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Home equity Borrowing is a smart way to access significant sums of money, especially now that the average homeowner has near-record amounts of financing available. With just passed $300,000 in equitythe average homeowner has a significant amount of money available to finance major renovations, pay off debts or finance other expenses weddings Unpleasant medical debt and more.
Given the amount of money available, some homeowners may be looking for the best way to access it. A $80,000 withdrawal may be a preferred amount because it can give owners a significant amount of money to use while not expanding the average available amount of equity that many homeowners currently have.
But what is the best way to get this amount? Is a home equity line of credit (HELOC) the preferred method or is a equity loan the better way to access $80,000? Below we outline some considerations to take into account now.
First check how much equity you need to borrow here.
Is a HELOC or Home Equity Loan Better to Borrow $80,000?
While every homeowner’s financial situation is different, there are some broadly applicable considerations to take into account when considering either option as the path to borrowing $80,000. Here’s when each could be better:
When a HELOC might be better off borrowing $80,000
If you’re looking for the cheapest way to borrow $80,000 of your home equity and are confident that the economy is improving and that interest rates will improve soon too, then a HELOC is the better way to borrow right now. That is because interest rates on HELOCs Are variable and can change over time, unlike mortgage loans which have fixed interest rates refinanced if you want a lower rate in the future.
That said, today’s mortgage lending and HELOC interest rates are not quite the same. HELOCs average 9.17% for qualified borrowers, while home loans average 8.60% – a difference of more than half a percentage point between the two types. So you need to determine whether the higher rate on a HELOC is worth it right now versus the possibility that it will drop significantly if and when the The Federal Reserve is making its first interest rate cut of 2024.
Learn more about your HELOC options online now.
When a home equity loan might be better to borrow $80,000
If you are looking for a cheaper way to borrow home equity, the range of loans with half a percentage point difference is significant. An $80,000 loan at 8.60%, repaid over 10 years, equates to $996.17 in monthly payments for a total interest value of $39,540.31. However, with a HELOC, you’ll pay $1,020.78 in monthly payments and $42,493.73 in total interest over the same period. That’s $24.61 more per month and $2,953.42 over the life of the credit line, all assuming the interest rate will stay the same, which is unlikely. If interest rates fall, they could fall below the current average home loan interest rate. But they can also rise.
That said, you could benefit from a lower interest rate environment with mortgage loans in the future, but this will be necessary refinancing to the new, lower rate and, as with any refinancing, will incur its own costs to lock in the lower rate. So you should consider all costs carefully potential costs — before you continue.
it comes down to
There is no right or wrong way to borrow $80,000 from your home equity. For some homeowners, a cash-out refinancing or reverse mortgage can also be useful. But if you’re considering a HELOC or home loan, make sure you calculate the costs of both and the possibility that rates on either could change before you act. It’s critical to get these numbers as accurate as possible before borrowing money, regardless of the amount. Your house acts as collateral for the lender and you risk losing it if you cannot pay back everything you borrowed.
