Borrowing home equity in 2025? 3 things to consider first
The average homeowner is currently in possession of approximately $320,000 worth of home equity — and they can potentially utilize it at a much lower interest rate than some popular alternatives. With interest rates on credit cards at a record 23% and personal loan rates around 12%, the benefit of using a home equity loan or home equity line of credit (HELOC) becomes clear. Both of the latter products have rates under 9% now for qualified borrowers. This makes home equity borrowing one of the cheapest ways to borrow a large, six-figure sum of money right now.
But in today's evolving economic climate and at the start of a new year, in which significant financial changes are likely, homeowners should first stop to think about their approach. For home equity borrowing to truly be successful, it will need to be done in a strategic manner, particularly in 2025. To that end, below we'll break down three things borrowers should first consider before accessing their home equity this year.
Start by seeing how much equity you'd be eligible to withdraw here.
3 things to consider before borrowing home equity in 2025
Home equity loans and HELOCs can be effective tools for borrowers, but they're not risk-free, either. To improve their chances of borrowing success this year, homeowners should first closely consider these three items:
The ability to repay
The home in question serves as collateral in these borrowing exchanges, so the ability to repay all that's been withdrawn is a critical matter. If you fail to do so, you could risk losing your home to the lender. So, before borrowing via a home equity loan or HELOC, first consider your true ability to repay. If you can't adequately do so, then you may need to choose a less risky alternative, even if that alternative comes with a more prohibitive interest rate. Conversely, if you crunch the numbers and determine that you'll be able to pay back all that's been withdrawn (it's easier to do this with a fixed-rate home equity loan versus a variable-rate HELOC), then you can feel comfortable moving on with the application process.
Get started with a low-rate home equity loan now.
The long-term interest rate climate
While the actual ability to repay a home equity loan is a vital consideration at any point, considerations surrounding the long-term interest rate climate are particularly crucial in 2025. Both home equity loan and HELOC interest rates steadily declined in 2024 and are poised to do so in 2025. But the pace of interest rate cuts is likely to slow compared to the final months of last year when the Federal Reserve cut rates three times.
This could be a problem for HELOC users, especially, as they will likely see a different rate on the line of credit each month. Those who pursue a home equity loan, meanwhile, can rest assured knowing that their rate will remain fixed until they elect to pursue a refinance. Assuming, however, that rates on either product will continue to decline as consistently as they did in 2024, could prove to be a mistake.
The intended uses for the funds
Interest paid on home equity loans and HELOCs may be tax-deductible if used for IRS-eligible home repairs and renovations. So, if that's your intended use, it's important to understand which types of home projects will qualify. But if your plans don't cover this scenario, you'll want to first speak with an accountant or financial advisor to better determine if home equity borrowing is truly the right option. For many, the high borrowing amount and low interest rate may still make sense. For others, however, alternatives could help them better achieve their financial goals.
Learn more about borrowing with a home equity loan here.
The bottom line
Home equity loans and HELOCs will remain effective borrowing tools in 2025 – if homeowners go into the process focused and well-intentioned. By first considering the three above items, borrowers can better determine if home equity borrowing is right for them and, if so, which type is more suitable for their needs. These considerations will make the borrowing process both smoother and more successful in the new year and over the full repayment period.
