How much interest would I pay on a $75,000 home equity loan?
Borrowing money is a simple fact of life for most people. Whether it's using a credit card, taking out a mortgage or financing a car, there are some purchases that most Americans need to borrow money from a bank to make. But one way of borrowing money that you may not be as familiar with is a home equity loan.
A home equity loan can be used to pay for a wide range of expenses, from a home improvement project to starting a new business. Before you take out a home equity loan, though, it's important to know how much money you'll pay in interest.
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How much interest would I pay on a $75,000 home equity loan?
Let's say you are taking out $75,000 to do a major home renovation. Before taking out the loan, you want to figure out how much you'll end up paying in interest.
But first, it's important to know that home equity loans are amortized, meaning that your payments will stay the same from month to month, but a larger portion of your payment goes toward interest earlier in the loan repayment process. Over time, the interest charges are paid down and a larger portion of the payment goes toward the principal.
Determining the total interest payment for an amortized loan can be more complicated than calculating interest on a simple interest loan, where you can just multiply the loan principal by the interest rate and term.
Luckily, there are online calculators you can use to calculate your interest rate, which can be used to calculate how much interest you will pay for a $75,000 home equity loan based on today's rates.
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Example 1: 10-year fixed rate home equity loan at 9.09% interest
As of November 10, 2023, the average rate on a 10-year fixed-rate home equity loan is 9.09%. If you have a $75,000 home equity loan with these terms, you'd pay $39,447.03 in interest over the course of the loan. The monthly payment on this loan would be $952.73.
Example 2: 15-year fixed-rate home equity loan at 9.13% interest
The current interest rate for 15-year home equity loans is slightly higher at 9.13%. If you borrow $75,000 with these terms, you'll pay $62,971.97 in interest over the course of the loan — but your monthly payment will be lower at $766.51.
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Other ways to access home equity
Another option for borrowing against your home equity is a home equity line of credit (HELOC). HELOCs work a bit differently than home equity loans. Rather than taking out a lump sum loan, a HELOC functions like a credit card, allowing you to borrow money from a line of credit when you need it.
Unlike a home equity loan, the interest rate on a HELOC is variable, meaning that the rate offered by the lender can change, which impacts the amount of interest you are charged. This makes it difficult to predict exactly how much you'd pay if you took $75,000 out in a HELOC.
Right now, the average interest rate on a HELOC is 10.04%. However, during the life of your loan, the rate could increase or decrease depending on the overall rate environment, so you can't predict exactly how much you will pay.
The bottom line
A home equity loan can be a great way to borrow money, provided you meet the requirements. If you do qualify, a home equity loan can be used to pay for expenses like home repairs, an emergency or even to start a small business. Just make sure you know how much you'll end up paying in interest and confirm that the project is worth taking on the debt.
