$50,000 home equity loan vs. $50,000 HELOC: 3 things to consider with inflation rising
Borrowing $50,000 always comes with a series of critical considerations. When using your home as collateral, those considerations become even more important. After all, while you may be able to secure a $50,000 personal loan or a credit card with a $50,000 limit, you won't have to worry about providing collateral. But those concerns are prevalent when borrowing with a home equity loan or home equity line of credit (HELOC). Homeowners will need to be strategic and cautious in their approach. Should they fail to make repayments as agreed upon, they could risk losing the home to the lender.
This is more of a concern now that interest rate cut relief appears delayed for the foreseeable future – and inflation has risen for four consecutive months. Against this backdrop, then, homeowners considering borrowing $50,000 worth of home equity should carefully consider their home equity loan and HELOC options. Below, we'll break down what to think about now.
Start by seeing how much home equity you'd be eligible to borrow here.
$50,000 home equity loan vs. $50,000 HELOC: What to consider with inflation rising
Not sure which home equity borrowing product is better to borrow $50,000 now? Here are three factors to consider that can help you narrow down your decision:
The current interest rate
If you're looking to pay the smallest monthly payment possible, then a HELOC will help you do that in a better way than a home equity loan can. That's because HELOC rates are averaging just 8.29% right now while home equity loan rates are between 8.50% and 8.55%, depending on the term length. So your monthly payments on $50,000 with a HELOC will be a bit lower than with a home equity loan, at least to start. But that could soon change if economic factors don't break in a certain way.
See what HELOC interest rate you'd qualify for now.
The rate structure
HELOC interest rates are variable. Home equity loan interest rates are fixed. This is vital to understand now since it means that HELOC interest rates and, thus, payments on a $50,000 line of credit could soon rise, particularly if inflation continues to increase and interest rate hikes become more realistic.
Home equity loan rates, meantime, while admittedly slightly higher than HELOCs at the moment, will remain the same despite any volatility in the greater interest rate climate. In other words: That cheaper $50,000 HELOC monthly payment could soon become more expensive, due to no fault of the borrower. So weigh both options carefully, especially right now.
The wider economy
A rise in inflation isn't good news for borrowers. Unfortunately, that's been the news for the last four months with no clear end in sight. If it continues to tick up, not only will rate cuts be delayed further, but rate hikes may come back into the equation. Lenders won't need for either to formally take place to start adjusting their rate offers upward in anticipation. Closely consider a range of scenarios, then, to better determine how to borrow $50,000 worth of equity now. And consider speaking to a financial advisor or lending expert who can guide you.
Learn more about your home equity loan and HELOC options here.
The bottom line
Borrowing $50,000 worth of home equity may make sense now, especially compared to high-interest rate alternatives like credit cards and personal loans. But with inflation rising again and the cost of borrowing likely to tick up, homeowners should be judicious in their approach. That means carefully evaluating both their home equity loan and HELOC options to better determine which makes sense for them right now and, potentially, for multiple years to come.
