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Here's how much you'd save by using a HELOC

A HELOC could save you thousands of dollars when compared to credit cards and personal loans.  Getty Images

There are countless reasons why you may need to borrow money. And when that need arises, you may look to a personal loan or credit card to access the funding. But with the federal funds rate frozen at a 23-year high, credit cards and personal loans are expensive options right now. 

The good news is that they're not your only options. In fact, if you own your home, you may have a significant amount of borrowing power that you can tap into with a competitive interest rate. That borrowing power stems from your home equity (your home's current value minus what you still owe to your lender). And, you can tap into your equity using a home equity line of credit (HELOC).  

If you're like most American homeowners, you probably have quite a bit of equity available to you. That's because American homeowners have an average of around $299,000 in equity. And, they can maintain a healthy, 20% stake in their homes, even after tapping into $193,000 worth of their equity on average. 

But how much of a difference would using a HELOC make in terms of your borrowing costs?

Find out how affordable a HELOC can be now

Here's how much you'd save by using a HELOC

Whether you decide to use a credit card, personal loan or HELOC to take care of your financial need, the cost of that loan will be determined by multiple factors, including the amount you borrow, the rate you secure and the nature of that rate (fixed or variable). As of April 19, 2024, the average HELOC interest rate is 9.06%. At the same time, the average interest rates on personal loans and credit cards are 12.18% and 20.71%, respectively. 

But what does that equate to in terms of dollars and cents? How much would a HELOC cost and how much would it save you when compared to personal loans and credit cards if you were to borrow $15,000? The exact answer varies since credit cards and HELOCs both come with variable interest rates that may rise or fall ahead. But if today's rates stayed the same for the life of each product, here's how much each would cost over the course of a 10-year payoff period: 

  • HELOCs: A $15,000 HELOC at 9.06% would cost $190.50 per month. You would pay a total of $7,860.13 in interest over the life of the loan. But it's important to note that this amount assumes that you take the $15,000 out and begin paying it off immediately. However, you're not usually required to make principal payments during your draw period (the first five to 10 years of a HELOC on average). If you take advantage of this interest-only period without making payments toward principal, your total interest cost will be higher. 
  • Credit cards: If you wanted to pay a $15,000 credit card balance off at 20.71% in 10 years, you would have to pay $296.00 per month ($106.00 per month more than a HELOC). Over the course of 10 years, you would pay $20,637.00 in interest ($12,776.87 more interest than a HELOC).  
  • Personal loan: A $15,000 personal loan at 12.18% with a 10-year term would cost $216.77 per month ($26.27 per month more than a HELOC). And, you would pay a total of $11,012.42 in interest over the life of the loan ($3,152.29 more interest than a HELOC). 

Keep in mind that interest rates are likely to change over the course of the 10-year payoff period these examples are built around. HELOCs and credit cards both have variable interest rates that will ebb and flow with the overall interest rate environment. You can also refinance your personal loan later if you come across a better rate. Nonetheless, HELOCs usually provide a meaningful monthly and long-term savings when compared to credit cards and personal loans. 

It's also worth noting that HELOCs come with other advantages. For example, you may be able to access a larger amount of funds with a HELOC than you would be able to with a credit card or personal loan. And the interest you pay on a HELOC may be tax deductible if you use the loan to make repairs or renovations to the home you used as collateral. Unfortunately, that's not true for credit card or personal loan interest. 

Save money with a HELOC today.

The bottom line

A HELOC has the potential to save you thousands of dollars over the life of a 10-year $15,000 loan when compared to credit cards and personal loans. But, there's a tradeoff. HELOCs are collateralized by your home. So, it's vital that you're able to make your monthly payments as failing to do so could put your home in jeopardy. Nonetheless, if you know you can make the monthly payments and you need access to funding, consider tapping into your home equity with a HELOC today

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