3 things all homeowners should know about their home equity now
Being a homeowner can come with multiple stresses, ranging from the need for urgent repairs and emergencies to tax obligations and more. But there are also some major perks to being a homeowner, especially in today's unique economic climate. And if you've paid down your mortgage to a significant degree, or purchased your home with a substantial down payment, chances are good that you have significant home equity to work with.
This can be a major advantage in today's economic atmosphere, with inflation still a concern and interest rates making the cost of borrowing prohibitive. With a home equity loan or home equity line of credit (HELOC), however, homeowners can gain access to affordable financing and, potentially, a benefit that could reduce their tax bill at the end of the year. So it helps to understand a few timely things about home equity right now. Below, we'll break down three that homeowners should know.
Start by seeing how much home equity you could potentially borrow here.
3 things all homeowners should know about their home equity now
Here are three timely things all homeowners should know about their home equity:
Home equity levels have been rising
If you're a homeowner, then you're probably sitting on a comfortable amount of home equity now, thanks to consistently rising home values. Right now, the average homeowner has around $313,000 worth of equity in their home. That's up 6% year-over-year. And that's just the average, meaning a healthy portion of homeowners have even more equity to potentially utilize. But even if you have that $313,000, you can borrow up to 80% of it with most home equity lenders, meaning you have just over a quarter of a million dollars in equity to use to consolidate debt, pay major expenses, finance home repairs and renovations and more.
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Interest rates on home equity borrowing products are declining
Not only have home equity levels been rising, but interest rates on home equity borrowing products have been declining, combining to form a timely opportunity for homeowners in need of additional financing. Home equity loan interest rates, for example, declined for much of 2024 and have remained low in the early months of 2025.
HELOC interest rates, at the same time, declined in 2024 and have fallen to 18-month and two-year lows, respectively, just over the past few weeks. And with HELOC rates variable, and thus poised to fall further in the weeks and months ahead, it may make sense to borrow money this way now, especially when comparing the approximate 8% rate a HELOC comes with currently versus the double-digit rates credit cards and personal loans still offer.
It's not too late to reduce your tax bill
If you have already started the home equity borrowing journey, it is important to remember one important item this time of year: interest paid on your home equity loan or HELOC may be tax-deductible. If you used the funds in 2024 to make eligible home repairs or renovations, you may qualify to deduct the interest paid from your taxes.
This could be a significant deduction, and it doesn't have to be a one-time scenario. If you've continued to use your home equity funding this year, too, for example, you can look into another deduction when you file your next return in 2026. Just don't forget this when compiling your tax documents (and be sure to include it for 2024 if you haven't yet filed your return for the year).
The bottom line
Homeowners have seen home equity levels spike in recent years and, over the last year in particular, have watched interest rates on home equity borrowing products decline. At the same time, concerns over interest rates on home equity loans and HELOCs need not be significant if used for eligible home repairs and renovations, as the interest may be tax-deductible. And that could mean reducing the tax return you're set to file this month. So take the time to familiarize yourself with your home equity situation and compare it to the alternatives to determine if it's worth borrowing now.
