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MoneyWatch: Managing Your Money
By Angelica Leicht
Edited By Matt Richardson
/ CBS News
The last couple of years have been pretty tough on prospective homebuyers between the issues with low levels offor-sale home inventoryand increasinghome pricescaused by steady demand. And, due to the elevated rate environment, the average rate on a 30-year fixed mortgage loan is now just under 7% — which is much higher than the sub-3% rates being offered in 2020 and 2021.
But one bright spot has emerged from today's unusual housing market environment. Given the uptick in home values, the average homeowner now has about $299,000 in home equity — and borrowing from a portion of it witha home equity loanat a low rate can help you affordably fund things like home improvements, debt consolidation or unexpected expenses.
If you're considering a home equity loan, though, it's crucial to understand how much it will cost you each month to determine if it fits into your budget. Below, we'll break down what you can expect to pay each monthfor a $50,000 home equity loan based on today's average rates.
Explore the home equity loan rates you could qualify for here.
How much would a $50,000 home equity loan cost per month?
You have a few different options when it comes to home equity loans, including 10- and 15-year loan terms. So, for these examples, we'll explore the monthly costs associated with three different loan options: a 10-year fixed home equity loan, a 15-year fixed home equity loan and a 10-year home equity line of credit (HELOC).
The formula for calculating the monthly cost of a home equity loan stays the same across the board. You can use this formula to calculate the approximate monthly costs of nearly any home equity loan type and amount:
Formula: Monthly payment = P * [r(1 + r)^n] / [(1 + r)^n – 1]
- P = Principal amount ($50,000)
- r = Monthly interest rate (Annual rate / 12 months / 100)
- n = Number of monthly payments (Loan term in years * 12)
Find out today's top home equity loan rates here.
Example 1: 10-Year fixed home equity loan at 8.75%
A 10-year fixed home equity loan offers a fixed interest rate. This means your monthly payments will remain the same throughout the life of the loan unless you refinance to a lower rate.
Calculating the monthly cost for a $50,000 loan at an interest rate of 8.75%, which is the average rate for a 10-year fixed home equity loan as of September 25, 2023, the monthly payment would be $626.63.
And because the rate is fixed, this monthly payment would stay the same throughout the life of the loan.
Example 2: 15-year fixed home equity loan at 8.73%
Now, let's consider a 15-year fixed home equity loan with an interest rate of 8.73%, which is the current average rate for this type of home equity loan. Using the same formula as above, we can calculate the monthly payment. Your monthly payment would be approximately $499.13. And, as with the 10-year home equity loan, this monthly payment would stay the same throughout the life of the loan.
Example 3: 10-Year HELOC at 9.10%
A HELOC is a type of home equity loan that functions like a line of credit rather than a lump-sum loan. This type of home equity loan typically comes with a variable interest rate, but for this example, we'll assume that the rate does not change over the life of the HELOC and that you used the full $50,000 credit line.
Let's calculate the monthly cost for the 10-year HELOC at an interest rate of 9.10% — which is the current average rate. Just keep in mind that the interest rate can fluctuate during the loan term, which may affect your monthly payments.
With a 10-year HELOC at 9.10%, your initial monthly payment would be approximately $636.09. However, keep in mind that this rate can change over time based on market conditions, which would directly impact the amount of your monthly payments.
The bottom line
Before taking out a $50,000 home equity loan or HELOC, it's essential to understand the monthly costs associated with each option. Fixed-rate home equity loans provide predictable payments, while HELOCs offer flexibility but come with variable interest rates that may change. Before making a decision, it can help to consider your financial goals, risk tolerance and budget to find the right loan — and term — with a monthly payment that fits your budget and needs.
Angelica Leicht
Angelica Leicht is senior editor for CBS' Moneywatch: Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
