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CBS News
29-04-2025
- Business
- CBS News
HELOCs vs. home equity loans: Which borrowing option is more affordable now?
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. Homeowners should closely examine their home equity borrowing costs to determine short- and long-term affordability. Getty Images For most consumers, borrowing money right now is expensive. Credit cards come with double-digit rates (over 21%), and personal loans are pricy, too, averaging over 12% right now. If you're a homeowner, though, you have access to a lower-cost option: home equity products. With home equity loans and home equity lines of credit (HELOCs) you can snag rates under 9%. Despite their affordability, though, the two products aren't one and the same. In fact, both vary slightly in how their rates, upfront fees, and long-term costs work, so it's important to weigh your options before jumping in. Are you considering a home equity loan or HELOC now? Then it's important to understand what's more affordable now and what's likely to be more affordable in the future. We asked some experts to discuss how the costs measure up. See what home equity loan and HELOC rates you'd qualify for here. HELOCs vs. home equity loans: Which borrowing option is more affordable now? Traditionally, a home equity loan will have a lower rate than a HELOC. As John Aguirre, a mortgage originator at Loantown, explains, "Equity loans typically carry lower interest rates than equity lines of credit primarily because an equity loan is an installment loan. An equity line operates as a revolving credit line, similar to a credit card. It's primarily due to the risk factor involved with the two different types of products." Right now, though, conditions are a little different. HELOC rates are actually lower than those on most home equity loans, which can save you money — at least upfront — on your monthly payments. "Some institutions are offering lower introductory rates in anticipation of the Fed lowering the Fed funds rate," says Evan Luchaco, a home loan specialist at Churchill Mortgage. Currently, new HELOCs are averaging just 7.94%. Home equity loans, on the other hand, have rates in the mid-8% range. Just be warned that these conditions might not last long, Luchaco says. "Based on the most recent comments by Federal Reserve Chair Jerome Powell about keeping rates steady until the markets settle … the anticipation of the Fed lowering the funds rate is more unpredictable," he says. See how low of a HELOC rate you'd qualify for here. Which has lower upfront costs? If you're simply looking at the upfront costs of tapping your home equity, the decision is often a wash. As Aguirre puts it, "In my experience, equity lines and equity loans are typically going to carry the same upfront cost — mainly because they're going to go through a similar underwriting process." It really depends on where you get your loan and your financial profile, though. Some lenders will waive closing costs on all HELOCs, for example. Others might be more willing to do so if you have a higher credit score or present a low risk of non-payment. "Depending upon your credit score, debt-to-income ratio, the percentage of equity that you want to collateralize, the direction of interest rates and the state of the economy, the affordability of HELOCs or home equity loans will vary upon circumstance," says Bruce Maginn, a financial advisor at Solomon Financial. "It's vital to shop and compare not only the rates, but the costs, and negotiate these rates as low as possible. Good to excellent credit scores and a stable income history go a long way in your ability to negotiate with lenders." Which costs more in the long run? Though HELOCs have lower rates right now, they won't always be. They also usually have rates that are variable, meaning that they'll rise or fall over time, usually on a monthly basis for borrowers. As Maginn explains, "HELOCs frequently start off at a lower interest rate than the fixed rate of the home equity loan. However, as conditions change and the prime rate increases, the HELOC can quickly exceed the fixed nature of the home equity loan rate." With many HELOCs, you can make interest-only payments for the first 10 years of the credit line — called the draw period. Because of this, HELOCs can also add up to more in long-term interest costs, because you often won't start paying down the principal balance for many years, allowing for more interest to accrue than would have on a home equity loan. Learn more about your potential home equity borrowing costs here.
CBS News
01-04-2025
- Business
- CBS News
Home equity loans vs. HELOCs: What's the better borrowing option this April?
In the high-interest-rate environment of April 2025, borrowing money can be expensive. Personal loans, for instance, currently carry rates of over 12%. And credit cards ? Those average nearly double that. Homeowners, though, are lucky. They have access to a type of borrowing that's often more affordable than more traditional options. It's true: With home equity loans and home equity lines of credit ( HELOCs ), homeowners can often borrow money at interest rates well under 10%. Still, while these products can both save you on interest, they're not the same. Below, we'll break down how to choose between a home equity loan and a HELOC this April. Start by seeing how much home equity you could borrow here . Not sure which of these home equity borrowing products could work better for you now? Here's what to consider: HELOC rates are currently slightly lower than those on home equity loans so that right there will save you cash. But on top of this, HELOC rates are also variable — meaning their rate will usually go up or down based on market conditions and, mainly, the actions of the Federal Reserve. With the Fed poised to reduce rates later this year — the majority of members expect at least one more rate cut — that would likely mean lower HELOC rates, too . "I believe we are likely to see interest rates continue to come down over the coming six to 24 months, so a HELOC may be more favorable at this time," says Evan Luchaco, a home loan specialist at Churchill Mortgage. Keep in mind that rates change often, though, so if rates begin to creep up again and you're not able to pay off the balance fast, it could have an adverse effect, resulting in significantly more costs in the long run. "HELOCs are generally best when a borrower knows that they will be able to pay the new debt off quickly," says Kevin Leibowitz, a mortgage broker at Grayton Mortgage. See how low of a HELOC rate you could qualify for here . If you're planning on keeping your home equity product for a while and need an extended period to pay it off, a home equity loan may be the better choice. "If a borrower knows that the new debt will be in place for a number of years, then the home equity loan might become a better option," Leibowitz says. "The rate and payment won't change." It's also better for the more risk-averse consumer who might not be fully secure in their financial situation. "For the customer who is more conservative financially, a home equity loan is often a more sensible route," Luchaco says. "It provides a secure interest rate." You'll likely want a HELOC if you need a "just-in-case" fund or some financing on hand for unexpected expenses. "A HELOC can be considered an emergency fund if someone doesn't have one or doesn't have the means to set one up very quickly," says Patti Brennan, CEO at Key Financial. "For example, if/or when we go into a recession and downsizings occur, your boss won't really care if you have money in the bank or a means to pay your bills — but you should." HELOCs can also be the better choice if you have an expense that's extended — a long-term home renovation or recurring tuition payments, for instance. As Aaron Craig, vice president of mortgage and indirect sales at Georgia's Own Credit Union, put it, "If you're not quite sure how much home improvements are going to cost and would like some flexibility to borrow as much or as little as you need as the project progresses," HELOCs can be a good choice now. Finally, if your goal is to consolidate high-interest debts right now, experts say you're better off using a home equity loan than HELOC. "A HELOC can ultimately be dangerous when used to consolidate debt and alleviate monthly payments, but the homeowner doesn't change their spending habits," Luchaco says. This is because HELOCs allow you to keep borrowing money, usually for up to 10 years. If you pay off your debts and then continue to use those HELOC funds for other non-essential purchases, you could end up with a bigger problem than before. "Eventually, that type of homeowner will get themselves into trouble again and inevitably need to sell their home in order to use their remaining equity to pay off the newly acquired debt — or end up in some sort of financial hardship," Luchaco says. Every situation is different, and there are lots of factors to take into account when borrowing from your home equity. If you're not sure which is best for you, talk to a home equity lending professional. They can walk you through your full scope of options and help point you in the right direction both this April and, hopefully, long-term.
