Home equity loan interest rates just dropped under 8%. Here's what borrowers should do now.

Home equity loan interest rates fell this week to their lowest level in two years, a Wednesday report revealed. The average rate for the benchmark five-year home equity loan is now just 7.99%, according to Bankrate, giving homeowners an affordable way to borrow from their home equity with a fixed-rate product that won't shift if market conditions do.

The average rate on a 10-year home equity loan, meanwhile, is now just 8.17%, and it's 8.13% for a 15-year term, providing cost-effective options for a variety of borrowers. This is good news for homeowners in need of extra financing in today's economy, as both personal loans and credit card alternatives currently come with interest rates materially higher. And while rates on home equity lines of credit (HELOCs) are slightly lower than the cheapest home equity loans, rates there are variable and subject to rise or fall as the economy evolves.

Homeowners in need of extra financing, then, may want to take advantage of this timely opportunity now, while they still can. To do so, they should consider taking certain strategic steps. Below, we'll break down the next three moves these prospective home equity loan borrowers should consider now that rates are under 8% again.

Start by seeing how much home equity you could borrow here.

What borrowers should do now that home equity loan interest rates are under 8%

Want to exploit this affordability moment in the home equity loan borrowing space? Consider making these three moves in response now:

Shop around for lenders

It's important to note that the 7.99% rate outlined above is just an average. Some lenders may be offering rates even lower than that right now. But you won't know which ones are offering better, more competitive rates and offers (and which ones aren't) until you take the time to shop around for lenders. You don't even have to use your current mortgage lender if you don't want to, nor should you if you can find a better deal with a competitor. 

Take the time, then, to compare rates, terms and fees from at least three other lenders. Then consider taking the best offer you've received back to your current mortgage lender to see if they can beat it. This may take some time and effort, but if the end result is a lower rate and more affordable monthly payments, it could be worth it.

Shop for the top home equity loan lenders online all in one place now.

Calculate your budget

Your home serves as collateral when borrowing equity from it with a home equity loan or HELOC. Failure to repay could mean risking your homeownership. So it's critical to know exactly what you're getting into and precisely what you can afford before formally applying for the loan. Fortunately, home equity loans have fixed interest rates that allow for precise budgeting. 

So, whether you want to borrow a $20,000 home equity loan or a $200,000 home equity loan now, you'll be able to determine the exact monthly costs. Budget carefully, then, to ensure that the loan is working to improve your financial situation, not making it worse.

Lock in a rate now

Once you know how much you can afford to borrow and with what lender at what rate, consider locking in a home equity loan rate now. It took about two years for rates to fall as low as they are right now, and there's no way to forecast how much longer it will take for them to decline materially again. 

Waiting also comes with the inherent risk that rates will rise again, not to mention neglecting the financial needs and expenses you need the home equity loan for right now. So, lock in a low rate now, while you can. And remember that you can always refinance it if and when rates drop low enough to justify making your next move.

The bottom line

With select home equity loan rates averaging under 8% now, the first time in two years, and the potential for additional rate declines uncertain, prospective borrowers should be strategic in their approach and take advantage of this timely opportunity as best they can. By shopping for lenders, calculating their budget, and finally locking in the best rate they've found, they can do just that. By taking a measured approach now, these homeowners can better help ensure home equity borrowing success both now and over the long term.