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It is always a good idea to look for the most cost-effective borrowing option. But in today’s economy, where millions of people are still recovering from economic highs, inflation cycle, and in which the federal funds rate remained interest rate raised at all levels, it is essential to get the cheapest option. While popular items like credit cards and personal loans currently come with double-digit rates, homeowners have an inexpensive alternative that they can easily access: their home equity.
Although home equity loans come in a variety of forms, two of the most common are home equity loans And Home Equity Lines of Credit (HELOC). Either one is arguably better than using credit cards and personal loans, especially for smaller amounts like $10,000. Considering that the average homeowner has hundreds of thousands of dollars in equity To access it now, borrowing an amount of $10,000 will make a small difference in the amount of equity accumulated.
However, potential borrowers need to know exactly which home equity option is the cheapest when looking to borrow $10,000. And because home equity loans and HELOCs work in different ways, it’s important to do the math ahead of time.
Find out what home equity loan rate you could get here now.
Is a $10,000 Home Equity Loan or HELOC Cheaper Right Now?
In the past, HELOCs had lower rates interest rate than home equity loans. But in today’s economy, where rates change often and inflation remains a problem, the opposite is happening. Home equity loans have an average rate of 8.66% (as of May 22), while HELOCs have an average rate of 9.17%. Although close, home equity loans would be better for accessing $10,000 right now. Here’s what each option would cost monthly, based on 10- and 15-year repayment schedules:
Home Equity Loans
- 8.66% over 10 years: $124.84 with $4,981.17 in interest for a total of $14,981.17
- 8.66% over 15 years: $99.41 with $7,894.53 in interest for a total of $17,894.53
HELOC
- 9.17% over 10 years: $127.60 with $5,311.72 in interest for a total of $15,311.72
- 9.17% over 15 years: $102.44 with $8,439.28 in interest for a total of $18,439.28
As can be seen, if you’re looking for the least expensive way to borrow $10,000 on your home, a home equity loan is the best way to go in today’s rate climate. Not only will you save money each month, but you’ll also save thousands of dollars in interest over the life of the loan.
Start exploring your home equity loan options online today.
Why a Home Equity Loan May Be Better Than a HELOC Now
In addition to the aforementioned savings, a home equity loan also comes with a level of security that HELOCs simply don’t offer. This is because home equity loan interest rates are fixed while HELOC rates are variable and subject to change as the pricing environment evolves. This may be a benefit ahead of impending rate cuts, but is arguably detrimental at a time when interest rate cuts appear to be delayed indefinitely. So not only will you get a lower rate by choosing a home equity loan now, but that rate will remain the same even if the rate climate improves in the weeks and months to come.
The essential
If you need to borrow $10,000 now, consider avoiding personal loans and credit cards and using your home equity instead. However, when choosing this financing, it arguably makes more sense to use a home equity loan, thanks to its lower costs and rate lock. Just understand that this may change in the future; if rates start to fall soon, a HELOC might be better for some borrowers. So do your research ahead of time and understand that your home is collateral in both borrowing situations. So you’ll want to make sure that the option you ultimately choose gives you the easiest way to repay what you deducted.
Learn more about home equity loans and HELOCs here.
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