Home equity loan vs. mortgage refinance: Which will be better in 2025?

Homeowners have multiple ways to access their accumulated home equity. From home equity lines of credit (HELOCs) to reverse mortgages and home equity loans and mortgage refinancing, there’s likely a safe and effective way to borrow your home equity now, regardless of your financial circumstances. And with the average amount of home equity sitting around $320,000 now, there’s likely plenty to utilize, too.

Two of the more conventional options — home equity loans and mortgage refinancing — may be worth exploring now, going into 2025. But with the interest rate climate changing again, homeowners may be wondering which of these two will be better worth pursuing in the new year. Below, we’ll detail the considerations.

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Start by seeing what home equity loan interest rate you could qualify for here.

Home equity loan vs. mortgage refinance: Which will be better in 2025?

Each homeowner’s financial needs and circumstances are unique. Here, then, is when a home equity loan may be more favorable in the new year (and when a mortgage refinance may be):

Why a home equity loan could be better in 2025

A home equity loan is likely to be better for the vast majority of homeowners in 2025 for a simple but powerful reason: They won’t need to give up their currently low mortgage interest rate to secure the extra financing. While home equity loan rates at 8.38% (on average) are higher than mortgage refinance rates at 6.80% for a 30-year refinance, home equity loans will allow you to keep your current mortgage rate. These loans function separately from your existing mortgage repayment schedule. Because of this, you don’t need to use your current mortgage lender to secure a home equity loan. Instead, shop around amid competitors to see what other offers are available. 

The primary reason for your home equity use is also important. While a mortgage refinance or home equity loan may be interchangeable in terms of the benefits it can offer for some expenses, others, like home repairs and renovations, are better paid for with a home equity loan. That’s because the interest on the loan will be tax-deductible if used for eligible home repairs. For all of these reasons, then, a home equity loan may be the better way to utilize your home’s value in 2025.

Get started with a home equity loan online today.

Why a mortgage refinance could be better in 2025

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While home equity loans may be advantageous for the majority of homeowners next year, they may be quite right for all. If you purchased a home in 2023, for example, when mortgage interest rates were approaching 8%, a refinance can be the better way to put some extra money back into your pocket now. 

With refinance rates on a 30-year mortgage at 6.80% and 6.15% for 15-year refinance loans, you could wind up saving a substantial sum by refinancing into the lower rate. The conventional wisdom is that a refinance of a full percentage point below your current one is worth pursuing. So, if you have a rate between 7.15% and 7.80% now, this may be the better option. Not only will you save on your monthly payments, but you won’t need to worry about making any repayments (plus interest) back to the lender like you would with a home equity loan. Again, this option isn’t for all homeowners or even most right now. But a select few could see some real benefits if they fall into this category.

See how much you could potentially save with a refinance loan here.

The bottom line

When trying to determine the best home equity borrowing path for 2025, your personal financial needs will come first. For many, a home equity loan, with its ability to offer a low-rate borrowing option without having to exchange an existing low mortgage interest rate, may be beneficial. Others, however, may seem more substantial relief (and lower payments) by refinancing to today’s lower mortgage interest rates, even if they’re still higher than what was available in recent years. Close exploration of both options is critical to ensure that any equity or loan terms adjusted for your current situation are financially tolerable, both now and in the future.