Home equity loans, home equity lines of credit (HELOCs), cash-out refinances and reverse mortgages all offer homeowners viable ways to borrow from their accumulated home equity. And, right now, there’s plenty to borrow from with the average homeowner in possession of around $320,000 worth of equity. But these lending products aren’t immune to the wider ramifications of the current economic climate, particularly HELOCs and home equity loans.

Now, with inflation consistently rising again and interest rate cut action paused for the foreseeable future, it’s particularly important that homeowners carefully consider their home equity borrowing options. Because both HELOCs and home equity loans utilize the home in question as collateral, owners could lose their most prized financial asset back to the bank if they fail to make their repayments. So borrowers must understand which of these options makes sense for their financial circumstances now, heading into March when the Federal Reserve will meet once again to determine monetary policy. 

But which will be better to open in the new month, a HELOC or a home equity loan? The answer to this question may be less clear than prospective borrowers would like. Below, we’ll detail when either would be preferable.

Start by seeing how much home equity you could potentially borrow here.

Will a HELOC or home equity loan be better to open this March?

The answer to this question isn’t broadly applicable and is instead specific to the homeowner. Here, then, is when either could be preferential for opening this March:

Why a HELOC could be better to open this March

If you’re looking to pay the lowest interest rate possible, a HELOC offers the way to do so right now. Not only are HELOC rates lower than home equity loan rates now (8.29% versus 8.41%) but they’re also much lower than personal loans (around 12%) and credit cards (around 23%). And even though the rate difference between HELOCs and home equity loans is negligible on paper and in monthly payments, that could add up to significant savings over the common 10- and 15-year HELOC repayment periods. 

Just understand that HELOC rates are variable and they’ll likely adjust each month for borrowers, based on market conditions. For much of the last year, that’s been an advantage (HELOC rates hit an 18-month low to start 2025) but it could be a distinct disadvantage if the Federal Reserve fails to tame inflation and, thus, has to start raising interest rates again. In other words: HELOC interest rates are low right now, but they could easily change in the weeks and months to come, perhaps in an upward, costly way.

See how low of a HELOC interest rate you could qualify for here.

Why a home equity loan could be better to open this March

That slightly higher home equity loan rate could be a moot point in April or later this year if interest rates start ticking up again. If that happens, HELOCs will become more expensive but home equity loans opened in March will remain at the same rate, allowing borrowers to enjoy lower payments and predictability as they will know exactly what their monthly payments will be in the future. And remember that home equity loan rates, while largely driven by the Federal Reserve’s monetary policy, don’t follow it precisely. 

So if the Fed hints at interest rate hikes to come, lenders could start adjusting their HELOC rates upward in anticipation of that change. But home equity loans, again, will remain fixed from where they were when the loan was first opened. And even if rates somehow drop again by a considerable degree later in 2025, home equity loan users could simply refinance to the new, lower rate at that point. In the interim, they’ll secure a cost-effective borrowing tool now, when they need the funding most.

The bottom line

Both HELOCs and home equity loans have unique pros and cons that will be impacted by today’s evolving economic climate. So carefully review both, shop for lenders to find the lowest rates and best terms and, perhaps most importantly, be realistic about what you can and can’t afford to repay. Just because you have equity to use, doesn’t mean you should borrow all or even most of it. By taking a strategic and nuanced approach, you can better set yourself up for borrowing success, regardless of which popular home equity borrowing product you ultimately choose.