minimum payment when you borrow more money and a lower minimum payment when you borrow less. 
• Future interest rate changes: Because HELOCs have variable rates, they can change over time depending on the overall rate environment. It’s important to understand this, as any changes to your rate could result in higher (or in some cases, lower) payments each month.

Here are the monthly payments you can expect on HELOCs with 20-year terms (as calculated with the Mortgage Calculator):

$25,000 HELOC with a 20-year term:

• $25,000 HELOC balance at 9.8%: $204.17 per month
• $25,000 HELOC balance at 10.3%: $214.58 per month
• $25,000 HELOC balance at 10.8%: $225 per month

$50,000 HELOC with a 20-year term:

• $50,000 HELOC balance at 9.8%: $408.33 per month
• $50,000 HELOC balance at 10.3%: $429.17 per month
• $50,000 HELOC balance at 10.8%: $450 per month

Compare your HELOC options now. 

How to reduce the monthly cost of a HELOC

There are a few ways you could cut the cost of borrowing with a HELOC, including: 

Compare your options

Financial institutions are individual companies that can charge whatever interest rates they’d like on HELOCs. So, some financial institutions offer better rates than others. Of course, a lower interest rate usually equates to a lower minimum monthly payment. 

Rather than applying for the first HELOC you find, consider comparing at least a few options to ensure that you’ll pay a competitive rate. Moreover, a comparison of HELOCs with the same terms may also result in savings on other fees, like closing costs. 

Improve your credit score

If you’re on the lower end of the credit spectrum, you may want to take steps to improve your credit score before you apply for a HELOC. After all, a higher credit score could qualify you for a lower interest rate. Some things you can do to improve your credit score include: 

• Dispute false entries on your credit report. 
• Settle past-due debts.
• Open a secured credit card and use it responsibly. 
• Make all future payments on time. 

Limit the amount of money you borrow

Your minimum payment is directly impacted by the amount of money you borrow. Since a HELOC is a revolving line of credit, you don’t have to use 100% of your credit limit if you don’t need it. 

Rather than tapping into 100% of your available home equity, determine how much money you need to achieve your goals. For example, if you’re using your HELOC to pay off $25,000 in high-interest credit card debt, try to limit your borrowing to the $25,000 you plan to spend on improving your financial situation. If you borrow more than you need, you could end up with a higher minimum payment than you can comfortably afford. 

Reach out to your current financial institution

As noted, financial institutions can set their interest and fees. Oftentimes, banks and credit unions will reward their current customers by offering them more competitive interest rates in exchange for their loyalty. For example, if you already have a checking account, savings account, and home loan with a bank, there’s a strong possibility that you’ll be able to access a competitive interest rate by reaching out to that bank to get your HELOC. 

Find out how affordable a HELOC can be for you today. 

The bottom line

HELOCs are typically an inexpensive way to access a substantial amount of money. Moreover, by taking advantage of the tips above, you can reduce your monthly cost of borrowing when you tap into your home equity with a HELOC. Learn the HELOC you could qualify for here. 

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, three dogs and 10 ducks.