If you’re a homeowner who’s considering tapping into your home equity with a home equity loan, now may be an opportune time to make your move. Right now, the average homeowner has about $327,000 in home equity at their disposal, an increase of about $28,000 compared to February 2024. What that means is that you may have a significant amount of home equity to borrow against — and in many cases, you can do so at an affordable rate.
Because home equity loans are secured by your home, this type of borrowing tends to be one of the most cost-effective ways to secure a substantial loan — whether you’re looking to renovate, consolidate debt or cover large expenses. And the recent Federal Reserve rate cut, which dropped the benchmark rate by 50 basis points, has made home equity loan rates more attractive than they were just a few months ago.
Before you tap into your home equity, though, it’s important to understand what your monthly payments could look like, especially now that rates have been cut. So how much would a $100,000 home equity loan cost per month at today’s interest rates?
How much would a $100,000 home equity loan cost per month now that rates are cut?
When you borrow money with a home equity loan, the rate on your loan is fixed, meaning that it won’t change with fluctuations to the wider rate environment. The rate you lock in when you take out your loan is the rate you’ll keep (unless you refinance your home equity loan at some point). That makes it simple to calculate how much you could pay each month on your loan.
That said, the monthly payment on a $100,000 home equity loan depends largely on two factors: the interest rate you qualify for and the loan’s repayment period. There are two common repayment periods on home equity loans — 10 years and 15 years — and the average 10-year fixed home equity loan rate is currently 8.50% while the average rate on a 15-year home equity loan is 8.41% right now. Based on those repayment terms and rates, here’s how much you can expect to pay each month on a $100,000 home equity loan:
- 10-year fixed home equity loan at 8.50%: $1,239.86 per month.
- 15-year fixed home equity loan at 8.41%: $979.47 per month.
While homeowners who secure a home equity loan now may lock in relatively low payments, it’s worth noting that rates could drop even further over the next few months. If inflation continues to stay low or fall, it’s likely the Fed will make additional interest rate reductions later this year, which could lead to even lower borrowing costs for new home equity loans.
For example, if the Fed were to conduct another 50-basis-point rate cut, and the average interest rate for a 10-year home equity loan were to fall by the same amount, dropping to 8.00%, the monthly payment on a $100,000 loan would decrease to $1,213.28. While this might seem inconsequential given that you’d only save about $25 per month, it adds up to over $3,000 in total savings over the life of the loan.
Similarly, if the 15-year home equity loan rates were to fall to 7.91% (dropping by the same 50 basis points), it would result in a monthly payment of approximately $950.46, saving you over $5,000 in interest across the loan term compared to current rates.
Given these potential savings, some homeowners might consider waiting for further rate cuts before locking in a loan. However, predicting interest rate movements is difficult, and it may be worth securing a favorable rate now if you need immediate access to funds — just in case rates increase again in the future.
The bottom line
The recent interest rate cuts have made home equity loans more attractive, with a $100,000 loan potentially costing between about $979 and $1,239 per month, depending on the repayment term and the current interest rate. Home equity loan rates can vary significantly from one lender to the next, though, so if you’re planning to take out this type of loan, you should be sure to shop around, compare offers from multiple lenders and be ready to apply for the right loan when you find it. By doing so, you can capitalize on this favorable lending environment and secure a home equity loan that aligns with your financial goals and budget constraints.
