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When it comes to borrowing money, home equity products have been some of the best options in recent years.
With much lower rates than credit cards and personal loans, by opting for these borrowing options, homeowners can save significantly on interest in most cases. Plus, in today’s rising-price environment, home equity is widely available for most homeowners. (The average has more than $320,000 in home equity currently.)
If you’re sitting on plenty of equity in your home, here’s how you may want to use it this year.
Find out how affordable the right home equity product could be today.
3 smart ways to use your home equity in 2025
Some smart reasons to tap into your home’s equity this year include:
To consolidate debt
Since home equity products tend to have noticeably lower rates than other borrowing options, they’re generally a good choice if you’re considering putting charges on a credit card or taking out a personal loan — or if you want to consolidate existing high-rate debt.
“Home equity is the cheapest money you can borrow and should be your first choice if you’re looking to borrow money,” says Bill Westrom, president of Truth in Equity.
If you already have a credit card or personal loan and are paying a high interest rate on the balance, you may also want to consider using a home equity loan or home equity line of credit (HELOC) to pay those off. By doing so, you’re able to trade in your high credit card or personal loan rate for a HELOC or home equity loan with a much lower rate, saving you money in the long run and potentially helping you eliminate the debt faster.
“Interest rates on home equity products will always be lower than other credit products,” Westrom says. “This is due to the fact that the loan is secured by real estate, thus lowering the risk to the bank.”
Compare your home equity borrowing options online now.
To improve your home
If you need to make repairs around the house or are thinking of renovating or updating the property, you might also consider using your home equity to fund those expenses.
For one, “home improvements can add to the value of your home,” says Harmon Kong, co-founder of Apriem Advisors, so you’re not just borrowing money — but potentially increasing your equity in the process.
On top of this, the interest paid on home equity loans and HELOCs is tax-deductible if you use the funds to “buy, build, or substantially improve” your house, according to the Internal Revenue Service. This could reduce your taxable income and lighten your tax burden come next April.
As a financial safety net
Finally, you can also use your equity as a financial safety net of sorts. If you’re worried about the economy or a potential recession —or you just want access to cash in case an emergency comes up — getting a home equity line of credit can help.
“Utilizing a HELOC is the smartest way to access home equity,” Westrom says. “It can be used continually over time.”
HELOCs work much like credit cards but with lower interest rates. Once approved, you’ll get access to a line of credit, which you can withdraw money from as needed over time — typically 10 years. During the draw period, you’ll only pay interest on what you borrow. You can also pay off the balance and withdraw funds again if you use it all up.
Most importantly, you’ll only pay interest on what you actually use — not the full credit line amount. This makes it a good option if you just want some financial peace of mind. Use the money if you need to; leave it untouched if you don’t.
What not to use your home equity for
Using a home equity loan or HELOC on “lifestyle funding,” isn’t advised, though, says Angelo Babbaro, president of The Babbaro Group.
“Paying for vacations, new automobiles, or to fund a child’s education is generally not a good idea when tapping into your home equity,” Babbaro says.
And whatever you use your equity for, make sure you understand the risks. With home equity products, your home is the collateral, so if you don’t make your payments, you could lose your house.
“It’s secured against your home,” Kong says. “If, for some reason, you can not afford to make payments or run into financial hardship, you could lose your home through foreclosure.”
The bottom line
In today’s economic landscape, home equity products present a compelling option for homeowners looking to leverage their property’s value. With historically lower interest rates compared to credit cards and personal loans, these products can be strategically used for debt consolidation, home improvements or as a financial safety net. However, careful consideration is essential, as using home equity for non-essential expenses like vacations or luxury purchases could put your home at risk.
And while home equity can be a powerful financial tool, remember that your home serves as collateral for these loans. So, homeowners should approach these products with a clear purpose and repayment strategy, ensuring they can manage the payments consistently over time. By using home equity wisely and understanding both its benefits and risks, homeowners can make informed decisions that align with their long-term financial goals.