If you’re seeking a substantial amount of funding, traditional borrowing options like personal loans and credit cards often fall short, as their high interest rates and limited borrowing capacities can make them more hassle — and more expensive — than they’re worth. Part of the issue is that credit card rates recently climbed to unprecedented levels above 23%, while rates on personal loans, though more reasonable, still hover around 13%. 

However, homeowners have a potentially more attractive option: tapping into their home equity. Today’s homeowners are in a particularly advantageous position, with the average household holding approximately $330,000 in home equity — about $214,000 of which is tappable, meaning that it can be borrowed against while retaining a healthy amount of equity in your home. This substantial cushion opens up several borrowing possibilities, including home equity lines of credit (HELOCs), home equity loans and cash-out refinancing. 

Among these options, though, HELOCs stand out right now due to their variable rates, which can benefit borrowers as interest rates continue to decline. But while a HELOC could be a good option, understanding the cost implications of a HELOC is crucial for making an informed borrowing decision. To help you make a decision, let’s take a look at how much a $250,000 HELOC could cost each month now that rates are dropping.

Find out what home equity rates you could qualify for here.

How much does a $250,000 HELOC cost now that rates are dropping?

HELOC rates can and will adjust automatically with the wider rate environment. So, the rate you start with will likely not be the rate you end with, as your HELOC rate will change over time. That said, the average HELOC rate is currently 8.68% (as of October 31, 2024). Using that average rate, we can estimate the cost of a $250,000 HELOC based on two popular repayment timelines: 10 and 15 years. 

Here’s what those payments would look like at today’s rate:

• 10-year HELOC at 8.68%: The monthly cost would amount to $3,123.76 with this rate and term.
• 15-year HELOC at 8.68%: The monthly cost would amount to $2,488.30 with this rate and term.

If there are more rate cuts by the Fed in the coming months, as the Fed has indicated could happen and as most analysts forecast, HELOC costs could decline even further. For example, if Fed rates drop by 0.25%, as anticipated, and HELOC rates drop by the same amount, your monthly costs could look like this:

• 10-year HELOC at 8.43%: The monthly cost would amount to $3,090.29 with this rate and term.
• 15-year HELOC at 8.43%: The monthly cost would amount to $2,451.60 with this rate and term.

A more substantial decrease of 0.50% over time would make monthly payments even more affordable. Here’s what your monthly payments would look like when factoring in a potential 50-basis-point drop:

• 10-year HELOC at 8.18%: The monthly cost would amount to $3,057.02 with this rate and term.
• 15-year HELOC at 8.18%: The monthly cost would amount to $2,415.18 with this rate and term.

As you can see, the potential for reduced monthly costs as rates decline makes HELOCs an appealing option for homeowners. Still, it’s essential to carefully consider your borrowing capacity as you make a decision. Interest rates are expected to continue to drop over time, but they could fluctuate unexpectedly, so it’s wise to budget for a range of possible payment scenarios to ensure affordability.

Compare today’s best home equity borrowing rates now.

Does a home equity loan make more sense right now?

While home equity loans offer the security of fixed rates, they’re generally not the optimal choice in the current rate environment. Here’s why: The Federal Reserve is expected to implement more rate cuts in the coming months, which would directly benefit HELOC borrowers through lower monthly payments. With a home equity loan, you’d be locked into today’s higher rates unless you refinance – a process that incurs additional closing costs and fees.

On the other hand, HELOCs automatically adjust to rate decreases without requiring refinancing or additional expenses. This flexibility makes them particularly attractive when rates are expected to fall. HELOCs also allow you to draw funds as needed (up to your borrowing limit) rather than borrowing a lump sum, which can potentially reduce your interest costs if you don’t need the full amount.

The bottom line

Today’s $250,000 HELOCs have payments ranging from roughly $2,415 to $3,124 per month depending on the term and current rate. Given the Federal Reserve’s anticipated rate reductions, these payments could decrease further, making HELOCs an attractive option for accessing substantial funds affordably. So, if you need to borrow a large sum of money with minimal cost, a HELOC could be your best choice in today’s shifting financial landscape.