Should you open a home equity loan now or wait until 2025?
With cost-effective borrowing options rare in recent years, one alternative has surfaced as more advantageous for homeowners: accessing their home equity. Whether via a home equity loan or a home equity line of credit (HELOC), both products offer homeowners an effective way to access their accumulated home equity without having to refinance. And, right now, the amount of money that can be tapped into is large, with the average home equity amount hovering close to $330,000 and likely to rise even further as home prices continue to grow.
So accessing this money with a home equity loan, which comes with a fixed (and lower) interest rate compared to a HELOC, makes sense for many borrowers. The timing, however, needs to be carefully considered. Specifically, is it worth opening a home equity loan now or are borrowers better served by waiting for interest rates to decline further into 2025? That's what we'll break down below.
See what home equity loan rate you could qualify for here.
Should you open a home equity loan now or wait until 2025?
There's a compelling case to be made for opening a home equity loan now versus waiting until the new year. Here's why:
Interest rates are already lower than many alternatives
If you need money now, then this is likely your best option. That's because interest rates on home equity loans, averaging around 8.40% right now, are already much lower than some popular alternatives. Average credit card interest rates, for instance, just hit a record, surpassing 23%.
Personal loans, meanwhile, are much lower at around 13% – but that's still more than four points higher than home equity loans. And that difference could prove to be worth thousands of dollars when spread out over a 10 or 15-year repayment period. Understanding the drawbacks of the alternatives, then, it makes sense to lock in a home equity loan rate now, before it has a chance to change in 2025.
Get started with a home equity loan online now.
There's no guarantee that rates will decline much further
The price of gold was on a record rise all of 2024 … until it wasn't. Mortgage rates had plunged to a 2-year low in September … until rising more than a point in October. As these two recent developments demonstrate, the economy and financial markets are constantly evolving. And while inflation and home equity loan interest rates, specifically, could continue to decline in December and into 2025 there's no guarantee that they will.
And as homebuyers recently experienced, they could even rise, perhaps by a prohibitive margin. Monitoring this dynamic, then, many potential home equity borrowers may be better served by locking in a low home equity loan rate now – and refinancing it should rates drop significantly in the future.
Waiting delays a major tax deduction
While the interest rate you pay on any product is a critical consideration, it may not be quite as important for home equity loans if you use it for IRS-eligible home repairs and improvements. That's because the interest you pay on these loans is tax-deductible if used for specific home projects.
Waiting to secure the loan, then, will delay this potentially major tax deduction, leaving homeowners stuck with the interest until they can deduct it from their 2025 return – which they'll file in 2026. Acting now, however, could potentially reduce your 2024 tax bill, even with just seven weeks left on the calendar.
Learn more about your home equity loan interest tax deductions here.
The bottom line
For some homeowners, waiting until 2025 to formally apply for a home equity loan makes sense. For others, however, it's more beneficial to act now. Interest rates on this unique product are already much lower than popular alternatives and there's no guarantee that rates will fall much further anyway. Plus, by acting now, homeowners can position themselves to potentially benefit from a major interest deduction on their taxes. Still, home equity loans are largely cheaper because the home in question is used as collateral. So borrowers will need to take a strategic approach to this loan type, no matter if they apply now or at a later date in 2025.
