$40,000 home equity loan vs. $40,000 HELOC: Which is cheaper this May?

With household debt levels high, credit card interest rates still sitting around 20% (on average) and inflation rising once again, millions of Americans now find themselves in need of extra financing. And they’ll need access to a large amount fairly quickly to make ends meet. Fortunately, for homeowners, there are two viable options to secure this funding: home equity loans and home equity lines of credit (HELOCs). 

With home equity levels in the United States reaching a record high in 2025 and with more than $10 trillion considered borrowable in today’s economy, this May could be the smart time to leverage those funds with one of these products. And while $40,000 may feel like a lot to borrow, with hundreds of thousands in equity (on average) to use, a HELOC or home equity loan of this size will still allow you to maintain a healthy equity cushion for the future.

To better determine the merits of each product now, it helps to know the associated monthly costs each comes with. Between a $40,000 home equity loan and a $40,000 HELOC, then, which will be cheaper this May (and in the months to follow)? That’s what we’ll examine below.

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

$40,000 home equity loan vs. $40,000 HELOC: Which is cheaper this May?

Average rates for home equity loans and HELOCs are comparable right now, making either an affordable choice for those planning to borrow $40,000. That said, home equity loan interest rates are fixed and won’t change even if the rate climate does, which could be favorable for those concerned about borrowing against their home equity (the home functions as collateral). A HELOC, meanwhile, has a variable rate that will change each month based on the direction of the interest rate environment. Here’s how much it would cost to borrow $40,000 with each over two common repayment periods, assuming that the HELOC rate holds steady throughout:

$40,000 home equity loans

• 10-year home equity loan at 6.98%: $464.02 per month
• 15-year home equity loan at 6.98%: $359.08 per month

$40,000 HELOCs

• 10-year HELOC at 7.04%: $465.26 per month
• 15-year HELOC at 7.04%: $360.43 per month

So the home equity loan is not only slightly cheaper each month, but it will come with an added layer of security thanks to the fixed rate. Not only will that protect against any rate hikes ahead, but it will also allow borrowers to budget accurately. 

That noted, the HELOC payments outlined above were calculated on the assumption that the full line of credit will be utilized and repaid immediately. Many lenders, however, will simply mandate interest-only payments on the HELOC during the draw period before mandating full repayments be made later on (typically after 10 years). If borrowers were to opt for that repayment structure instead, their payments here would be even lower. It’s critical to examine both carefully, then. Affordability should be a top priority, but the way in which you plan to repay either product should also be accounted for before an application submission.

Learn more about your home equity borrowing options here.

The bottom line

If you’re a qualified borrower with a good credit score, borrowing $40,000 worth of home equity now will cost you between $464 and $361 per month, approximately, whether it be with a loan or a HELOC. But those payments can and likely will change if you do so with a variable rate HELOC, so it’s critical to account for rate adjustments in advance. And don’t discount the potential benefits of a cash-out refinance or reverse mortgage, too, as these alternatives may ultimately prove to be a better fit for your budget and goals than a home equity loan or HELOC currently is.