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While the economic news in recent years has been mixed, at best, existing homeowners have seen one bright spot: consistently rising home equity levels. Now, at an average equity amount of $313,000, approximately, homeowners have a viable way to borrow a six-figure sum of money while still maintaining a comfortable equity cushion in their home as security. And with home equity levels recently hitting a new high of $17.6 trillion, and few indicators that home prices will decline in the short term, this could be one of the ideal ways to borrow money now.
It can be done relatively quickly and easily with a home equity loan or home equity line of credit (HELOC), too. Interest rates on both are almost identical right now (8.26% for home equity loans and 8.26% for HELOCs), making them the clear, affordable way to borrow when matched against the average double-digit interest rates that personal loans and credit cards come with. But while rates here may be virtually the same at the end of June, they’re not likely to stay so closely tied together this summer, giving prospective borrowers pause.
Before getting started, then, it helps to contemplate whether a HELOC or home equity loan will be cheaper this summer. Below, we’ll analyze the answer to this critical question.
Start by seeing how much home equity you could borrow here now.
Will a HELOC or home equity loan be cheaper this summer?
Predicting the future of interest rates on any borrowing product is inherently impossible to do accurately. No one knows exactly where the market is heading or how conditions could evolve, let alone how those items could then impact home equity loans or HELOCs. There will be guesswork involved with either product when trying to determine which could be the cheaper alternative in the months ahead. However, the interest rate structure of each implies that a HELOC could soon become the less expensive option.
Here’s why: HELOC interest rates are variable and subject to change monthly for homeowners who borrow this way. Home equity loan interest rates, at the same time, are fixed and won’t go any lower until the owner elects to refinance their loan. But with the chances of interest rate cuts increasingly growing, if not for July then when the Federal Reserve meets again in September, HELOC users will be perfectly positioned to meet the moment. That’s because HELOC rates are partially driven by Fed rate action and any cuts by the central bank will be felt in the HELOC borrowing community, perhaps even before a formal cut is issued, as lenders don’t necessarily need to wait for the Fed to take action to reduce the rates they charge borrowers.
That noted, the consistent decline HELOC rates were on earlier this year and in 2024 has slowed significantly in recent weeks and rates have reversed course a bit. They’re still more than 1.5 points below their September 2024 average but are not as low as the 7.90% they were averaging in early spring, either. And remember that should market predictions be incorrect, and rate cuts remain on hold or unforeseen economic factors change the dynamics altogether, HELOC rates can and will increase while the home equity loan rate you secure in June will be the same one in July, August, September and beyond.
In short: HELOCs are likely to become cheaper than home equity loans this summer but it’s not a guarantee, particularly in today’s hard-to-predict economic landscape. So take that prediction with a grain of salt and take the time to do your own research and online comparison shopping to determine your own thoughts on where rates could be heading for either home equity borrowing product.
Compare HELOC and home equity loan rates online here to learn more.
The bottom line
If you want to position yourself for savings later this summer, then borrowing money with a HELOC makes the most sense. But if you want to lock in a relatively low rate now, and get access to a lump sum of money right away, a home equity loan could be beneficial.
Ultimately, the answer to which will be cheaper this summer is unknown. All homeowners can do is research their home equity borrowing landscape and make an educated guess based on their goals, budget and personal thoughts on the long-term economic trajectory. Just be sure that you only borrow an amount you can pay back, no matter which option you ultimately choose. With the home in question functioning as collateral with either product, you could risk foreclosure if you’re ultimately unable to make your payments as agreed to.
Have more questions? Learn more about your home equity borrowing options online today.