Is a home equity loan or HELOC safer for seniors in 2025?

The economic climate of early 2025 is markedly different than it was at the start of 2024. Inflation is significantly lower than it was one year ago and, as a result, the Federal Reserve moved to trim interest rates in the final months of the year. But those cuts were halted in January amid persistent inflation, delaying financial relief for borrowers coping with high rates on a variety of products. 

In this climate, home equity loans and home equity lines of credit (HELOCs) have become cheap and reliable alternatives worth exploring. Because the home serves as collateral, lenders tend to offer lower interest rates than they would for unsecured loans and credit cards. But, because the home serves as collateral, there’s an inherent risk that needs to be avoided or borrowers could lose their home back to the lender. 

This is a particularly significant risk for seniors, many of whom rely on a limited budget with little financial flexibility. They will need to approach both options strategically. In the economy of 2025, then, is a home equity loan or a HELOC safer for seniors to use? Below, we’ll break down what to consider.

See what home equity loan interest rate you could qualify for here.

Is a home equity loan or HELOC safer for seniors in 2025?

HELOCs currently have slightly lower interest rates (8.26% on average) than home equity loans (8.44%) do. But a lower rate isn’t the only consideration for seniors, particularly when it comes via a variable-rate product like a HELOC. Consider, then, the following three reasons why a home equity loan could be safer for seniors in 2025:

Home equity loans have fixed interest rates

With the Fed seemingly in no hurry to further ease borrowing costs, the interest rate climate is highly uncertain. Rates could get cut again in the spring, stay the same, or, in a worst-case scenario, the Fed could raise them again if inflation worsens. No one knows where rates are heading, making the use of a variable rate HELOC particularly risky now. What may be an affordable monthly payment could quickly become a prohibitive one, especially considering that HELOC rates change each month. Against this backdrop, the security of a fixed, home equity loan rate becomes clearer. Just be sure to shop around and compare rates and lenders to find the lowest-rate loan option around.

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Home equity loans are easier to budget for

Retirement years should be spent enjoying retirement, not worrying about the ability to pay bills. But that’s a major concern with HELOCs thanks to that changing rate. Home equity loans are easier to budget for as the payment you make on day one will remain the same over your full repayment period, which can be as long as 10 or 15 years. This also makes finding a home equity loan easier as you’ll be able to precisely calculate your future payments, as opposed to a HELOC which will require more strategizing and guessing.

You’ll still be able to get a lower rate

Some seniors may be willing to take the risk of a variable-rate HELOC if they’re confident that the overall rate climate will cool further this year. But you can skip that risk — and still take advantage of rate drops in the future — with a home equity loan. These loans can be refinanced to lower rates when available, allowing borrowers to maintain the security of a fixed rate and the flexibility to drop that rate at a later date. So don’t let the possibility of a lower rate in the future tempt you from skipping the predictability and security a home equity loan offers now.

The bottom line

A home equity loan can be safer than a HELOC for seniors in 2025 for a variety of reasons. But this security doesn’t just extend to seniors as many homeowners may benefit from choosing the loan over the line of credit. Still, each homeowner’s financial situation and needs are different, so both should be carefully considered. And for seniors over 62, a reverse mortgage should also be explored, particularly for those who can’t afford to make repayments on either a home equity loan or HELOC.

Learn more about your home equity borrowing options here.