When it comes to borrowing money, home equity products have been one of the best options in recent years.
With interest rates much lower than credit cards and personal loans, homeowners can save significantly on interest in most cases by choosing these lending options. In addition, in today’s environment of rising prices, Home equity is widespread For most homeowners. (The average home equity is currently over $320,000.)
If you have a lot of home equity, here's how you can Might want to use it This year.
Find out what the right home equity products are costing today.
3 Smart Ways to Use Your Home Equity in 2025
Some smart reasons to tap into your home equity this year include:
consolidate debt
Since home equity products often have significant lower interest rates Compared to other borrowing options, they are generally a good choice if you are considering charging a credit card or taking out a personal loan, or if you want to consolidate existing high-interest debt.
“Home equity is the cheapest money you can borrow, and it should be your first choice if you want to borrow money,” said 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 your balance, you may also want to consider using Home Equity Loan or Home Equity Line of Credit (HELOC) Pay off these expenses. By doing this, you can trade in a higher interest rate on a credit card or personal loan for a HELOC or home equity loan with a much lower interest rate, saving you money in the long run and potentially helping you eliminate debt faster.
“Home equity products always have lower interest rates than other credit products,” Westrom said. "This is because the loan is secured by real estate, reducing the bank's risk."
Compare your home equity lending options online today.
To improve your home
If you need to make repairs around your home or are considering renovating or updating your property, you may also consider using your home equity to pay for these expenses.
For one, "home improvements can increase 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.
In addition, interest was paid home equity loan According to the IRS, a HELOC is tax-deductible if you use the HELOC funds to "purchase, build, or substantially improve" your home. this can Reduce your taxable income And reduce your tax burden 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 of an emergency, get Home Equity Line of Credit can help.
"Taking advantage of a HELOC is the smartest way to gain equity in your home," Westrom said. “It can be used over time.”
A HELOC works much like a credit card, but with a lower interest rate. Once approved, you'll be given a line of credit from which you can draw funds as needed over a period of time (usually 10 years). During the withdrawal period, you only pay interest on the borrowed amount. If you run out, you can also pay off the balance and withdraw your funds again.
Best of all, you only pay interest on the amount you actually use, not the full amount of your credit limit. This is a great option if you just want financial peace of mind. Use the money if you need to; if not, leave it as is.
What Not to Use Your Home Equity for
use home equity loan However, Angelo Babbaro, president of the Babbaro Group, said using a HELOC or HELOC for "lifestyle financing" is not recommended.
"When tapping into home equity, it's generally not a good idea to pay for a vacation, buy a new car, or fund a child's education," Barbaro says.
No matter where you use your equity, make sure you understand the risks. With home equity products, your home is the collateral, so if you don't make payments, you could lose your home.
"It's specific to your home," Kong said. “If for some reason you can’t pay or are in financial difficulty, you could lose your home to foreclosure.”
bottom line
In today's economy, home equity products offer a compelling option for homeowners looking to capitalize on their property's value. These products historically have lower interest rates than credit cards and personal loans, so they can be used strategically for debt consolidation, home improvements, or as a financial safety net. However, careful consideration is crucial, as using your home equity for non-essential expenses like vacations or luxury purchases could put your home at risk.
While home equity can be a powerful financial tool, remember that your home is the collateral for these loans. Homeowners should therefore use these products with a clear purpose and repayment strategy to ensure they can continue to manage payments over time. By using home equity wisely and understanding its benefits and risks, homeowners can make informed decisions that align with their long-term financial goals.