CBS News
HELOC or home equity loan: Which will be better in 2025?
Getty Images/iStockphoto
Borrowing from your home equity can be a wise way to improve your financial health, especially in today’s economy. For example, you can tap into home equity to fund home renovations that may improve your home’s value. Similarly, home equity loans and home equity lines of credit (HELOCs) typically offer lower rates than credit cards and other types of borrowing products, making them a useful option for consolidating debt and reducing interest costs. And with Americans sitting on an average of $319,000 in home equity currently, these loans may offer higher borrowing limits than other options.
Current economic factors, including inflation and interest rates, are also boding well for borrowers right now, making it an even better time to consider this type of borrowing. For starters, the Federal Reserve is confident enough in the downward inflation trend to cut the federal funds rate at the last three Fed meetings. While the Fed doesn’t set mortgage rates, the federal funds rate influences the interest rates lenders charge on their lending products. While not at pre-pandemic levels, interest rates on home equity loans and HELOCs are slowly improving. The average home equity loan interest rate is currently 8.41%, while the average HELOC interest rate is 8.52% (as of December 19, 2024).
Still, the only economic constant is change. Inflation increased slightly in October, and other factors could alter the borrowing environment going forward. With that in mind, choosing between a HELOC and home equity loan will depend on your financial goals and how these products respond to changes in the market. Let’s explore which of these two home equity options might make sense for your situation.
Start comparing your home equity borrowing options online now.
Why a HELOC could be better than a home equity loan in 2025
HELOCs work like credit cards, offering a line of credit that can be borrowed from multiple times (up to the credit limit). This type of home equity borrowing can be a useful option if you want to use funds as needed over time, as opposed to getting one large lump-sum payment like a home equity loan. For example, if you’re renovating your home with multiple projects, a HELOC lets you access funds as needed for each phase, helping you avoid borrowing more than necessary upfront.
Just remember, HELOC repayment terms usually start with interest-only payments for a set number of years, typically five or 10 years.
“This is for someone who wants a low starting monthly payment, but keep in mind you may not be paying off all the principal,” says Adam Spigelman, senior vice president at Planet Home Lending. “If you borrow $50,000 and you make interest-only payments for five years, at the end of five years, you’ll still owe $50,000.”
Also keep in mind that HELOCs have variable rates that are tied to an index such as the prime rate, which is typically around 3% higher than the federal funds rate. So if you anticipate the Fed’s rate-cutting trend will continue, a HELOC might save you money in the short term. On the other hand, you might think twice about getting a HELOC if you believe rates will increase during your repayment term.
“When that index rate rises, your monthly payment may also rise. That higher payment can leave you with less money in your pocket, which can make it harder to stay out of debt. If the higher interest rate comes at a time when you’re starting to do the principal repayment, it can lead to payment shock,” Spigelman notes.
Find out how affordable the right home equity borrowing option could be today.
Why a home equity loan could be better than a HELOC in 2025
If you’re looking for more predictable financing, you may prefer a home equity loan for its fixed interest rate and monthly payment that remains the same during the life of the loan, regardless of rate adjustments.
“A home equity loan is a fixed rate and doesn’t fluctuate based on what the Federal Reserve does,” says Jeremy Schachter, branch manager at Fairway Independent Mortgage Corp. “So when the rates come down, your fixed rate doesn’t go down.”
While the Fed’s ongoing rate cuts might reduce borrowing costs on HELOCs in 2025, a home equity loan might be a better long-term option if you expect rates to rise during your loan term.
Home equity loans are a great option if you need a large, lump-sum payment to fund a large expense. You might use one to fund a major home renovation, consolidate high-interest debt or even cover your child’s college tuition. Since home equity loans often have lower rates than private student loans, they may help you save money in the long run.
Should you borrow from your home equity now or wait?
Deciding whether to borrow now or wait until 2025 or later depends on your financial situation, goals and borrowing preferences. As Schachter explains, the type of loan you choose matters, as fixed-rate and variable-rate options affect how your monthly payments change over time.
“Depending on your needs and goals with the funds for the loan, it may make sense not to wait to take out a HELOC because it does change with rates changing. If you are looking for a home equity loan, it may make sense to hold off until next year if your projects or use of the funds can be pushed out,” says Schachter.
The bottom line
Heading into 2025, the choice between a home equity loan and a HELOC comes down to how stable you want your payments to be, and which direction you anticipate interest rates are trending. So, take time to weigh the pros and cons of each option and how they might impact your budget. Finally, remember that home equity loans and credit lines are secured by your home, so you should never borrow more than you need, and make sure the payments fit comfortably into your budget before signing for one.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
Actor Danny Masterson, who is serving a sentence of 30 years to life in prison, is seeking to overturn his conviction for the rape of two women, with his attorneys arguing he did not receive a fair trial.
A Los Angeles jury found Masterson guilty last year of two counts of rape by force or fear for assaulting two women at his Hollywood Hills home in separate incidents in 2003 — during the same time he was starring on the Fox TV’s “That ’70s Show.” The jury deadlocked on the case involving a third alleged victim. The May 2023 trial followed a mistrial in November 2022.
Masterson, 48, is incarcerated at California Men’s Colony, a minimum- and medium-security prison in San Luis Obispo County.
Cliff Gardner, the attorney handling Masterson’s appeal, filed an appellant’s opening brief Tuesday that alleges witnesses told different versions of their stories over time. The brief also argues that evidence that would have helped Masterson’s defense was not presented due to what Gardner describes as erroneous rulings by the court. Gardner argues in the court filings that those factors support reversing the convictions.
LUCY NICHOLSON / Getty Images
Masterson’s defense argued at trial that he knew both women socially and his sexual relations with them were consensual.
“It is true, of course, that a defendant is not entitled to a perfect trial. He is, however, still entitled to a fair one,” the brief reads. “Danny Masterson received neither. Reversal is required.”
During the trial, one of the women Masterson was later convicted of raping broke down on the witness stand as she testified that he choked her and smothered her with a pillow when she tried fighting back as he assaulted her, according to the Associated Press.
“I could not breathe,” she said, crying.
When the prosecutor asked what she was thinking at the time, she said she feared for her life, AP reported.
“That he was going to kill me,” she said. “That I was going to die.”
She later testified Masterson took out a gun from inside his bedside table and told her to be quiet when they heard voices at the door. She told jurors she was in and out of consciousness through the night.
Masterson and the victims were members of the Church of Scientology, which became a central focus of the case as the women alleged they were stalked and harassed after reporting the allegations to police.
They sued Masterson and the church years earlier in connection with those accusations.
During the trial, Deputy District Attorney Reinhold Mueller told jurors the church had retaliated against the victims for reporting the the crimes — the rape of a 28-year-old woman in April 2003 and assault of a 23-year-old woman, also that year.
“What happened after they were drugged, they were raped by this man over here,” Mueller said, as he pointed across the courtroom toward Masterson during closing arguments. “You have an opportunity to show there is justice. It does exist.”
The church released a statement at the time refuting the allegations.
“The church has no policy prohibiting or discouraging members from reporting criminal conduct of anyone, Scientologists or not, to law enforcement,” the statement reads. “Quite the opposite, church policy explicitly demands Scientologists abide by all laws of the land. All allegations to the contrary are totally false.”
In the newly filed brief for Masterson’s appeal, Gardner alleges the victims changed their stories “dramatically” over the years and had a financial motive to do so. Gardner argues in court documents that though the statute of limitations to file a lawsuit seeking damages had expired before the trial, under state law it would be revived if Masterson was convicted of forcible rape involving multiple victims.
Gardner says in the brief that a court ruling prevented evidence related to that argument from being admitted at trial.
He also states in the court filings that some witnesses died before the case went to trial, more than a decade after being reported to law enforcement, and alleges that police lost a tape-recorded witness interview that would have helped Masterson’s defense.
After the six-day trial resulting in Masterson’s convictions, one of the women he was convicted of raping released a statement saying she was relieved he had been found guilty.
“I am experiencing a complex array of emotions – relief, exhaustion, strength, sadness – knowing that my abuser, Danny Masterson, will face accountability for his criminal behavior,” said a statement from one of the women whom Masterson was convicted of raping at his home in 2003.