Here's how much a $40,000 home equity loan costs monthly now that the Fed cut interest rates

The costs of borrowing with a home equity loan could decline now that interest rate cuts are being issued again. Getty Images/iStockphoto

Being approved for a $40,000 line of credit isn't always easy. And, right now, with the average credit card interest rate just under a recent record high, it isn't exactly cheap either. 

If you're a homeowner, though, you have a viable source of funding that's readily available at a reasonable interest rate. And, thanks to the Federal Reserve's interest rate cut this month – and presumed additional ones in October and December – a home equity loan is now one of your cheaper ways to borrow money. With the average home equity amount worth hundreds of thousands of dollars, borrowing a $40,000 lump sum should be relatively simple to do.

Before getting started, however, it's important to calculate the repayment costs. That's especially critical with a home equity loan, ias you could risk foreclosure if you're ultimately unable to make monthly payments as agreed to. To ensure long-term affordability, it's important to crunch those numbers in advance. But how much does a $40,000 home equity loan cost monthly now that the Fed cut interest rates? Below, we'll do the math.

See how much home equity you'd be eligible to borrow here.

How much does a $40,000 home equity loan cost monthly now that the Fed cut interest rates?

With a home equity loan, it's easy to calculate your future monthly payments, thanks to a fixed interest rate. In other words, your payment won't change in the future unless you elect to refinance your loan to a different rate or term. Here's what a $40,000 home equity loan costs monthly now, tied to two common repayment periods and available rates:

• 10-year home equity loan at 8.43%: $494.45 per month
• 15-year home equity loan at 8.31%: $389.45 per month

To better understand how rates have changed alongside Fed rate cuts, here's what a home equity loan in the same amount would have cost in February:

• 10-year home equity loan at 8.57%: $497.44 per month 
• 15-year home equity loan at 8.52%: $394.36 per month

For further context, here's what a $40,000 home equity loan cost last year, after the Fed issued a half percentage point rate cut in September 2024:

• 10-year fixed home equity loan rate at 8.56%: $497.23 per month
• 15-year fixed home equity loan rate at 8.49%: $393.66 per month

Today's payments are lower than they were at the start of 2025 and lower than they were last fall, too. At the same time, they're not so much lower that they justify an automatic loan application. Borrowers will need to compare the costs of acting now versus potentially waiting for the rate climate to cool further to better determine when it's worth taking action.

Learn more about your current home equity loan options here.

What about a $40,000 HELOC, instead?

A home equity line of credit (HELOC) offers a cost-effective and timely alternative to home equity loans right now. Not only are they cheaper (with an average rate of just 8.05%), but they're positioned to become even more affordable if additional rate cuts are issued, as this product has a variable rate that can change monthly in response to market conditions. 

Still, that variability can also cause rates to move upward, and it makes it difficult to calculate long-term costs with precision. Here's what a $40,000 HELOC would cost each month, assuming today's rates remain constant over time:

• 10-year HELOC at 8.05%: $486.37 per month
• 15-year HELOC at 8.05%: $383.42 per month

While payments are currently cheaper with a HELOC, borrowers should also calculate their costs alongside a range of prospective, realistic rates to better determine long-term affordability.

The bottom line

A $40,000 home equity loan comes with approximate monthly payments between $494 and $389 now that the Fed cut interest rates again. However, that payment assumes a good credit score and eligibility on behalf of the borrower, so make sure that you understand the eligibility criteria before getting started, and begin any work required there first. It took a long time for rates to come down again, so you'll want to make sure that you're in a position to take advantage of this timely opportunity.