Making your final mortgage loan payment is a critical financial milestone. And it’s one that’s often painstakingly accomplished after diligently making monthly payments for decades. So it may not seem valuable, at least on the surface, to subsequently borrow from your accumulated home equity, particularly now when the interest rate climate is elevated. But today’s unique economy has made the benefits of home equity borrowing clearer. When using a home equity loan or home equity line of credit (HELOC), owners can easily access their home’s worth and use it for several expenses, large or small.
But is it worth borrowing home equity from a paid-off home? In some instances, especially now, at the start of 2025, it actually may be. Below, we’ll break down three reasons why homeowners may want to borrow from their paid-off home.
Start by seeing how low of a home equity loan interest rate you’d qualify for here.
3 reasons to borrow home equity from a paid-off home
Here are three major reasons why it may be worth borrowing from your paid-off home now:
To finance select home projects
One of the smartest ways to use your home equity is to finance major home repairs and renovations. If used for IRS-eligible projects, the interest paid on a home equity loan or HELOC can be deducted from your taxes for the year in which the funds were used. This is a major advantage other borrowing products simply do not have and it makes concerns over interest rates less significant if you know you can deduct the interest paid on your next tax return. That said, it’s important to determine which projects can qualify for home equity loan tax deductions (and which ones won’t) before applying for the funds.
Learn more about your potential home equity loan tax benefits here.
To pay down high-rate debt
The average credit card interest rate is approaching 23% right now. The average home equity loan rate is just barely over 8% at the same time. That makes the latter almost three times cheaper. So if you’re saddled with a significant amount of credit card debt now (the average American owes around $8,000 currently), it makes sense to pay it down with a low-rate option like a home equity loan or HELOC.
With a home equity loan, in particular, you can lock in a low rate now, giving you a cost-effective way to pay down your high-rate debt in the face of an unpredictable interest-rate climate (CD rates variable). Being proactive here is key, as credit card interest debt can cause a series of financial difficulties. So if you have the debt and know you want to pay it off via your home equity, start shopping around for rates, terms, and lenders soon.
To pay for major expenses that you’d otherwise use alternatives for
Credit cards aren’t the only borrowing products with double-digit interest rates right now. Personal loans are also high, with the median just under 13% now. And since most personal loan rates are fixed, that means you’ll get stuck paying a high rate even if inflation cools in the future, at which point you’d need to refinance. It doesn’t make sense, then, to go this route when you can pay for major expenses in a much cheaper way via your home equity. So if your only alternatives are costly, consider a home equity loan, HELOC, or even reverse mortgage (if you’re older than 62).
The bottom line
The decision to restart the clock on a new loan isn’t an easy one to make, particularly if paying down your mortgage was as arduous a process as it is for many homeowners. But in today’s inflationary climate, in which interest rate relief appears uncertain, home equity loans and HELOCs are viable options. Both come with tax benefits and both offer cheaper ways to pay down high-rate credit card debt. And with alternatives like personal loans expensive, too, the benefits of borrowing home equity from a paid-off home become even clearer. Just make sure to have a clear repayment plan in mind before getting started as you could theoretically lose your home to the lender if you’re ultimately unable to pay all that’s been borrowed.
Have more home equity loan questions? Learn more about your options here.
