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If you need to borrow money, then you’ll want to ensure that you’re doing so in the most cost-effective way. And, in recent years, that has often been via a home equity loan. When interest rates spiked on other borrowing products, home equity loans weren’t immune. But with the home serving as collateral in these exchanges, lenders offered lower rates than they would with other, unsecured debt types. Combine that with a spike in home equity levels that have left the average homeowner with $300,000-plus in equity to utilize, and this became an obvious borrowing tool for many, especially for smaller amounts like $50,000. This loan amount allowed owners to keep a sizable amount of equity as a cushion for future use while still allowing them to pay for a wide range of expenses now.
But, again, it does come with the home serving as collateral, which could be risky for homeowners, especially in today’s hard-to-predict economic climate. Personal loans, on the other hand, do not utilize the home as a funding source and, thus, could be a viable way to borrow that same $50,000 right now. To better determine which makes the most sense for your financial circumstances, it helps to compare the potential repayment costs of each. So, which is cheaper this June: a $50,000 home equity loan or a $50,000 personal loan? That’s what we’ll break down below.
Start by seeing how much home equity you could borrow here.
$50,000 home equity loan vs. $50,000 personal loan: Which is cheaper this June?
The median personal loan interest rate is currently 12.65% while the average home equity loan interest rate is 8.25% for a five-year loan. While personal loan term lengths can vary, the difference in the rates is reflected in starkly different repayment amounts each month. Here’s what each would look like over 60 months:
- 5-year $50,000 home equity loan at 8.25%: $1,019.81 per month
- 5-year $50,000 personal loan at 12.65%: $1,128.72 per month
- Monthly payment difference: The home equity loan is around $109 cheaper each month and approximately $6,540 over the five years.
Not only is the $50,000 home equity loan cheaper both monthly and over the full repayment period, it will remain so unless the homeowner refinances it (assuming personal loan rates don’t plunge during that period). That’s because home equity loan interest rates are fixed while personal loan rates can be both variable and fixed, injecting some uncertainty into the equations above. In other words, if you want to pay less each month, save money over the long term and don’t want to stress over a potentially variable interest rate, borrowing $50,000 with a home equity loan instead of a personal loan is often the better decision.
See how low a home equity loan rate you could qualify for here.
What about a $50,000 HELOC?
A $50,000 HELOC could be the more attractive borrowing option when compared to these two alternatives. HELOC rates are down by more than 1.5 points from where they were last September and, this spring, briefly fell below 8%. But HELOCs could also be a risky combination of both of the above options. That’s because they also use the home as collateral (like a home equity loan) but the rates here almost always variable, making long-term budgeting particularly difficult for homeowners. And with the average HELOC rate being about the same as a home equity loan at 8.27% now, there’s no obvious advantage to using this specific home equity borrowing tool this June (unless you’re confident rate cuts are imminent and want to be positioned to exploit them when they’re issued).
The bottom line
A $50,000 home equity loan is substantially cheaper than a $50,000 personal loan this June, saving borrowers money both monthly and annually. And those repayments will be fixed, allowing homeowners to budget with precision, unlike with a variable-rate HELOC or some personal loans. Just be sure to use the home equity loan for advantageous purposes (and to avoid risky ones) to ensure that it works for your financial goals both now and into the future.
