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A home equity line of credit (HELOC) is an effective way to borrow a large, potentially six-figure amount of money. It’s also relatively inexpensive right now, after interest rates on the line of credit steadily declined for much of 2024. HELOC rates started 2025 at an 18-month low of just 8.27% for qualified borrowers. Compared to the approximate 12% rate personal loans come with and the record 23% that credit card rates are hovering near, the benefits of borrowing with a HELOC become even clearer.
But the economic climate is changing, with inflation rising again in the last three months and interest rate cuts seemingly on hold. So homeowners should approach a prospective HELOC strategically and with caution, especially knowing that they could lose their home if they fail to repay all that’s been withdrawn.
Part of this strategic approach involves being informed and that means contemplating the answers to a series of critical questions now, at the start of 2025. Below, we’ll break down three HELOC questions to consider now.
Start by seeing what HELOC interest rate you’d qualify for here.
3 HELOC questions borrowers should ask for 2025
Here are three pertinent questions homeowners should ask themselves ahead of any HELOC application this year:
Is a variable rate safe right now?
HELOCs have variable interest rates that can change for borrowers each month. That was a distinct disadvantage when rates were continually hiked in recent years but a major help when three rate cuts were issued late last year. Now, however, with interest rate cuts paused and the future of additional reductions uncertain, homeowners will need to be more careful in their approach.
A variable rate is likely still safe now, as many experts still expect interest rate cuts to be issued in 2025, even if they’re issued later than many had initially anticipated. But it’s not a guarantee, either. Instead, potential HELOC borrowers should calculate their potential payments set to a variety of realistic HELOC rates to better determine their ability to pay in a changing rate climate.
Shop for HELOC rates and lenders online today.
Should I wait for rates to fall further?
The inevitable question when considering a HELOC surrounds waiting – specifically, waiting for interest rates to fall even further. In other words, should homeowners apply now or wait for rates to decline again to act? But waiting for a more optimal rate only really applies to fixed-rate products, like home equity loans, that won’t adjust when the rate climate does.
HELOC borrowers won’t need to worry about that as their rate will adjust independently each month. Waiting for something that will happen automatically, then, doesn’t make sense, especially in today’s rate climate and especially if you need the money for critical reasons. This leads to the next question to ask this year.
What do I need the funds for?
Why are you borrowing money from your home? You should only be turning to your most important financial asset if all other alternatives have been exhausted. So, if you want to borrow to pay down or consolidate high-interest debt, and other options like personal loans or balance transfer credit cards can’t help, then a HELOC may be better.
Similarly, there are tax advantages for eligible home repairs and projects if you finance either with a HELOC. But understand what you need the funds for, precisely, and be sure to use it smartly to avoid putting yourself “underwater” where you owe more to the lender than the home is worth. This consideration is always critical, but is particularly important now, in 2025, with the interest rate climate unpredictable.
The bottom line
By contemplating the answers to these three critical HELOC questions now, borrowers can improve their chances of success both in 2025 and in the years to come. They should also closely compare the pros and cons of a HELOC now versus what’s available with a fixed-rate home equity loan to better determine which is most appropriate for their unique financial needs and goals.
Start comparing your home equity loan and HELOC options online here.
