Will a HELOC be worth opening in 2025?
When inflation surged in 2022 and interest rates rose in tandem, borrowers were left with limited options. One attractive alternative for homeowners was to access their home equity. And with a rise in home values during the same time frame, there has been plenty to utilize. With the average home equity amount hovering near $320,000 now and with interest rates on home equity loans and home equity lines of credit (HELOCs) materially lower than popular alternatives, it's made sense for borrowers looking for extra financing to turn to their home equity.
But will it remain advantageous to do so in 2025? And will a HELOC, in particular, be worthy of opening in the new year? While the answers to these questions are specific to each homeowner, there's a strong case supporting the value of a HELOC in 2025. Below, we'll break down three reasons why it could be a smart move.
Start by seeing how low of a HELOC interest rate you'd be eligible for here.
Will a HELOC be worth opening in 2025?
Here are three reasons why a HELOC could remain the smart borrowing move in the new year:
Rates are expected to decline further
Unlike a home equity loan, which will require users to refinance to a new, lower rate (and to pay the refinancing costs to do so), a HELOC will adjust independently each month due to its variable rate structure. So if rate cuts continue to be issued in 2025, your HELOC payments will continue to decline as well. The reduction in the federal funds rate won't impact your HELOC rate by an identical amount, but it will keep rates on these products on their downward trend, keeping them a cost-effective way to borrow next year.
Start exploring your HELOC options online now.
Home prices could rise
Any number of home price scenarios could arise in 2025. But, in many parts of the country, prices are expected to rise, not fall. This means you could potentially have even more equity to utilize than you currently have. Home equity is calculated by deducting your current mortgage balance from your total home value. And if home values rise, that means that $320,000 could, too. With a HELOC, then, you'll be able to gain access to that new, higher amount via a product with a declining interest rate.
Your alternatives could remain costly
Have you checked your credit card statement lately? Or have you looked at options like personal loans? Interest rates on both products remain significantly more costly than HELOCs. Personal loan interest rates are averaging close to 13% now – around five points higher than today's average 8.55% HELOC rate. Credit cards, meantime, just surged to just under 24%, on average. That's almost four times the rate of a HELOC, all for a product that will likely offer you much less financing than your home can. When stacked against these alternatives, then, and with the dim likelihood that credit card interest rates will fall in 2025, a HELOC becomes even more attractive for homeowners.
The bottom line
A HELOC, with a declining interest rate, a pathway to access rising home equity amounts and clear advantages compared to the alternatives, can be valuable for many homeowners now and in 2025. That said, borrowing from your home equity is risky if you're unable to pay all that you've withdrawn. Be sure, then, to only apply for an amount that you can afford to pay back with ease. And, first, make sure your credit is in as good a shape as possible to position yourself for the best rates and offers.
