Should you use your home's equity before 2025? Experts weigh in
Property owners have a unique opportunity to borrow against their homes at affordable rates. Whether you take out a home equity loan or use a home equity line of credit (HELOC), interest rates are typically lower than you'd pay with alternatives such as credit cards or personal loans because the debt is secured.
In recent years, both home equity loan and HELOC interest rates climbed as the Federal Reserve raised the benchmark rate. While these options remained more affordable than the alternatives, many homeowners put off borrowing because rates were far higher than we've become used to since the end of the 2008 recession.
Those hoping to tap their equity finally got some encouraging news as the Federal Reserve cut rates in both September and November of 2024, offering renewed hope that more affordable home equity loans were coming. However, with inflation ticking back up again, there's a concern this optimism will be short-lived.
Amidst this economic uncertainty, many homeowners aren't sure whether it makes sense to borrow this year or if delaying is the better choice. Fortunately, some expert advice could help you make the best choice.
Start by seeing what home equity loan interest rate you could qualify for here.
Should you use your home equity before 2025?
Here's what the experts we spoke to had to say about using home equity now, before the start of the new year:
Tapping into your home equity makes sense to meet pressing needs
For some borrowers, taking out a loan before 2025 makes good sense -- regardless of economic conditions -- simply because it's the right choice for their financial situation.
"If you have accrued strong equity in your home and need cash soon for a major expense, it's a good time to consider a home equity line of credit or loan," advises Fred Bolstad, head of retail home lending at U.S. Bank. "If you can afford the monthly payments, there's no need to wait."
Bolstad said there's been renewed interest in home equity loans over the past six months as rates began dropping and suggested talking with lenders to see what deals are on offer. And there's good reason to take that advice thanks to the benefits of borrowing against equity.
"If you need money, taking it from the equity in your home can be a great idea," says Rick Miller, financial planner and investment advisor at Miller Investment Management. "The repayment terms required are likely to be the most favorable of all the alternatives. If you are using a home equity line of credit, the interest rate will be far below any credit card charges and the minimum repayment amount will be small and under your control."
Putting a home equity line of credit in place now could also save you from bigger financial problems later.
"During these tough economic times, it makes sense to have a home equity line of credit as a backup plan," advised Jerry L. Smith, CEP, founder and CEO of JLS Sales Academy. "You don't pay interest on money you haven't borrowed yet. Sure, you might have some fees to establish the credit line, however, that is a small cost to pay for giving yourself a backup plan against future financial adversity."
Start exploring your HELOC options online to learn more.
Waiting may not make sense with no guarantee of future rate drops
Waiting to borrow isn't an option when you have an immediate need to meet. However, even in situations when you have more time before you must access funds, delaying the process of tapping into your equity may not always pay off.
"With the election results and potential further Fed Funds rate cuts coming before the end of the year, there are some reasons floating around to wait until 2025 and see if rates on home equity loans get lower. However, for many homeowners, it may be more beneficial to act now," Aaron Craig, VP of Mortgage and Indirect Sales for Georgia's Own Credit Union says.
Craig believes swift action is the best choice for a few reasons. "Rates are still lower than alternatives and there's no guarantee interest rates for home equity loans will fall any further in 2025," he said. "Also, by tapping into your home equity now, you can get that home project done before the busier spring season, and could qualify for a potential tax deduction."
Smith also warns that delaying could backfire. "If the economy gets worse, it may be tougher getting a home equity line of credit," he said. "The other issue is the timeline for establishing the line of credit. That's not something that you walk into a bank and handle in a day. If financial adversity hits, you may need a solution that day, not in several weeks or months."
Delaying could pay off in the form of more affordable loans
While there are ample reasons to act sooner rather than later, there's also an argument to be made for putting off borrowing.
"People should only tap into their home equity loans now if they need the funds," according to Melissa Cohn, Regional Vice President at William Raveis Mortgage. "There is no reason other than the need to borrow that this will be beneficial if taken in 2024. The rate on a HELOC floats with the prime rate, and the Fed is likely to continue to cut rates again in the next year."
Ultimately, you'll need to decide if you want to take the chance of delaying in hopes of future low rates or if you want to act now -- especially if you have pressing financial needs.
For those who decide to move forward, it's worth remembering that rates are still well below other loan types and that refinancing is an option in the future -- so, while it may be disappointing that the ultra-low COVID-era rates are over, there are still some good loans to be had if you shop around and take the time to find the best deals.
