Home equity loans and home equity lines of credit (HELOCs) can be effective, useful and affordable borrowing tools in today’s unique economic landscape. But they’re not perfect and, like all other borrowing products, need to be approached strategically in order to secure value and minimize risk. That’s especially true when considering that both products leverage your existing home equity as collateral. Failure to make repayments as agreed could easily result in foreclosure on the property in question. At the same time, home equity loans and HELOCs represent two of the most affordable ways to borrow money right now, with interest rates under 8% on both. So it’s worth taking the time to understand how they work, how they should be utilized and which mistakes to avoid to better ensure borrowing success. Below, we’ll break down three mistakes that borrowers should specifically avoid making right now, in the final weeks of 2025. See how much home equity you’d be eligible to borrow here. 3 costly home equity borrowing mistakes to avoid before 2026 Want to maximize your chances of success with a home equity loan or HELOC in the final month of 2025, approximately? To do so, avoid making these three costly mistakes: Not using it for home repairs and projects The interest paid on both home equity loans and HELOCs is tax-deductible if the products are used for eligible home repairs and projects. But with just weeks left in the year, time is running out to secure what could be a sizable tax deduction when it comes time to file your taxes next year. If you already have a HELOC or home equity loan or anticipate securing one soon, understand that there will be consequences for not using it this way now. Waiting until January 1 will delay this tax deduction until you file your taxes again in 2027. Acting now, however, could mean a much lower tax bill next April 15. Learn more about your home equity loan and HELOC tax deduction eligibility now. Choosing a HELOC on the assumption that rates will continuously decline HELOC interest rates have been seemingly on a never-ending decline, down more than two full percentage points since September 2024. So automatically choosing this product now with the hope that its variable-rate nature will position you to exploit additional rate declines ahead makes sense (on paper). But there’s no guarantee that the Federal Reserve will even cut rates in December, let alone in 2026. So borrowing with this product simply on the assumption that it will only become cheaper is not only a mistake, but it could become a cost-prohibitive one fairly quickly should rates here reverse course. And with home equity loan rates fixed, and only slightly more expensive than HELOCs right now, you have a cost-effective and more secure alternative home equity borrowing tool at your fingertips. Borrowing more than you actually need A report earlier this year showed the average homeowner with just over $300,000 in equity. A report later in the year showed home equity levels hitting a new record high in the country. Depending on where you live, then, and your existing mortgage balance, you may have a robust borrowing source under your roof now. But borrowing more than you actually need is always a mistake worth avoiding, especially in today’s economic climate, in which the unemployment rate just rose and inflation remains sticky. Leveraging your most prized financial asset, then, should be done carefully and in a limited capacity. In other words, borrowing with a HELOC or home equity loan to finance the aforementioned home repairs and projects makes sense now. But borrowing with either to pay for holiday expenses or gifts, for example, doesn’t. The bottom line Borrowing home equity doesn’t just happen overnight. It’s an ongoing journey in which smart financial decisions need to become the rule and not the exception, especially now, in the final weeks of the year. By carefully navigating past the aforementioned mistakes and by using their home equity in thought-out, appropriate ways, homeowners can improve their chances of success with either a home equity loan or HELOC, both in the final weeks of 2025 and into 2026 and beyond.
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3 costly home equity borrowing mistakes to avoid before 2026
