With credit card interest rates breaking multiple records so far this year and rates on personal loans well into the double digits, home equity borrowing has become the clear best alternative for many borrowers right now. With interest rates averaging under 9% for both home equity loans and home equity lines of credit (HELOCs), homeowners have a cost-effective way to borrow a large sum of money.

And that figure is relatively large. The current home equity amount is averaging just under $330,000 currently, leaving many homeowners with a six-figure sum of money to use as they see fit. That said, the timing of a home equity loan application is critical to get right, particularly now after an interest rate cut was just issued and after the latest inflation reading showed it rising again. So, for many, it makes sense to open a loan or line of credit now, before 2025. Below, we’ll detail some of the pros and cons of taking this action now.

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Pros and cons of using home equity before 2025

Here are three major benefits of tapping into your home equity before January 1, 2025:

Tax deductions: Interest paid on home equity loans and HELOC is tax-deductible if used for IRS-eligible home projects. But the window of opportunity to utilize this deduction is closing with less than seven weeks left on the 2024 calendar. So if you’re planning on using your home equity for a qualifying home repair, it makes sense to act now to secure this deduction. Waiting could push it off until you file your tax return in 2026.

Lock in a lower rate: Qualified borrowers can lock in a home equity loan rate at 8.41% right now. That’s lower than it’s been for most of 2024 and lower than what it could be if the latest inflation report is an indication of additional economic issues ahead. Against this backdrop, many would benefit from locking in a lower rate now to protect against potential volatility to come.

Access to funds now: It can take a few weeks to have your home equity funds disbursed, but when you get them, you’ll be able to cover a wide array of expenses relatively quickly. Access to funds now, then, could be critical, especially if your emergency savings fund has already been depleted. In these instances, waiting for a lower rate in 2025 won’t be advantageous.

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And here are three cons of using your home equity before the start of the new year:

Missed rate opportunities: Wednesday’s inflation reading didn’t dissuade economists from predicting additional interest rate cuts in December and into 2025. Using your home equity now, then, before that could happen, may result in a missed opportunity to secure a lower rate. Still, there’s no guarantee that rates will fall, either, as additional economic data yet to be released could skew that forecast, perhaps to a significant degree.

Credit checks during the holidays: You won’t qualify for the lowest rate until a lender has been able to check your credit score and history. And that could be a problem during this time of year, as many adults tend to overspend during the holidays. Credit checks during a period in which your credit card debt may be rising, then, could be problematic for many. In these circumstances, waiting until 2025 to act may be more beneficial.

You may not qualify for the best rates and terms: As noted, the best rates and terms are reserved for borrowers with the cleanest credit profiles. And it can take time to build that up, perhaps longer than the final weeks of the year. Applying for a home equity loan or HELOC right now, then, versus a later point in 2025 when your credit is in better shape, could result in a much higher rate than you may have been able to secure if you first worked on your creditworthiness.

Check your home equity loan borrowing qualifications online now.

The bottom line

While the above pros and cons of using home equity before 2025 are broadly applicable, they may not all apply to your unique situation. So consider speaking with lenders to better determine the right time to act. By taking a measured and strategic approach to your home equity, you’ll more easily be able to repay all that you’ve borrowed, no matter which product you ultimately choose or when you open it.