How much will a $40,000 home equity loan cost monthly now, after the Fed's December rate cut?

Following a string of Fed rate cuts, the payments on a $40,000 home equity loan have become more affordable. Getty Images/iStockphoto

With home prices elevated in many parts of the country but with interest rates cooler than they were at the start of the year, homeowners in need of extra money may find that the combination of these factors has made home equity borrowing a viable option again. And with a home equity loan for $40,000, specifically, they may be able to secure the best of both worlds. With the average home equity level worth hundreds of thousands of dollars now and the average home equity loan rate considerably lower than it was a year or so ago, this can be the smart and effective way to borrow a five-figure amount of money right now.

But it isn't risk-free, either. Home equity loans leverage the home in question as collateral, meaning that failure to make repayments can and likely will lead to foreclosure. So it's important for borrowers to understand the potential costs before formally applying. Fortunately, those are now lower than they had been, thanks to a series of Federal Reserve interest rate cuts, the latest of which was issued last week.

So, how much will a $40,000 home equity loan cost monthly now, after the Fed's December rate cut? Fortunately, this is easy to determine thanks to the product's fixed interest rate. Below, we'll break down the numbers owners need to know.

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

How much will a $40,000 home equity loan cost monthly now, after the Fed's December rate cut?

A $40,000 home equity loan can help homeowners pay for expenses large and small while still maintaining a large amount of equity in the home for any future needs. Here's how much a $40,000 home equity loan costs monthly now, after the December 10 Fed rate cut, calculated against available rates and two common repayment periods:

10-year home equity loan at 8.18%: $489.12 per month15-year home equity loan at 8.13%: $385.27 per month

For reference, here's what a $40,000 home equity loan would have cost in the days following the Fed's October rate cut:

10-year home equity loan at 8.21%: $489.76 per month15-year home equity loan at 8.10%: $384.57 per month

And here's what it would have cost in September after the central bank issued its first rate reduction of 2025:

10-year home equity loan at 8.43%: $494.45 per month15-year home equity loan at 8.31%: $389.45 per month

So payments here are lower than they were following the previous two Fed rate cuts, even though the difference is minimal. Still, following multiple years of elevated borrowing costs, a reduction in rates will be greeted positively by borrowers, and if they take the time to shop around to compare rates and lenders, they may even be able to find a rate that's even lower than these listed averages now.

Shop for low home equity loan rates online today.

Is a cash-out refinance the better way to borrow equity now?

While home equity loans and home equity lines of credit (HELOCs) remain viable options for borrowing equity now, other homeowners may be wondering about the merits of a cash-out refinance. This occurs when the homeowner takes out a new mortgage loan larger than their current balance and then uses the former to pay off the latter, keeping the difference between the two as cash that will need to be repaid over time. 

The major issue with this approach now, however, is that it requires the exchanging of your current mortgage rate for one of today's readily available rates, which means those buyers with rates under 5% from recent years would have to pay considerably more than they've become accustomed to. Consider this option and crunch the numbers, then, but if you need an amount like $40,000, a home equity loan is likely to be your more affordable option.

The bottom line

A $40,000 home equity loan comes with monthly payments between $385 and $489 for qualified borrowers right now. That makes a home equity loan of this size both more affordable than it was following the previous two Fed rate cuts, and it can make it one of the better ways to borrow this much money now, going into 2026. So consider taking a closer look at your home equity if you find yourself in need of extra financing now. Following years of elevated interest rates, the numbers here may work in your favor again.

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