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Borrowing money always comes with a series of considerations that will need to be carefully weighed against each other. And in the unique economic climate to start 2025, in which inflation is rising again and interest rate cuts are paused, these considerations take on additional significance. This is particularly true for homeowners thinking about borrowing from their home equity.
With the average home equity amount around $320,000 right now, many owners could benefit from accessing a portion of that money via a home equity loan or home equity line of credit (HELOC). But because this money will be deducted from your biggest financial asset and because paying it back is vital (you could risk your homeownership if you fail to make your repayments), it will need to be carefully evaluated, especially in 2025. So, it helps to know the answers to some specific questions to better determine your next steps. Below, we’ll break down three home equity loan questions borrowers should ask for 2025.
Start by seeing how much equity you’d be eligible to borrow here now.
3 home equity loan questions borrowers should ask for 2025
By preparing the answers to the following questions now, homeowners can better determine if home equity loan borrowing makes sense for them this year:
Are my other borrowing alternatives better?
Home equity borrowing comes with inherent risks and some costly mistakes that should be avoided. But compared to the popular alternatives available right now, it may be worth managing those to save money. Interest rates on personal loans are currently just under 13% now. And credit cards are just under 23% – a record high. Matched up against these alternatives, the 8.40% home equity loan rate borrowers can secure looks markedly better. And with repayment terms on a home equity loan averaging between 10 to 15 years, that difference in rates can add to significant savings over time.
See what home equity loan rate you could lock in here.
What do I need the funds for?
If you need the funds to pay for a large, one-time expense like a wedding, then something like a credit card with a 0% introductory rate may be preferable. But if you need the funds to finance other projects that will have long-term benefits, a home equity loan may be better. For example, if you use a home equity loan for eligible home repairs and improvements, you may be able to deduct the interest paid on the loan when you file your next tax return. That makes it worth applying for. But there are good and bad ways to use your home equity loan. Know both types before getting started.
How much can I afford to borrow?
Just because you have an average six-figure amount of equity to borrow (or more), doesn’t mean that you should withdraw it all. You’ll want to maintain most of your equity for potential use in the future and to keep your home’s cash value high. But, more importantly, withdrawing more than you can afford to pay could cause you to risk losing your home to the lender. So you must get this right. And with home equity loan rates changing often, particularly over the last 12 months, it may be worth calculating your potential repayment costs tied to a variety of potential, realistic rates.
The bottom line
A home equity loan can be an effective tool if managed properly. But there are inherent risks that should be circumvented, too. By having the answers to the above questions or, at a minimum, contemplating the potential answers, homeowners can better position themselves for borrowing success both in 2025 and over the full, home equity loan repayment period.
Learn more about home equity loans here.