Tapping into your home equity can be a powerful financial tool—whether you’re funding a home renovation, consolidating debt, or covering unexpected expenses. But timing matters, and 2025 is shaping up to be a unique year for homeowners evaluating their options.
With the Federal Reserve cutting interest rates for the first time in years, borrowing costs are beginning to ease. Below, we’ll discuss whether now is the right time to take equity out of your home and what factors to weigh before making your decision.
In 2025, there are some good reasons to tap into your home equity—but it’s not the best choice for everyone. Whether or not now is the right time to take equity out of your home depends on your personal finances, current interest rates, and what’s happening in the housing market.
Before borrowing against your home, examine your finances closely. Do you have a steady income and manageable debt? Is your credit score in good shape (typically 660 or higher)?
Lenders like to see a debt-to-income (DTI) ratio of 36% or less for home equity products, so make sure your finances meet that benchmark. If you earn $6,000 a month before taxes, a 36% DTI means no more than $2,160 of your paycheck goes to monthly debt payments. This is all of your debt—not just housing debt.
If you’re in good financial health, home equity products usually have lower interest rates than credit cards or personal loans. But if your income is uncertain or you’re already dealing with high debt, using your home equity could put your financial stability at risk—even if interest rates and housing market conditions say otherwise.
The Federal Reserve recently cut interest rates twice—once by 0.5% in September 2024 and again by 0.25% in November 2024. Anytime the Fed lowers rates, you can generally expect interest rates to fall across the board, including for home equity products like these:
Your local housing market can also determine if now is the best time to take equity out of your home. Nationally, home values are up 2.6% as of October 2024, according to the Zillow Home Values Index. But regional trends tell a different story.
For example, in Miami, Florida, home values are up 6.4% over the past year, as of December 2024. As a result, homeowners in this area may be surprised to find that they have more equity built up in their homes than they thought.
However, in areas like Austin, Texas, prices have fallen or leveled off. Even as people in this city have paid their mortgage balance, they may find their equity has grown more slowly.
Your home’s current value plays a big role in deciding how much equity you can borrow. If home prices are growing in your area, you can borrow more right now. But if prices start to drop, lenders may limit how much you can access. Timing is key.
Use a home equity calculator to estimate your potential borrowing power.
The reason you’re borrowing against your home matters too. Some uses make more sense than others, especially in today’s economy:
Interest on home equity loans and lines of credit is income tax deductible when the funds are used to improve the home. If the interest is used for other purposes (like paying off credit cards or covering an emergency), it is not deductible.
Chloe Moore, CFP®
Like any decision, taking equity out of your home comes with both benefits and risks. Here’s what to consider in 2025:
Pros
Lower borrowing costs due to rate cuts
The Federal Reserve cut rates twice in late 2024, so borrowing costs may drop to their lowest in years, especially for HELOCs and variable-rate loans.
Opportunity to secure a fixed rate before possible hikes
Although rates may continue to drop through early 2025, there’s no guarantee this will happen. Locking in a home equity loan with a lower fixed rate could shield you from future increases.
Growing equity in many markets
In areas like Miami, Seattle, and Carbondale, Colorado, home values have risen steadily over the past year. Homeowners in these regions may have more equity to borrow against.
Smart use of funds for high-ROI projects
Renovating your home or consolidating high-interest debt could lead to long-term savings or increase your home’s value, making now a good time to act.
Cons
Economic uncertainty
A new presidency starts in January 2025, which could bring policy changes that affect the economy and housing market. Borrowing now might feel riskier if your financial situation changes in the near future.
Potential drop in home values
If housing markets cool down, you could owe more than your home is worth if you borrow too much now.
Added financial pressure
Taking out equity means adding a new loan payment to your monthly budget. If other costs—like groceries or utilities—keep rising, this could make your finances feel tighter.
Determining the right time to tap into your home equity is based on several factors. I’d start by understanding the purpose of the loan and seeing if there are other alternatives to source the funds. I would also recommend reviewing your financial situation, the current interest rates, and how much equity is available. Borrowing equity from your home comes with risks, so it’s important to carefully consider how much equity to take out and make sure you have a plan to pay off the loan. A change in your personal finances or a drop in home values could put you in a compromising situation.
Chloe Moore, CFP®
These examples show when it might be the best time to take equity out of your home in 2025.
Emily and James live in Raleigh, North Carolina. They bought their home in 2017 for $300,000, and its value has risen to $450,000 in 2025. After paying down their mortgage to $200,000, they now have $250,000 in equity.
The couple wants to remodel their kitchen, which hasn’t been touched since the 1990s. The renovation will cost $40,000. Local real estate agents estimate that an upgraded kitchen could increase the home’s value by around $20,000, which covers about 50% of the cost.
Emily and James decide to take out a $40,000 home equity loan at a fixed rate of 8.56%. Their monthly payment will be about $497 over 10 years, which fits into their budget. They also like the fixed-rate loan because it protects them from future rate hikes.
Not only will the new kitchen make their home more enjoyable, but it could also help the home sell faster if they ever decide to move. It’s estimated to increase their home’s value from $450,000 to $470,000.
Mark, a homeowner in Chicago, Illinois, has $25,000 in credit card debt spread across multiple cards with an average interest rate of 20%.
He’s been paying $500 monthly, but most of it goes toward interest, and the balances aren’t going down fast. It’s estimated to take Mark 9 years and almost $30,000 in extra interest costs to get it paid off. He decides to look for other options.
Mark’s home is worth $375,000, and he owes $275,000 on his mortgage, leaving him with $100,000 in equity. After researching his options, he uses a home equity loan to pay off the credit cards.
Mark takes out a five-year, $25,000 home equity loan at a fixed interest rate of 9%. His new monthly payment is about $520—about $20 more per month than what he’s paying now on his credit cards. But, he’ll pay off his loan in five years instead of nine, and he’ll pay around $6,000 interest total instead of almost $30,000.
By consolidating debt, Mark will save around $24,000 in interest and reduce his financial stress. He also knows it’s important to avoid accumulating credit card balances again, so he’s committed to a monthly budget.
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