Your home’s worth more than ever. But is borrowing against it a good idea now?

If you’re a homeowner, odds are you’re sitting on a sizable source of cash right now.

As housing prices continue to soar, so has the worth of home equity (basically, your home’s value, minus the mortgage outstanding). As of Q2 2025, tappable equity was at record highs, according to property data analyst ICE Mortgage Technology. The average mortgage-holding homeowner had a stake worth $213,000.

And homeowners are tapping that stake, swapping their home’s value for ready money. Originations of home equity loans and HELOCs (home equity lines of credit) are up 12 percent — their strongest growth in three years, according to TransUnion. And if the Federal Reserve does cut interest rates at its upcoming meeting, as it’s expected to do, equity-tapping could become cheaper.

But, even so, is borrowing against your home a good idea for you these days? Depends on who you ask and what it’s for. Let’s crunch some numbers.

What’s happening with HELOC and home equity loan rates?

First, what’s going on with in home equity interest rates? At the beginning of 2024, the average rate on a HELOC was 10.16 percent, a record high, according to Bankrate’s survey of the nation’s largest lenders. From there, it began declining, dropping as low as 7.9 percent this past April — a two-year low. Home equity loan rates have also fallen — averaging 8.23 percent, they’re lower than they’ve been in about a year.

As of mid-September, here’s where the average home equity loan and HELOC rates stand:

A lot of the drop is due to the Federal Reserve: The central bank lowered benchmark interest rates a total of one percentage point near the end of 2024, as inflation became more manageable. According to Bankrate’s home equity forecast, both HELOCs and home equity loan rates will decline further in 2025, assuming the Fed resumes cutting. “A declining interest rate environment will provide some relief for borrowers,” says Bankrate Financial Analyst Stephen Kates, CFP. “Lower rates can ease the burden on many indebted households by opening opportunities to refinance or consolidate.”

How interest rates impact home equity borrowers

People have been turning to home equity products despite the fact that rates, while lower, are not exactly low. Currently, home equity loan and HELOC rates range from 6.63 percent to 12.50 percent, depending on the terms, the lender and the borrower’s creditworthiness, according to Bankrate’s survey of the nation’s largest lenders. Just three years ago, during the pandemic, these averages were closer to 5.50–6 percent.

The difference in rates affects your monthly payment and the total interest you pay. Let’s compare two $50,000 10-year fixed-rate home equity loans, with one at 6 percent and another at 10 percent:

If you had a 10 percent interest rate, your monthly payment would be $106 more than with a 6 percent rate. And the total interest you would pay over the loan’s lifetime is $26,290 — almost $10,000 more.

Why are home equity loans popular now?

With home values at historic highs, it’s no wonder that tapping your home’s value is tempting. If you have a major unplanned expense or home remodeling project, home equity is often the route taken to finance it. But why via home equity loans or HELOCs? Largely because the only other way, a cash-out refinance, doesn’t make much financial sense these days. Many homeowners have primary mortgages locked in at 3 or 4 percent rates — about half of the current cost – which they don’t want to lose. So, rather than replacing their main home loan, they’re taking out a second one instead.

Also, because home prices are so high and housing so scarce, many homeowners are staying put, opting to renovate their residences instead of moving. There are benefits to using a home equity loan to do so. Interest on the loan can be tax-deductible if the funds are used to repair or improve a home (and you itemize deductions on your tax return). Also, home equity products offer longer repayment terms and — even at their elevated rates — lower APRs than personal loans and credit cards.

HELOC vs. home equity loan: Which is a better deal today?

If you have to choose between a HELOC and a home equity loan, there are a few aspects that can make a HELOC more attractive in today’s market:

• Variable rates: HELOCs have variable interest rates throughout their terms. That means borrowers will likely benefit as rates decline, whereas with a fixed-rate home equity loan, your rate stays the same.
• Speed of funding: It can take 45 to 60 days or more for a home equity loan to close. In contrast, HELOC funding can take between two and six weeks: The underwriting is a little less onerous, so it moves faster.
• Flexibility: HELOCs offer a more adaptable approach, giving you the ability to draw against available funds and pay them back like a credit card. You’re charged interest only on the withdrawn funds (not the entire credit line) and you typically have the option to make just minimum payments of interest during the draw period.  With a home equity loan, you’re getting a lump sum and start paying back the principal, along with the interest, immediately.

That said, home equity loans have their points:

• Efficiency: If you need a specific sum for a one-time cost, like paying off outstanding credit card balances, the loan could be the more efficient way to go.
• Easier to obtain: Because their rates can rise, HELOCs often carry more stringent credit score and other requirements. Home equity loans might be easier to come by. For example, in 2024, the average FICO score for HELOC borrowers was 771, but 749 for HE Loans, according to the Mortgage Bankers Association.
• Predictable payments: The fixed rate on a home equity loan means you’ll pay back the same amount each month — good for set-it-and-forget-it types or long-term budget planners. And if you feel interest rates are bottoming out, you might prefer to lock in a low rate now.

Drawbacks of home equity borrowing

Of course, home equity products come with caveats too. For starters, they use your house as collateral. “Home equity loans and HELOCs are tied to your home, so if you can’t make payments, you’re at risk of losing your house,” says Certified Financial Planner Chloe Moore, founder of Financial Staples, a virtual, fee-only firm. This can also put you in a bind if home prices drop significantly: In between your first and second mortgages, you could owe more money than what your home is worth.

“Consider why you’re wanting to use your home equity,” Moore adds. “If it’s for a home renovation project, could it wait? If you’re consolidating debt, do you have a solid plan to repay the loan and ensure you don’t incur more debt over time? Are you at risk for being laid off, and if so, do you have an emergency fund to cover a loss of income?” All of these things need to be carefully considered before depleting an equity stake.

Alternatives to HELOCs and home equity loans

If you’ve decided a HELOC or home equity loan isn’t the right borrowing solution for you, alternatives exist. 

Personal loans

Instead of tapping into your home equity, you could consider getting an unsecured personal loan. They aren’t tied to your home, so you don’t risk losing it if you can’t repay. They’re also convenient and quick, with funding coming in as soon as one day.

But: “that typically comes at a higher cost,” says Adam Boyd, the head of consumer lending at Citizens Bank. “The average rate you get on a personal loan is generally going to be higher than what you can get on a home-secured product.” For instance, as of mid-May, the average rate on an unsecured personal loan is 12.43 percent — a good four percentage points higher than home equity products.

Also, aside from special-purpose home improvement loans, unsecured personal loans don’t generally allow you to borrow as much. “Unless they’re in a very good financial situation …most people aren’t going to get $50,000 or $100,000,” says Ron Haynie, senior vice-president of housing finance policy for the Independent Community Bankers of America.

Cash-out refinance

A cash-out refinance could be another option. Refinance rates remain lower than home equity loan rates and may not be that bad a deal, depending on how old your primary mortgage is, and how sizable your ownership stake.

For instance, say you are halfway through your 30-year loan term, owe $50,000 on a home valued at $400,000 and your current mortgage rate is 6 percent (the average 30-year-fixed mortgage rate back in 2008). You can get a 30-year fixed cash-out refinance for around 6.7 percent — not that much higher than your mortgage) and pull out $80,000 in equity. So, it may make more sense for you to refinance than to take out a home equity loan or HELOC.

Bottom line on home equity loans today

Elevated home values and declining interest rates can make home equity products tempting nowadays. But the emphasis should be on your need, not market conditions: If your home is demanding significant repairs or remodel work sooner rather than later. Or you’d really like to clear those credit card balances once and for all.

If you’re trying to tap your home equity, compare a variety of lenders and products. These rates change frequently and can vary significantly depending on the lender and your financial profile.

Also, “as you do research, don’t just focus on the advertised rate,” Boyd advises. “Talk with the lender and understand what the other stipulations are attached to that rate just to make sure you’re considering all costs associated with the loan.” This way, you can better choose the right home equity product for you — whether it’s now or in the future.

Additional reporting by Ashlee Valentine