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The average homeowner is sitting on hundreds of thousands of dollars worth of home equity right now. Getty Images
Both home equity loans and home equity lines of credit (HELOCs) offer homeowners an inexpensive and effective way to borrow a large amount of money. That amount is particularly high in today’s unique economic climate, with the average homeowner in possession of around $320,000 worth of equity.
Using it, however, needs to be done judiciously and strategically. Since the money comes from your home, it will function as collateral in these borrowing exchanges. And if you fail to make all your repayments as agreed upon, you’ll risk losing your homeownership in the process. So it’s especially important to use your home equity funds wisely, especially in 2025 with inflation still stubborn and with the pace of interest rate cuts to come still unclear.
Fortunately, there are some clear and valuable ways to use your equity this year – and some ways to avoid using it, too, that homeowners should be aware of before formally applying for their money. Below, we’ll break down what to consider now.
Start by seeing how much equity you’d be eligible to borrow here.
2 ways to use your home equity in 2025 (and 2 to avoid)
While every homeowner’s financial circumstances are different, most would benefit from using (and not using) their home equity in the following ways in 2025:
2 ways to use your home equity in 2025
To fund home repair projects
Arguably the best way to utilize your home equity loan or HELOC, funding home repair projects has multiple advantages. If you complete select projects, like bathroom and kitchen renovations or landscaping, you can potentially increase your home’s value. This could give you more equity to use in the future and an easier path to reselling your home should you choose to do so.
But, perhaps more importantly in today’s elevated rate climate, you won’t need to worry as much about high interest rates. That’s because interest paid on home equity loans and HELOCs is tax-deductible if used for qualifying home repairs and renovations. Just be sure to save your receipts and documents so that you can use the deduction when you prepare your next tax return in 2026.
Get started with a home equity or HELOC online today.
To consolidate high-interest debt
The average credit card interest rate recently surpassed 23%, but home equity loans and HELOCs are in the 8% range now for qualified borrowers. That makes them almost three times cheaper to use than swiping a credit card. So if you have high-interest credit card debt and don’t want to explore your debt relief options, it makes sense to use your home equity to consolidate your debt. This will save you in monthly interest costs and streamline your budget by making one payment each month versus multiple ones to different credit card companies.
2 ways to not use your home equity in 2025
To pay for depreciating assets
If it makes sense to use your home equity to improve the value of an appreciating asset like your home then, conversely, it makes sense to avoid using it to pay for depreciating assets. That means items like cars or other big purchases that will lose value over time, perhaps in an expeditious fashion. This will inevitably lead to you owing more to your lender than the item you purchased is currently worth. And in today’s economy, with unemployment low but interest rates and inflation still stubborn, this is a scenario that should be especially avoided.
To fund a wedding or vacation
Similarly, singular major expenses should also be avoided. While these may result in enduring memories, they’re often not worth jeopardizing your homeownership for. Instead, skip paying for a wedding or vacation with your home equity and look to safer alternatives that won’t result in you having to put your home on the line. Or, ideally, delay these expenses or limit them to fit into your current budget. Just don’t use a home equity loan or HELOC to pay for them.
The bottom line
While the above items are smart ways to use (and avoid) using your home equity, the list is not exhaustive. There are plenty of other ways to use your home equity loan and HELOC and some risky mistakes worth avoiding, too. So be sure to research your options carefully and consider speaking with a financial advisor or lender before applying to better ensure home equity borrowing success both in 2025 and over the long term.
Have more home equity borrowing questions? Learn more about your options here.
2 ways to use your home equity in 2025 (and 2 to avoid)
