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In today’s economy, in which millions are still coping with stubborn (if reduced) inflation and interest rates stuck at their highest level in decades, there aren’t many cost-effective ways to borrow money. However, one relatively simple and inexpensive way to access large sums of cash remains the same – home equity. Homeowners, on average, are sitting on hundreds of thousands of dollars worth of equity right now, which is often accessible at interest rates much lower than what can be found with alternative options.

But even home equity loans and home equity lines of credit (HELOCs) are not exempt from today’s high-rate climate. While the rates on both are just under 10% right now, with a little effort and a strategic approach, homeowners considering this option may be able to cut the costs on these loans even further. 

Start by seeing what home equity loan rate you qualify for here today.

4 effective ways to reduce home equity loan costs now

While there are multiple ways to cut the costs of a home equity loan, here are four of the best ways new applicants can keep costs in check:

Shop around

Did you know that you don’t need to use your current bank to tap into your home equity? Multiple banks will be happy to help you, so don’t hesitate to shop around to find one offering the best rate and terms. Consider getting prices from at least three to see which is truly the best for your needs and goals, but be sure to submit the same application with each. 

So, for example, don’t get a rate for a $10,000 home equity loan with one lender and a $40,000 home equity loan with another. By submitting a uniform request with each, you’ll get a more accurate idea of which is truly offering you the best deal.

You can compare multiple home equity loan lenders online here.

Chose a home equity loan over a HELOC

Not only do home equity loans have slightly lower interest rates than HELOCs right now, but that rate will be locked until the loan is paid back. HELOCs, however, have variable interest rates that will change as the rate climate does. That means, theoretically, that they could drop in the future. 

But with inflation stubborn and interest rate hikes more realistic than many had expected at this point in 2024, they could increase, too. So, if you’re looking to cut costs and keep those costs in check regardless of what happens in the greater rate climate, choose a home equity loan over a HELOC now.

Only borrow exactly what you need

With the average homeowner having six figures worth of equity to tap into right now, the temptation to borrow more than you need can be strong. But it’s critical to only borrow exactly what you need and not more. This will go a long way to keeping your monthly payments manageable. So, if you need $10,000, don’t borrow $20,000 to have on the side. Crunch the numbers and only apply for a precise amount. 

Negotiate closing costs

Yes, you will need to pay closing costs on a home equity loan or HELOC, just like you did with your original mortgage loan. But these closing costs may be negotiable, depending on what’s included and the lender you choose to do business with. So, don’t be afraid to negotiate them down. Certain fees charged by a lender may be waived, but you won’t know until you ask.

Learn more about your current home equity loan options here.

The bottom line

In today’s recovering economy it’s critical to save wherever you can. This importance extends to home equity borrowing, which uses your home as collateral. In these circumstances, it’s vital that you can adequately pay back what you borrowed or risk losing your home in the process. To make that easier, then, borrowers should do what they can to reduce home equity loan costs. By shopping around for lenders and choosing a fixed-rate home equity loan over a variable-rate HELOC to only borrowing exactly what they need and negotiating closing costs, homeowners can more effectively cut costs and keep their budgets manageable.