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The unique economic climate of 2024 is soon coming to an end. While inflation finally abandoned this year and interest rate cuts were issued for the first time since 2020, the US economy still has a way to go to fully recover from the inflationary period of recent years. And that means many Americans could explore new ways to make ends meet.
For owners, this can take the form of a loan from their home equity. Whether with a Home Equity Line of Credit (HELOC), home equity loan Or reverse mortgageyour home can offer you the best option to access a large sum of money at an inexpensive cost. But home equity loans and reverse mortgages, in particular, have pros and cons that homeowners should explore before applying. And with inflation and interest rates changing, it’s helpful to know what to consider when determining which ones will be preferential for 2025. Below, we’ll detail what you need to know.
Start by seeing how much equity you could borrow with a home equity loan here.
Home equity loan or reverse mortgage: which will be better for 2025?
Here’s what to consider when comparing these two products for the new year:
Why a Home Equity Loan May Be Better
A Home Equity Loan Features in the form of a lump sum of money, deducted from the accumulated equity in your home. Right now, home equity loans are among the lowest interest rate available for any loan product. With an average of just 8.38% for qualified borrowers, home equity loans are less expensive than HELOCs, personal loans, and credit cards. And they come with a unique tax advantage. If your home equity loan funds are used for qualifying home repairs and projects, you may be eligible to deduct the interest paid on the loan on your taxes for the year in which it was used. That being said, your home serves as collateral in this loan exchange. So this is not the ideal way to borrow money if you are unsure of your ability to make all the repayments.
However, because of the repayment structure, it may be better than a reverse mortgage, especially at today’s lower rates. Unlike the latter paying the homeowner, home equity loans will have to be repaid to the lender. This means that you can, in theory, increase the value of your home once the loan is paid off. Reverse mortgages, on the other hand, will eat into the equity in your home with monthly payments made directly to the homeowner. And this will only change if the owner dies or sells the house.
Learn more about your home equity loan options here.
Why a reverse mortgage might be better
Reverse mortgages are only available to a portion of the homeowner community. With a few rare exceptionsApplicants must be 62 years of age or older to be eligible. But if you can meet the requirements, it may be the easiest way to increase your monthly finances. Borrowed equity will only need to be repaid in the above-mentioned scenarios. So you won’t have to worry about making monthly payments on top of your existing financial problems. And you won’t have to worry about interest rates, tax qualifications, or the broader rate climate that can affect what lenders ultimately offer you. Just understand that any money withdrawn will ultimately reduce the value of your home and that could be a major argument for those considering passing their home to beneficiaries after their death.
Learn more about your reverse mortgage options here.
The essentials
Whether a home equity loan or reverse mortgage will be better for 2025 is up to the individual homeowner. For some, a home equity loan will be smarter and safer, while for older homeowners, a reverse mortgage may be more applicable. Just be sure to research both options carefully before applying. Because your home is the primary source of equity in both cases, it’s essential that you approach borrowing with caution and nuance.
