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Is a $30,000 home equity loan or HELOC better right now?

Home equity loans and HELOCs are beneficial under different circumstances.  Getty Images/iStockphoto

There are several reasons why you may need access to $30,000 right now. As inflation persists, the cost of living continues to increase. So, when unexpected expenses arise - like home repairs, medical bills and more - it may be difficult to find the money you need to cover them in your budget. 

But, your home equity can help. In today's high interest rate environment, home equity loans and home equity lines of credit (HELOCs) can open the door to borrowing power at single-digit interest rates. That's a significant benefit when compared to other options like personal loans and credit cards that typically come with double-digit rates. 

But, which home equity borrowing option is better right now? Should you take out a home equity loan or open a HELOC if you need to borrow $30,000 worth of your equity?

Find out how affordable borrowing against your home equity can be now

Is a $30,000 home equity loan or HELOC better right now?

There are a few important factors to consider when you decide if a home equity loan or HELOC is better given your unique financial situation. The first of those is the monthly cost of the loan or credit line. Here's what you can expect from each: 

  • 10-year home equity loan: Today's 10-year home equity loans come with an average interest rate of 8.77%. Your payments on a $30,000 10-year loan at 8.77% would be $376.30 per month and you would pay $15,156.38 in interest over the life of the loan. 
  • 15-year home equity loan: Today's 15-year home equity loans come with an average interest rate of 8.75%. At that rate, your payments on a $30,000 15-year home equity loan would be $299.83 and you would pay $23,970.23 in interest over the life of the loan. 
  • HELOC (with a 15-year repayment period): HELOCs have variable interest rates. That means your interest rate and payment on these lines of credit are subject to change from time to time. At the moment, HELOCs have an average interest rate of 9.16%. If that rate stayed the same through the life of your credit line, and your credit line had a 15-year repayment period, your monthly HELOC payments would be $307.14 through the repayment period on a $30,000 balance. You would pay $25,285.56 in interest over the life of the repayment period (in the unlikely chance that your interest rate and payments remain the same throughout the entire repayment period.)

It's also important to note that home equity loans and HELOCs come with different features. Home equity loans offer your financing in one lump sum. HELOCs provide a credit line that you can use as needed through your draw period. And, home equity loans typically have fixed interest rates. So, which is better right now?

Compare leading home equity borrowing options today

When a $30,000 home equity loan would be better

A $30,000 home equity loan may be your better option if you need predictable payments. Since HELOCs usually come with variable rates, their payments may rise or fall over time. But, home equity loan interest rates are fixed. So, you'll know how much your payments will be each month regardless of the overall interest rate environment. That stability may be important considering the fact that the cost of living is on the rise. 

Fixed rates are also beneficial if you believe overall interest rates will rise in the future. If you lock in today's rates with a home equity loan, and interest rates head up in the future, your rate will remain the same. 

When a $30,000 HELOC would be better

A HELOC could be better if you need more flexibility in your financing. After all, having a credit line with a single-digit interest rate to tap into when you need it can be beneficial in today's inflationary environment. 

"If you don't know how much you need and won't need the money all at once, a HELOC currently comes with a higher rate but it offers flexibility to draw it down over time," explains Alex Blackwood, CEO and co-founder of the real estate investing platform, Mogul Club. "At this moment, HELOC interest rates are higher but give you the flexibility, an advantage if rates come down in the future."

So, a HELOC makes sense if you believe interest rates will fall. If they do, your HELOC rate could follow, bringing your payments down. 

Finally, if you need a lower payment in the near term, a HELOC can help. Because of the nature of the draw period, you'll only usually be required to pay interest during this period - which could lead to low monthly payments for the first five to 10 years of your credit line (the term of your draw period). 

Compare HELOCs among leading financial institutions now

The bottom line

Home equity loans and HELOCs both make sense under different circumstances. If you need a fixed payment or believe that interest rates will rise ahead, a home equity loan could be your better option. If you need a lower payment early on and more flexible access to funding, a HELOC may be the better choice. That's especially true if you believe that interest rates will drop in the future. Compare your home equity borrowing options now

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