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In today’s high interest rate environment, credit cards, personal loans and standard lines of credit have become expensive options for borrowing money. After all, credit card rates are nearing 22% on average, personal loan rates are routinely in the double digits and other options have seen rates rise to levels that are having a significant impact on affordability. In turn, finding a reasonable way to borrow can be problematic.
However, one relatively affordable borrowing option remains for homeowners, and that’s tapping into the equity they’ve built in their homes. Thanks to years of rapid home price appreciation, the average homeowner with a mortgage now has nearly $300,000 in home equity built up. And,home equity borrowing ratesare often much lower than the rates available on credit cards, personal loans and other borrowing options.
But while the average homeowner has a lot of home equity available to tap into, you don’t necessarily have to borrow that much money. Lenders typically have minimum borrowing limits of around $10,000 for home equity products. And, if you’re looking to borrow a smaller sum of money, like that minimum amount of $10,000, there are a few home equity tapping options that make sense right now — and some that you may want to steer clear of.
Find out how affordable home equity borrowing can be here.
3 ways to borrow $10,000 of home equity right now
If you want to borrow $10,000 from your home’s equity, there are a few options that you may want to consider, including:
A home equity loan
For homeowners who need to borrow a relatively small, fixed sum of $10,000, a home equity loan can be an affordable solution. With a home equity loan, you receive the entire $10,000 lump sum upfront after getting approved. You then repay that loan amount, plus interest, through monthly payments over a term that typically ranges from five to 15 years.
Home equity loan rates average around 8.6% right now. While that average rate is higher than what it was a couple of years ago, it remains much lower than the double-digit rates attached to personal loans and credit cards these days, making it a more affordable option to consider.
And, for a smaller $10,000 loan amount, a home equity loan can make sense. The interest rates are fixed on home equity loans, meaning that they won’t change with fluctuations to the wider rate environment, so you get a predictable repayment schedule with fixed monthly payments.
Compare your home equity borrowing options online now.
A home equity line of credit
A home equity line of credit (HELOC) can also be an affordable way for homeowners to borrow around $10,000 against their home equity. Rather than receiving the full amount upfront like a home equity loan, a HELOC gives you a revolving credit line to borrow against as you need it, similar to a credit card.
With most lenders, you can typically open a HELOC with an initial draw between $10,000 to $25,000 against your home equity. The average HELOC rate is around 9.2% currently, so it’s lower than many alternatives.
Plus, you only pay interest on the specific amount you borrow rather than the entire credit line, which can save you money on interest over the long run. And, because the rates on HELOCs are variable, if rates decline in the future, the rate on your HELOC could drop in tandem, saving you even more money on interest.
For homeowners who may need $10,000 initially but could need additional funds later, a HELOC provides the flexibility to continue borrowing against your credit line during the draw period. This makes HELOCs a good solution for funding an ongoing project or paying off a smaller amount of credit card debt over time.
A home equity sharing agreement
A home equity sharing agreement is a newer product that allows you to essentially sell an investor a share of your home’s future appreciation in exchange for a lump sum payment today. So to receive $10,000 cash today, you may sell a 10% to 15% share of your home’s future appreciated value.
When you eventually sell or refinance down the road, you’ll pay the investor their share of your home’s appreciated value from the time the agreement was initiated. If your home doesn’t increase in value, you don’t owe anything more than the amount you originally received.
While not a loan in a traditional sense, home equity sharing agreements can provide upfront cash for those looking to access their home equity without going into debt or paying interest charges. And for smaller $10,000 sums, a home equity sharing agreement can allow you to tap into your equity without the additional monthly payment. This makes it an interesting option for some borrowers in today’s economic climate.
The potential downside is owing more if your home appreciates significantly before terminating the agreement.
2 home equity options to avoid if borrowing $10,000 right now
There are also a few options you may want to avoid if you’re planning to borrow $10,000 in home equity right now, including:
A cash-out refinance
With a cash-out refinance, you refinance your existing mortgage for more than you owe and pocket the difference in cash. While this can allow you to access $10,000 or more by tapping your equity, it only makes sense for homeowners whose current mortgage rates are higher than the rates offered today.
That’s unlikely to be the case for most people, considering that mortgage rates hovered between 2% to 3% on average during the height of the pandemic, so many people opted to refinance or buy at that time. And with closing costs often totaling thousands of dollars, it’s rarely worth refinancing just to get access to $10,000 in cash.
A reverse mortgage
A reverse mortgage allows those 62 and older to access a portion of their home equity without having to make monthly payments on the loan proceeds received. However, the upfront costs and fees on reverse mortgages can be high, often making them impractical for borrowing relatively small sums like $10,000. Plus, this option is limited in terms of borrowers who qualify, so unless you’re a senior who wants to tap into your home equity, it’s likely not an option at all.
The bottom line
Ultimately, your financial situation and borrowing needs will play a big part in dictating which home equity product is the best fit when borrowing $10,000. But no matter what route you ultimately take, just be sure to shop around for the lowest rates and fees from multiple lenders. Reaching out to online lenders and credit unions as well as banks can increase your options. And, make sure to carefully consider whether putting your home up as collateral is worth it for the loan amount you need, $10,000 or otherwise.
Angelica Leicht is senior editor for Managing Your Money, where she writes and edits articles on a range of personal finance topics. Angelica previously held editing roles at The Simple Dollar, Interest, HousingWire and other financial publications.
