HELOC interest rate pros and cons to know for 2025
If you need a six-figure sum of money right now, a credit card is likely a poor choice. Not only will qualifying for that high of a credit line be difficult for most borrowers, but even if you're approved, you're likely to pay a high interest rate to gain access. With credit card interest rates recently surging to a record 23%, this is likely not the way to borrow right now, but especially for a large sum of money.
If you're a homeowner, however, you have more options. Both home equity loans and home equity lines of credit (HELOCs) have much lower interest rates than credit cards and personal loans. And with the average homeowner in possession of approximately $320,000 worth of home equity, they provided a clearer path toward borrowing a five or six-figure sum. HELOCs, in particular, may be particularly advantageous now, especially now as the average interest rate has fallen below that of home equity loans.
But, like all borrowing options, there are some pros and cons to know about HELOC rates right now, made even more important by the changing economic landscape of the new year. Below, we'll break down what borrowers should consider now.
Start by seeing how low of a HELOC interest rate you'd be eligible for here.
HELOC pros and cons to know for 2025
The utilization of your home equity needs to be done both carefully and strategically. And it can be done so effectively with a HELOC if borrowers first understand these critical pros and cons of HELOC rates today:
Pro: A lower interest rate
Not only does a HELOC have a lower interest rate than a home equity loan (8.36% versus 8.41%), but it also has a significantly lower rate than many alternatives. Personal loans, for example, are hovering around 12% now while credit card interest rates are over 23%. And neither of those latter two options will easily provide access to a large, six-figure of money as quickly or as easily as a HELOC will. So, if you want to borrow a lot of money for 2025 but don't want to pay a lot to get it, a HELOC is one of your better bets.
Get started with a HELOC online now.
Con: A variable interest rate
While that 8.36% rate is lower than a home equity loan right now, it may not be in a few months or even in a few weeks. That's because HELOCs have variable interest rates that can change for borrowers each month. A home equity loan, by comparison, has a fixed rate that will remain the same unless refinanced. This can make budgeting for this line of credit difficult, as payments spread out over a 10- or 15-year repayment period will be impossible to predict with certainty. Understanding this, then, borrowers may be better off borrowing a smaller amount versus pursuing a bigger line of credit that they may eventually be unable to fully repay.
Pro: The potential for the rate to fall further
A variable interest rate, however, isn't always a bad thing. For example, if you had opened a HELOC in early 2024, you may have seen multiple reductions in the rate on the line of credit in the second half of the year as the Federal Reserve moved to issue three interest rate cuts. And unlike home equity loans, which borrowers would have needed to pay refinancing costs for to secure that lower rate, a HELOC adjusts independently, for free. And the potential for the rate on a HELOC to fall even further in the new year is significant (if not exactly easy to predict).
Con: The reality that rate cuts are paused
While additional interest rate cuts will undoubtedly lead to a reduction in HELOC rates, even if not by the same amount, the reality is that interest rate cuts appear to be on pause — at least for the Fed's January meeting. And after meeting on January 29 and 29, the Fed won't meet again until the mid-March. They'll then take off in April and meet again in May. Against this schedule and wider economic backdrop, then, a steadily declining HELOC rate should not be relied upon by borrowers.
The bottom line
By understanding these timely HELOC rates pros and cons homeowners can better determine how and when to borrow money. But they should do so in a clear-eyed way with a solid plan to repay any equity borrowed. Since the home functions as collateral in this exchange, you could risk losing your homeownership if you fail to repay all that was withdrawn.
Have more questions about using a HELOC? Learn more here.
