Leveraging your home equity could make financial sense in today's unique economic landscape.
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Home equity loans have fixed interest rates hovering just over 8% right now, making them one of the cheaper ways to borrow money currently (personal loans and credit cards both come with average rates in the double digits). And, if homeowners lock in one of today's rates now, they won't need to worry about market conditions that could easily cause rates to rise in the weeks and months to come, as would be the case with alternatives like home equity lines of credit (HELOCs).
So, if you need to borrow a five-figure amount such as $60,000 this September, a home equity loan could prove to be your least expensive and most reliable option. With your home serving as collateral here, however, you'll want to be confident in your ability to make the repayments. That stems from knowing what they will actually look like. This is simple to determine with precision thanks to that fixed interest. Below, we'll crunch the numbers that homeowners should know before submitting an application.
With the average home equity loan rate sitting at 8.14% now, according to , it could be a good time to consider locking it in before it potentially rises after a Fed rate hike on September 16. If you qualify for that rate and do wind up securing it now, here's what the monthly payments on a $60,000 loan will look like, calculated against two typical repayment periods:
For reference, here's what it would have cost if locked in this past January, when rates were a bit lower:
But here's what they cost one year ago, approximately, when rates were higher:
As can be deduced from a look at rates and costs over the past year, when homeowners can find a low home equity loan rate, it's generally worth locking in as there's no guarantee that it will stay affordable long-term. And that's especially true this September.
So, if you know you want to borrow money with this product and want to ensure that you secure the best rate, it could behoove you to start shopping around online now (you don't need to use your current mortgage servicer to borrow with a home equity loan). Online marketplaces, in particular, make it easier than ever to compare rates, terms, lenders and more all in one easy-to-navigate location.