How much would a $40,000 home equity loan cost per month?

If you own a home, there's a good chance you have some borrowing power available. And, this borrowing power could be combined with competitive interest rates. Average owners have potentially hundreds of thousands of dollars to take advantage of right now.

But what if you were to come up with $40,000 and decided to use one home loan to do it? Of course, home equity isn't free money; it will have to be returned at some point. If you do not make your payments as agreed you can lose your home. Therefore, it is important to make sure that you can afford to pay back what you have borrowed. Therefore, you should calculate the expense before applying for a loan.

But, how much your monthly payments would be on a $40,000 home equity loan? That's what we'll break down below.

Find out how affordable a home loan could be.

How much would a $40,000 per month loan cost?

The monthly home loan payment will be based on the initial loan balance, the interest rate and the term of the loan you choose. Here's how much you'd have to pay monthly if you took out a $40,000 loan with a 10- or 15-year term, at current average interest rates.

• A 10-year loan for the value of the home: Currently, the average interest rate on a 10-year loan is 8.80%. At this interest rate, a $40,000 10-year loan would cost $502.38 per month. You would pay a total of $20,286.04 in interest over the life of the loan for a total payment cost of $60,286.04.
• A 15-year loan for the value of the home: The average interest rate on a 15-year loan is also 8.80% at the moment. So your monthly payments on a $40,000 15-year loan would be $400.96. The loan would have a total interest cost of $32,173.06 and a total payment cost of $72,173.06.

Based on these numbers, the 15-year home equity loan would cost about $100 less per month than the 10-year option. But, there is a trade-off to consider. The total cost of the 10-year loan is $11,887.02 less than the total cost of the 15-year option. Therefore, you will need to decide whether monthly or long-term savings are more important to you as you choose.

Compare your home equity loan options from top lenders today.

What if you take the HELOC route?

You may decide to use a Home Equity Line of Credit (HELOC) to access the financing you need. But, these line of credit products come with variable interest rates that will change from time to time.

That said, the average HELOC interest rate is currently 9.88%. Assuming your HELOC had the average interest rate and that rate stayed the same over a 10-year payment period, your monthly payments on a $40,000 HELOC would be $525.95. During this 10-year repayment period, you will pay $23,113.82 in interest for a total payment cost of $63,113.82.

Again, it's important to note that your HELOC interest rate may change from time to time, and this could have an impact on your monthly payment. In addition, these loans usually include a draw period which allows you to access more funding for the first five to 10 years. By taking advantage of this access to financing (by borrowing more money against your equity), you can enter your repayment period with a higher HELOC balance, resulting in higher payments.

Smart ways to use $40,000 in home equity

If you decide to take advantage of your home's equity, it's important to make wise decisions about how you'll use it. Some of the smarter uses of home equity include:

Use your home's value to your advantage now.

The bottom line

A $40,000 home equity loan at today's average interest rate would come with a monthly payment of between $400.96 and $502.38. If you choose the HELOC route, your payment could be around $525.95, but that payment can change thanks to the variable rate that these lines of credit typically include. However, if you do access your equity, be sure to use it wisely. Consider using it to make home repairs, pay off debt, or start a business now.