Should you use a HELOC to buy a second home now?

The spring homebuying season is already underway for many buyers and with mortgage rates slightly lower than they started the year, more buyers may be entering the market now. Still, with home prices expected to remain high this year and inflation and other economic considerations hurting the availability of cost-effective funding, many buyers may be contemplating alternative financing options.

If you're already a homeowner and are looking to buy a second home, either for rental purposes or as a vacation home, you may be contemplating the use of your existing home equity to finance the purchase. And that could be a smart idea, particularly if you choose to do so with a home equity line of credit (HELOC). These products have multiple, timely features to explore now and, when used strategically and with care, can provide a cost-effective way to pay for a second home in today's economic climate. Below, we'll explain what to know before getting started.

Start by seeing how low of a HELOC rate you'd qualify for here.

Should you use a HELOC to buy a second home now?

Using your current home to finance the purchase of a second one shouldn't be done haphazardly. Since your home functions as collateral when borrowing from it, you'll want to ensure you have adequate financing in place to make the payments (or risk losing your home to the lender). But, if you do, using a HELOC to purchase a second home can be advantageous now. Here's why:

Home equity levels are high

The average home equity level is $313,000 right now, according to a report released earlier in March. That means home equity levels are up 6% year-over-year and, depending on where the home you're planning to borrow from is located, that amount of equity could be even higher. So you likely have a robust funding source to utilize and since your home is the collateral here, the application and eligibility criteria should be somewhat easier to complete than it would be if you were borrowing a large sum of money via unsecured debt options like personal loans.

See how much equity you could borrow with a HELOC now.

HELOC interest rates are low

If you're looking for a borrowing product with a consistently declining interest rate, a HELOC is one of your better options right now. Not only did HELOC rates fall from the double digits where they were in early 2024, but they've continued to fall multiple times so far in the opening months of 2025. 

Now at just 8.04% for qualified borrowers, HELOCs are less expensive than home equity loans, credit cards and personal loans. And unlike cash-out refinancing options, a HELOC won't require you to renegotiate the rates and terms of your existing mortgage loan. This makes it one of the cheapest ways to secure financing now, which can be advantageous when making a big purchase like a second home. That said, HELOC rates are variable, meaning they can and will change over time, so the inherent risk will need to be accounted for when using the line of credit.

HELOCs provide flexibility when homebuying

If you haven't yet found the second home you want to buy and, thus, don't know exactly how much you'll need to borrow, don't worry. A HELOC provides flexibility when homebuying thanks to the way the line of credit functions. Working much like a credit card does, this can help homebuyers who don't know the exact amount of money they will need. 

This is also helpful because it means that borrowers will only pay interest on the amount of the HELOC they actually use – not the full credit line they've been approved for. Compare this to a home equity loan, which comes as a lump sum that may or may not be enough to buy a home (in addition to higher rates), and it becomes clear that a HELOC is the smart home equity product to use for buying a second home now.

The bottom line

Utilizing your current home as a funding source to buy a second one comes with some important risks and benefits that will need to be carefully managed. If you can manage both, however, a HELOC may be the optimal way to pay for the additional property. With home equity levels elevated, HELOC rates steadily declining and flexible funding terms, a HELOC is definitely worth exploring now. Just be sure to calculate all of your potential costs: your current mortgage payment (if applicable), your new mortgage payment and your HELOC repayments to more accurately determine if this makes sense for your financial situation now.