In recent years, borrowing money has become increasingly expensive due to elevated interest rates across many lending options. Personal loan interest rates have remained stubbornly high, averaging around 12% for months, while credit card rates have only recently declined from record highs near 23%. These double-digit rates make borrowing via personal loans or credit cards prohibitively costly for many consumers, even as there is hope that interest rates might be lowered later in 2025. Against this challenging backdrop, homeowners have a potentially smarter and more affordable borrowing alternative: tapping into their home equity.
Currently, the average homeowner has substantial equity built up in their property, with levels comfortably exceeding $300,000 nationwide. This equity can be leveraged through home equity loans or home equity lines of credit (HELOCs), providing access to large sums of money at significantly lower interest rates than most other borrowing options. Given that these rates are currently lower and expected to decline further if the Federal Reserve reduces the federal funds rate later this year, home equity borrowing stands out as a cost-effective solution for those needing to finance major expenses.
Before diving into this borrowing option, homeowners should understand the current landscape of HELOC and home equity loan rates, which fluctuate regularly based on market conditions and lender policies. As of November 21, 2025, the average interest rate on a HELOC is approximately 7.81%, according to data from Bankrate. It is important to note that these figures represent nationwide averages; individual offers can vary considerably depending on the borrower’s location, creditworthiness, and the specific lender’s criteria. Therefore, taking the time to shop around and compare multiple offers is essential to securing the lowest rates and most favorable terms.
Both HELOCs and home equity loans use the borrower’s home equity as collateral, but they work quite differently. A home equity loan provides a fixed interest rate and a lump sum of money upfront. Borrowers are expected to start repaying the loan immediately, with set monthly payments that include principal and interest. This type of loan is suitable for those who want predictable payments and a clear payoff timeline.
In contrast, a HELOC operates more like a credit card secured by the home. It features a revolving line of credit with a variable interest rate. Borrowers can draw on the line of credit as needed, paying interest only on the funds they actually use. During the initial draw period, which typically lasts 10 to 15 years, borrowers may be required to make interest-only payments. After this period ends, the repayment phase begins, during which both principal and interest payments are due. HELOCs offer flexibility in borrowing and repayment but come with the uncertainty of variable rates that can change over time.
One of the key advantages of both HELOCs and home equity loans, beyond their relatively lower interest rates compared to personal loans or credit cards, is the potential for tax benefits. If the funds are used for IRS-eligible home improvements or repairs, homeowners may be able to deduct the interest paid on their taxes for the years the loan or line of credit is used. This tax deduction can further reduce the effective cost of borrowing, making home equity products even more attractive for financing renovations or other major home-related expenses. However, it is important to consult with a tax advisor to understand eligibility and ensure compliance with IRS rules.
Despite these benefits, borrowing against home equity is not without risks. Because the home serves as collateral, failure to keep up with payments could lead to foreclosure and loss of the property. This makes it critical for homeowners to carefully assess their financial situation, choose the product that best aligns with their budget and borrowing needs, and ensure they can meet repayment obligations. Proper planning and borrowing within one’s means are essential to avoid jeopardizing homeownership.
Looking ahead, the outlook for home equity borrowing remains favorable. Interest rates on HELOCs and home equity loans are currently lower than many alternative borrowing options and are expected to decrease further if the Federal Reserve decides to cut rates later in 2025. This potential for lower rates could make these products even more affordable over time, providing homeowners with a cost-effective way to access funds for everything from home improvements to debt consolidation or other large expenses.
However, not all lenders will offer the same rates and terms, and individual circumstances will influence the best choice of product. As a result, homeowners should conduct thorough research, compare offers from multiple lenders, and consider their long-term financial goals before committing to any home equity borrowing.
In summary, while borrowing costs