Why Home Equity Loans Could Be a Smart Money Move in 2025
Interest rates have remained relatively high, especially compared to the historically low levels of 2021 and 2022. While this makes borrowing more expensive in general, homeowners still have an advantage—home equity.
With credit card rates averaging over 23% and personal loans sitting at 12% or more, home equity loans remain a more affordable borrowing option, averaging just over 8.4%. If you’re considering borrowing in 2025, a home equity loan could be a cost-effective tool to manage expenses and save money.
1. Home Equity Loans Offer Lower Interest Rates
One of the biggest advantages of home equity loans is their lower rates compared to other loan types. Because they are secured by your home, lenders take on less risk, allowing them to offer more competitive interest rates.
For example, a 10-year home equity loan at 8% would come with a monthly payment of around $600 on a $50,000 loan and total interest costs of approximately $22,800. In contrast, a personal loan with a 12% rate would push monthly payments to $717 and total interest costs to over $36,000—meaning a home equity loan could save you more than $14,000 over the loan term.
“Home equity products often have lower rates than unsecured loans or credit cards,” explains Stephan Shipe, owner of Scholar Financial Advising. “This is because they are secured by your property, reducing the lender’s risk and allowing for better terms.”
2. Home Equity Rates May Drop in 2025
There’s also a possibility that home equity loan rates could decrease further in 2025, making borrowing even more affordable.
“Rates are expected to go down in 2025,” says Darren Tooley, a loan officer at Union Home Mortgage. However, the decrease might not be as significant as originally hoped.
“It may be not as much as previously hoped,” Tooley adds. “Initially, the Federal Reserve was expected to lower rates by 100 basis points (1.0%) in 2025, but after recent Fed meetings, that estimate has dropped to around 50 basis points (0.5%).”
Even a small rate reduction could mean lower borrowing costs, increasing the savings potential for homeowners looking to take advantage of home equity loans.
3. Credit Card Rates Will Likely Remain High
While lower Fed rates typically lead to reduced borrowing costs across the board, credit card rates have been slow to adjust. Despite multiple Fed rate cuts in 2024, credit card interest rates have remained above 23% on average.
If this trend continues, home equity loans will become an even more attractive option for homeowners looking to pay off high-interest debt.
Home equity loans present an opportunity for homeowners to borrow at lower rates than credit cards or personal loans, and with potential rate cuts in 2025, they may become an even more cost-effective solution.
That said, it’s essential to shop around, as rates, terms, and fees can vary by lender. You should also explore other home equity options, like home equity lines of credit (HELOCs) or cash-out refinances, to determine the best fit for your financial needs.
If you’re unsure which option is best for you, consulting a mortgage professional can help guide you in the right direction.