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By Ben Geier
Edited By Matt Richardson
/ CBS News
Borrowing against your home equityis like a secret weapon for homeowners – you can get lower rates than other personal loans, and you can even use the money you borrow to improve your home in hopes of selling it for more money. It isn't something to be taken lightly, though – if you take out a home equity loan and end up unable to pay it back, you could lose your home. While this is scary, you can figure out before you take out the loan exactly how much you'll owe each month and build a budget around making sure you can pay it back on time.
Start looking for a home equity loan online right now.
How much would a $150,000 home equity loan cost per month?
How much you'd spend each month if you took out a $150,000 home equity loan depends on the terms of the loan. Here's what to expect with a few of the options available to you:
Example 1: 10-year fixed-rate home equity loan at 9.07%
The current average rate for a 10-year fixed-rate home equity loan is 9.07%. If you took out a $150,000 loan at that rate, you'd pay $1,905.82 per month for ten years. You'd end up paying a total of $78,698.86 in interest. Adding in the $150,000 in principal, you'd pay $228,698.86.
Most home equity loans come with fixed rates, meaning that your interest rate on the remaining principal in your loan won't change throughout your payment period.
You can shop for the best home equity rates online right now.
Example 2: 15-year fixed-rate home equity loan at 9.09%
The current average rate for a 15-year fixed-rate home equity loan is just slightly higher than the 10-year average rate at 9.09%. If you took out a loan for $150,000 with these terms, you're monthly payment would come to $1,529.44. While that is a lower monthly payment than the 10-year option, you'd end up paying significantly more overall – $125,299.42 in interest and therefore $275,299.42 total.
When choosing between these options, consider how much you can pay each month. If your budget allows for a higher monthly payment, pick the shorter loan term to save money in the long run. If you can't afford that, the longer loan term is your best choice, even though you'll spend more money throughout the loan.
Example 3: Take out a HELOC
There is another option available for those looking to borrow against their home equity – a home equity line of credit (HELOC). With a HELOC, you don't take out a lump sum, but open a line of credit you can borrow against as you need. If you aren't sure exactly how much money you need to borrow, this could be a good option. For example, your expenses could be unpredictable if you're borrowing money to start a business. If you end up needing more or less than the $150,000 you are predicting, this allows you flexibility.
Unfortunately, it isn't possible to predict your monthly payment for a HELOC. This is because HELOC rates are variable, and could change money times for your repayment. This makes it more difficult to budget, but know that right now the average HELOC rate is 10.03%.
The bottom line
Borrowing $150,000 against your home equity could be a good idea if you need the money – provided you have a plan to make the payments on time. Your monthly payment for a 10-year loan would be just under $2,000, while you'd pay just over $1,500 per month on a 15-year loan. Make sure you consider your monthly budget in order to best make this personal financial decision.
Ben Geier is a personal finance writer based in Brooklyn, New York.
