3 ways a home equity loan could save you money in 2025
Interest rates have been falling lately, but they still remain relatively high, at least compared to what they were in 2021 and 2022.
Fortunately, if you're a homeowner, your home equity can still offer a fairly affordable way to borrow cash. While credit cards come with average rates over 23% currently (and personal loans have average rates of 12% or more), the average home equity loan has a rate of just over 8.4% currently.
As a result, a home equity loan may be your most affordable choice in today's market — and opting for one could help you save money in the new year.
Compare today's affordable home equity borrowing options now.
3 ways a home equity loan could save you money in 2025
There are a few ways that a home equity loan could result in saving money in 2025, including:
Savings can come from the lower average rates
Because they're secured by the property, home equity borrowing products tend to have much lower rates than other types of loans. As noted above, the average rate on credit cards is sitting at a record high, and while lower, personal loan rates are pretty pricy as well.
But a home equity loan offers an opportunity to borrow at a much lower rate. On 10-year home equity loans, you may be able to find rates in the 7% range, depending on the lender you choose. According to Nate Towers, director of Five Pathways Financial, this often makes these a more "cost-effective tool" compared to other borrowing options.
Case in point: The payment on a $50,000 10-year home equity loan at an 8% interest rate would come to just over $600 per month and rack up nearly $22,800 in interest across the full loan term. A personal loan of the same length and amount at a 12% rate would come with a $717 payment and over $36,000 in total interest costs. The total savings over those 10 years would come to more than $14,000.
"Home equity products often have lower rates than unsecured loans or credit cards," says Stephan Shipe, owner of Scholar Financial Advising. "This is because they are secured by your property, reducing the lender's risk. The lower risk allows lenders to offer more favorable rates compared to other types of loans."
Find out how much the right home equity product could cost you today.
Home equity rates could also fall further
There's the chance that interest rates on home equity products could fall further in the new year, too, which would make borrowing even more affordable.
"Rates are expected to go down in 2025," says Darren Tooley, a loan officer at Union Home Mortgage.
The drop likely won't be huge, though, Tooley says.
"It may be not as much as previously hoped," Tooley says. "Often these rates are tied to the Federal Reserve's rate, which previously was expected to go down around 100 basis points, or 1.0%, in 2025. After yesterday's Fed meeting, it's now believed that we may only see the Fed rate go down by 50 basis points, or .5%, next year."
Still, any dip would likely mean lower home equity rates — and more savings — for borrowers.
Credit card rates could stay high
A lower Fed rate could mean lower rates on other products, but with credit cards, rates have been stubborn to adjust as of late.
The Federal Reserve has reduced rates three times so far this year — to the tune of 100 basis points total — and credit card rate offerings are still sky-high. If these credit card rates continue to hold strong despite Fed policy changes, it could make home equity borrowing an even more attractive option.
The bottom line
As with any borrowing product, it's important to shop around for your home equity loan, as rates, terms, and other details can vary from one company to the next. Make sure you consider other home equity products, too, like home equity lines of credit (HELOC) and cash-out refinances, and if you're not sure which is the best tool for your unique situation, talk to a mortgage professional. They can point you in the right direction.
