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Does a HELOC or a home equity loan make more sense right now?
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The economy is in a bit of a transition. Inflation has cooled considerably, and with the Federal Reserve recently cutting rates, the costs of borrowing have decreased, too. Rates on home borrowing products, in particular, are seeing an impact — including home equity loans and home equity lines of credit (HELOCs).
But while these two options are both getting more affordable, that doesn’t mean they’re a good fit for every homeowner. Below, we’ll break down when experts say a home equity loan makes sense now — and when you might want a HELOC instead.
Considering access your home equity? See what rate you qualify for here now.
Does a HELOC or home equity loan make more sense right now?
Nor sure which of these options is best for you in today’s unique economic climate. Then consider these factors:
If you want to ride the low-rate wave: HELOC
HELOCs usually have variable rates, so the rate you get right now will likely change over time. That’s not great in times when rates are rising, but when interest rates are expected to fall? Things can only improve.
“They’re tied to the prime rate, which can be super beneficial during periods of low rates,” says Clint Jordan, a real estate agent and founder of Mil-Estate Real Estate Network.
This hasn’t been the case in recent history. As Darren Tooley, a loan officer at Union Home Mortgage, explains, “Home equity loans have been considered a better alternative than HELOCs for the last couple of years. Now that we anticipate a rate-cutting cycle by the Fed, a HELOC might be a better option since every time the Fed cuts rates, the rate on your HELOC should go down accordingly.”
See what HELOC rate you’d be eligible for here.
If you have one specific expense you need to cover now: Home equity loan
A home equity loan might be the right choice if you have a single large expense you need to cover soon. It could be a home or car repair or it might be an unexpected bill or medical cost. Whatever it is, a home equity loan can give you a large lump sum to cover it.
“If you need a large lump sum for a specific expense, a home equity loan might be the better choice,” says Debra Shultz, vice president of lending at CrossCountry Mortgage. A HELOC, on the other hand, is better “If you need slow access to funds over time,” she says.
Just be aware: Since home equity loans are usually fixed-rate products, the rate you get when you apply for your loan will be your interest rate for the entire loan term. That means you won’t benefit from any additional rate cuts if the Fed opts for them, unless you move to refinance.
John Aguirre, a mortgage originator at Loantown, says don’t fret, though. “The changes in rates are not going to make a noticeable impact on monthly cash flow for the majority of borrowers. You can always refinance.”
If you need low payments right now: HELOC
HELOCs work a little differently than traditional loans. Instead of making full interest and principal payments from the start, you instead pay only interest for the first 10 years (this is called the draw period). This makes them great for consumers who need cash but don’t have the funds for a huge monthly payment at the moment.
“You borrow only what you need, when you need it, and pay interest only on what you borrow,” Shultz says.
If you want stability: Home equity loan
As home equity loans are usually fixed-rate loans, more risk-averse consumers are better served by a home equity loan in most scenarios.
“Fixed-rate home equity loans provide much more certainty than variable-rate HELOC loans because homeowners can know their monthly payments before taking out the loan,” Tooley says. “This allows the borrower to budget and know exactly what to expect monthly.”
HELOCs don’t offer this kind of predictability. And while they might allow you to take advantage of lower rates now, market conditions can change fast. When that happens, it could mean rising payments instead. “This can cause concern for many people,” Tooley says.
Run the numbers
If you’re considering tapping your home equity, it doesn’t hurt to consider all your options — home equity loans, HELOCs and cash-out refinancing. Just reach out to a loan officer and have them run the numbers on all three scenarios to see which fits your needs and budget best. You can also use a broker to help you shop around for the best rate, too.
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National and Georgia state Democrats filed suit Monday to block a rule adopted 10 days ago by the Georgia State Election Board that would require hand counting of ballots in the election in November.
“The rule violates Georgia law for numerous reasons,” the Democratic National Committee and Democratic Party of Georgia wrote in their complaint, adding that it could introduce “uncertainty” into the effort to tally votes and delay certification of the state’s election results.
The board, which has a newly minted pro-Trump majority, approved a requirement on Sept. 20 that ballots be counted by hand after machines tally the votes. The rule would require trios of precinct poll managers and poll officers to unseal ballot boxes and count the ballots by hand individually to ensure the tallies match the machine-counted ballot totals.
In their lawsuit, Democrats asked a Georgia court to “swiftly block the rule’s implementation before it can go into effect and wreak havoc on the general election.”
In a statement, Vice President Kamala Harris’ principal deputy campaign manager Quentin Fulks noted that some top Georgia Republican officials oppose the new hand count rule. The lawsuit cites comments made by Georgia Attorney General Chris Carr and Secretary of State Brad Raffensperger, claiming the new rule was unlikely to survive a legal challenge.
“We agree with Georgia’s Republican Attorney General and Secretary of State: This rule is unproductive and unlawful, and we are fighting it,” Fulks said. “Democrats are stepping in to ensure that Georgia voters can cast their ballots knowing that they will be counted in a free and fair election.”
Representatives for the Georgia State Election Board did not immediately reply to a request for comment.
Supporters of the ballot-counting rule say it will increase public trust in elections by making them more transparent.
The Georgia election rules
At the meeting where the hand counting rule was passed earlier this month, a number of people addressed the board, lamenting that the rule could lead to more errors in calculating results. They also spoke of the challenges it would create for poll workers.
“Asking our election asking our election workers to do this on every voting day is asking for errors,” said Kristin Nabers, the state director for the nonpartisan organization All Voting is Local. “I’ve personally watched multiple counties conduct full hand counts over the past year. It’s normal that many times an hour we can expect small errors to be made, the type of thing where someone’s count is off by one or two, this would result in having to count again.”
Nabers had another woman standing next to her at the podium holding a large stack of papers. She said the 1,872 pages represented what a stack of ballots could look like on counting day. “I have someone helping me hold the stack because I was too worried it would fall on the floor and make a mess,” she said. “Like, imagine if those were ballots.”
Barbara Gooby, a poll manager from Chatham County, said the rule could “introduce huge opportunities for chaos, error, voter insecurity and therefore … lawsuits.”
On Monday, Rep. Nikema Williams, the chair of the Democratic Party of Georgia, highlighted the role of three members of the election board who, like former President Donald Trump, have questioned the 2020 election results after he lost the state.
“Experts and non-partisan officials across Georgia have warned that this eleventh-hour election rule change will inject chaos, confusion and uncertainty into our elections — but that is exactly the outcome that Donald Trump’s three ‘pit bulls’ for ‘victory’ on the State Election Board want,” Williams said in a statement to CBS News.
During an Aug. 3 rally in Atlanta, Trump pointed out those election board members in the audience and thanked them by name, saying Janice Johnston, Rick Jaffares and Janelle King were “pit bulls” fighting for his cause. He also criticized the other two members of the board, saying “we have a couple of other members that aren’t so good.”
A bench trial is scheduled to begin Tuesday stemming from a separate lawsuit filed by Democrats, claiming two other rules passed by the board this year — on 3-2 votes — would delay certification.
One rule enables local county boards in Georgia’s 159 counties to conduct a “reasonable inquiry” before certifying the election results. The second rule allows them “to examine all election related documentation created during the conduct of elections.” It also allows them to make sure there are no discrepancies between the number of ballots cast and the number of people who voted.
Trump and others in his orbit were charged with felonies in August 2023 by the Fulton County district attorney, accused of racketeering and other crimes in their effort to overturn the 2020 election. He has denied all allegations. Several of the charges against Trump have since been dropped.
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If you were looking for an inexpensive way to borrow a large sum of money in recent years, there weren’t many attractive options to explore. As inflation surged, rates on mortgages, personal loans, credit cards and more rose with it. But while rates on the latter two products soared into the double digits, home equity borrowing remained relatively cheap. Home equity loan and home equity lines of credit (HELOC) rates stayed below 10% even as inflation hit a decades-high and mortgage rates moved to their highest level since 2000.
Now, however, with inflation falling and the Federal Reserve issuing interest rate cuts, this unique borrowing option is becoming even cheaper for homeowners. Considering that the average homeowner has more than $300,000 worth of equity now, it’s also a smart way to access a large sum of money. But if a homeowner want to withdraw $50,000, for example, which way would be cheaper – a HELOC or home equity loan? Below, we’ll break down the potential costs as well as some nuances borrowers should consider.
See what home equity loan rate you could qualify for here now.
Is a $50,000 HELOC or home equity loan cheaper now?
HELOCs and home equity loans have similar but different interest rates now. The average home equity loan rate is currently 8.39% while the average HELOC rate is now 8.94%. Here’s what the monthly payments would be for each if a homeowner withdrew $50,000:
Home equity loans:
- 10-year home equity loan at 8.39%: $616.99 per month
- 15-year home equity loan at 8.39%: $489.15 per month
HELOCs:
- 10-year HELOC at 8.94%: $631.76 per month
- 15-year HELOC at 8.94%: $505.35 per month
On paper, home equity loans are slightly cheaper now, but the difference between the two borrowing types is critical to understand. Home equity loans have fixed interest rates that won’t change over the life of the loan unless refinanced by the borrower. That’s a plus in a climate in which rates are falling, but it could be detrimental now as interest rates are on the decline again. HELOCs, meanwhile, have variable rates that adjust monthly with no action required by the borrrower. That’s a unique advantage now as additional interest rate cuts loom, but it will need to be measured against the lower costs of a home equity loan.
In short: Home equity loans are cheaper for qualified borrowers right this moment. But if you lock in a rate now and the overall climate continues to cool, a HELOC could become the less expensive alternative. So carefully calculate your costs and weigh your risk appetite to narrow down your choice. And remember that home equity loan refinancing isn’t free. It will typically cost between 1% and 5% of your total loan amount. But HELOC rates can rise as easily as they can fall, too, so attempting to take advantage of a cooling climate could backfire if rates don’t fall as expected.
Compare your best HELOC and home equity loan options online now.
The bottom line
Right now, it’s cheaper to borrow $50,000 worth of home equity with a home equity loan instead of a HELOC. But the rate climate is constantly evolving and this could soon change, particularly if the Federal Reserve issues additional interest rate cuts in November and December. So start calculating your costs now and pay close attention to daily rates for your opportunity to capitalize on the cheapest home equity borrowing product possible. And remember that your home functions as the collateral in either borrowing circumstance, so only withdraw an amount that you’re comfortable repaying or you could risk losing your property in the process.