Will a HELOC or home equity loan be better for homeowners this October?

There are multiple affordable ways to borrow home equity this October. Getty Images/iStockphoto

Homeowners in need of some extra financial support may be considering their home equity options this October. 

And it's easy to understand why. According to a report released in the summer, home equity levels in the United States are at a new record high. And with the average homeowner in possession of more than $300,000 worth of equity, there's likely plenty to utilize right now, covering a wide array of expenses both large and small. Interest rates associated with home equity loans and home equity lines of credit (HELOCs) are also on the decline. They're likely to continue to fall, too, now that the Federal Reserve has launched a new interest rate cut campaign.

That noted, while more affordable now than they had been earlier this year, HELOCs and home equity loans don't operate identically. Borrowers will need to take an informed and strategic approach to both, especially considering that the home functions as collateral with either. Failure to make payments can result in foreclosure, so it's important to make the right decision here, arguably even more so than when considering a personal loan or credit card.

Between a HELOC and a home equity loan, then, which will be better for homeowners this October (and the months that follow)? That's what we'll analyze below.

Start by seeing how much home equity you could borrow with either option here.

Will a HELOC or home equity loan be better for homeowners this October?

There is no uniform answer to this question this October, although the timing arguably favors one product more than the other. Here's why either could be your preferred option now:

Why a HELOC could be better for homeowners this October

Interest rates. That's the top reason why a HELOC could be better for homeowners this month. The average HELOC rate declined under 8% last week, while home equity loan rates are closer to the 8.50% mark. But unlike a home equity loan, which has a fixed rate, the variable-rate HELOC is set to become more affordable later this month when a presumed interest rate cut is issued again at the Fed's October 29 meeting. 

And lenders don't need to wait for a formal cut, either, as they can (and often do) reduce their rates in anticipation of the central bank's actions. In fact, right now, a HELOC is already more affordable than a home equity loan, personal loan and credit card, making it not only the cheapest way to borrow equity, but also one of the very cheapest ways to borrow money, period.

Still, a variable rate is a variable rate, meaning that costs here can rise as easily as they can fall. And it can be difficult to budget with a product in which rates and payments change every month. Calculate your future costs, then, against a variety of realistic rate scenarios to ensure affordability not only in October and November, but in the months and years that follow, too.

Check your current HELOC rate offers online to learn more.

Why a home equity loan could be better for homeowners this October

Peace of mind and security. That's what a home equity loan frequently offers, and that's not any different this month. Sure, rates here are slightly higher than the best HELOCs. But they're also cheaper than personal loans and credit cards. And rates are fixed, meaning homeowners won't need to worry about any adverse economic conditions that cause the rate climate to heat up again. 

The home equity loan rate you lock in this October will remain the same unless you decide to refinance it in the future. And while rates look to be coming down again, economic data points vary now. Stock market performance is strong, but unemployment and inflation both ticked up in recent reports, the latter now almost a full percentage point above the Fed's target 2% goal. So volatility is still in play. Homeowners who choose a fixed home equity loan rate won't need to worry about that, making this one of the better ways to borrow a large sum of money right now.

The bottom line

The decision between a HELOC and a home equity loan this October is more than an economic one. It's also a personal choice between a more affordable but volatile product and a slightly more expensive but reliable one. There is no one-size-fits-all answer. Homeowners who have decided they want to borrow home equity and want to do so now should measure each option carefully against each other instead and be cognizant of costs, both now and in the future. By doing so, they can make a well-informed decision and exploit this opportunity now that interest rates are cooling again.