A home equity loan can help finance several major expenses. Whether it’s a wedding, a college education, or a new bathroom or kitchen renovation, a home equity loan offers homeowners a cost-effective and reliable way to pay for costs large or small. It could also be used for emergencies or unexpected costs.
Because of the unique structure and terms of the loan, however, homeowners considering a home equity loan for emergency use should be aware of the pros and cons of borrowing this way. These considerations are especially important now, at the start of 2025, with inflation on the rise again and interest rate relief unclear. Below, we’ll break down the pros and cons of using a home equity loan for emergencies this year.
Start by seeing how much equity you’d be eligible to borrow with a home equity loan here.
Pros and cons of using a home equity loan for emergencies in 2025
Here are the pros and cons of using a home equity loan to pay for emergencies this year:
Pros of using a home equity loan for emergencies in 2025:
Lower interest rates
Home equity loan rates are down by more than half a percentage point from where they were in February 2024. Now at an average of 8.44%, they’re around five points lower than personal loans and almost three times cheaper than credit cards, which recently hit a record 23% average. Reverting to those alternatives in an emergency, then, could be a costly mistake worth avoiding this year.
Get started with a home equity loan now.
Fixed interest rates
Home equity loan interest rates are fixed, providing borrowers coping with an emergency a layer of security by knowing that their repayments will remain the same each month. The same can’t be said for home equity lines of credit (HELOCs) which have variable rates or credit cards, whose variable rate could very likely surpass a new record high later this year. Fortunately, with a home equity loan, this won’t be something to worry about, allowing homeowners to focus on their emergency needs more clearly.
Access to a large sum of money
Right now, the average homeowner has around $320,000 worth of home equity. Access to this money will generally be easier to come by compared to getting approval for a six-figure personal loan or credit card. So homeowners should use this equity to their advantage and consider shopping around for a low-rate loan soon (and that means exploring options besides your current mortgage lender).
Cons of using a home equity loan for emergencies in 2025:
Your home is collateral
Home prices are expected to rise in some parts of the country this year, potentially giving homeowners in those regions more equity to utilize. If you’re in a different part of the country, however, home values may stagnate or even fall and that’s something to be cautious about when using your home as collateral, as you would when borrowing with a home equity loan or HELOC. Understand your local real estate market dynamics, then, before rushing to secure a home equity loan to pay for an emergency need or you could risk losing your home if you’re unable to make repayments as agreed upon.
Disbursement may take time
The home equity loan disbursement process can take time, ranging anywhere from a few weeks to a few months. And depending on the emergency in question, this may not be the time you have to spare. Carefully consider this, then, if you need access to additional financing immediately or within a few days, as a home equity loan is unlikely to provide that sort of speed and access to your funds.
Tax benefits are limited
Interest paid on a home equity loan may be tax deductible if used for eligible home repairs and renovations. But if your emergency need doesn’t fall into this category, you likely won’t be able to take advantage of this unique benefit. That doesn’t necessarily mean that a home equity loan is the wrong choice for your urgent financial needs, but it does remove a reliable benefit that many other home equity loan users often qualify for.
The bottom line
In an emergency or during an urgent financial need, it’s more important than usual to carefully consider your funding options. A home equity loan can be beneficial for many but, for others, alternatives may provide more immediate help, even if it’s provided via a higher interest rate or without some additional tax benefits. Only the homeowner will know the right decision in these circumstances. By familiarizing themselves with the above pros and cons of using a home equity loan in an emergency this year, they’ll better understand if this is a viable option worth pursuing.
Learn more about borrowing with a home equity loan here.
