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Both home equity loans and home equity lines of credit (HELOCs) are effective tools for homeowners looking to borrow a large sum of money. In today’s unique economic climate, they’re also one of the less expensive alternatives, with interest rates on both substantially lower than what’s currently available with credit cards and personal loans. Plus, with the average homeowner in possession of around $320,000 worth of equity, there’s plenty of potential funding to utilize for a wide range of needs.
That all noted, HELOCs and home equity loans work in different ways and borrowers should understand the nuances of both before acting. If they’re unable to repay all of the money withdrawn, they could potentially see their home foreclosed on by the lender. To avoid this situation, then, homeowners should take some preemptive steps. And that means understanding when each product could be the safer option this year. Below, we’ll detail what prospective borrowers should consider now.
See how much equity you’d be eligible to borrow here.
HELOCs vs. home equity loans: Which is safer for 2025?
The interpretation of which home equity borrowing product is “safer,” particularly in the economy of 2025, is relative to the borrower. Here, then, is when either could be the more secure option:
Why a HELOC could be safer in 2025
If you think interest rates will continue their downward trend in 2025 and want to be best positioned to save as much as possible, then a HELOC could be safer for your circumstances this year. That’s because these products have variable interest rates subject to change each month. If the rate climate continues to cool, so will your HELOC rate and, thus, your repayment. And this will happen automatically, saving you in refinancing closing costs that you otherwise would have had to pay to refinance a home equity loan to the new, lower rate.
Still, variable rates on borrowing products are inherently risky and, many would say, are unsafe for all but a few select borrowers. So you’ll need to carefully consider this option and calculate your repayments against a variety of potential interest rates to truly determine its security.
Learn more about your HELOC options online today.
Why a home equity loan could be safer in 2025
Traditionally, many experts would argue that a home equity loan is safer than a HELOC. And that feeling hasn’t been upended quite yet, even if today’s economy marked by rising inflation and uneven interest rate cuts, can make it feel that way. Home equity loans, after all, come with fixed interest rates, allowing for predictability and simple budgeting. This makes them safer for borrowers who may not be able to afford the changes in rates and repayments they’d endure with HELOCs. And with interest rate cuts on pause right now anyway, the marginal difference between an 8.40% home equity loan rate and an 8.28% HELOC rate may be negligible for those who prefer the security of a fixed-rate product.
That said, if rates start moving downward again later this year, the difference between the two could become stark and the refinance closing costs (typically 1% to 5% of the total loan amount) may negate some of the safety borrowers appreciated earlier in the borrowing process.
The bottom line
The question of whether a HELOC or home equity loan is safer in 2025 is a subjective one, with different borrowers having legitimately different answers. It’s critical, then, to explore both options carefully to determine which is most appropriate for your financial situation. Since repayment terms on both tend to fall between 10 to 15 years – and because your home is collateral with either – homeowners will need to determine what’s safe both in 2025 and, potentially, for years to come.
