What Homeowners Need to Know Before Obtaining a Home Equity Loan
In today’s unpredictable economic environment, where elevated interest rates and market volatility persist, many borrowers are searching for smarter, more stable financing options. For homeowners, one of the most reliable and cost-effective tools remains close to home — their home equity. With the average homeowner holding around $313,000 in equity, tapping into that value through a home equity loan or a home equity line of credit (HELOC) offers a pathway to access significant funds at rates still far more competitive than those tied to personal loans or credit cards.
But borrowing against your home’s equity, especially through a fixed home equity loan, comes with real risks — risks that are even more important to consider now in the economic climate of April 2025. Inflation has cooled but remains stubborn, the Federal Reserve has paused interest rate changes, and the stock market continues to swing unpredictably. That means any financial decision, particularly one that puts your home on the line, needs to be made carefully. Before you apply, here are three key questions to ask yourself.
1. Should I wait for interest rates to fall?
It’s natural to wonder if rates might drop again, especially after their downward trend in late 2024. But forecasting interest rate movements is more speculation than science. In fact, home equity loan rates recently ticked back up, with the current average sitting at 8.40% — and even higher for loans with longer repayment terms.
If you can lock in a manageable rate today, it might be wise to do so rather than wait for a drop that may not come. You always have the option to refinance later if rates improve, but locking in a fixed rate now provides access to needed funds with the stability of predictable payments in the meantime.
2. Can I postpone my need for financing?
Taking out a home equity loan means using your house as collateral, which raises the stakes. If you fall behind on payments, you risk losing your home — a consequence that makes it vital to ensure both your financial stability and the necessity of the loan itself.
Ask yourself if the funds are essential right now. Using a home equity loan to consolidate high-interest credit card debt might still be a smart move, even in today’s climate. But for discretionary projects like a backyard overhaul or minor upgrades, it may be better to wait for a more stable economic backdrop.
3. Should I consider a HELOC instead?
For borrowers seeking the lowest interest rates currently available, a HELOC could be the better fit. HELOC rates have fallen by over two percentage points since September 2024, making them more attractive than not only home equity loans but also most other forms of borrowing.
Because HELOCs carry variable rates, they may continue to decrease — meaning your payments could drop even further in the months ahead. However, that variability cuts both ways. Rates can also rise, so be sure your budget can absorb a potential increase before choosing this route.
Home equity loans can be an excellent financial tool for homeowners, offering access to large sums at relatively low fixed rates. But in 2025’s complex economic landscape, it’s not just about whether you can borrow — it’s about whether you should. Take time to think through your rate options, your financial timing, and whether a HELOC might be a smarter alternative. With careful planning and honest reflection, tapping into your home’s value could still be one of the most strategic financial decisions you make this year.