Mortgage Rates Dip to 6.5%: Is Now the Time to Tap Your Home Equity?

In 2025, mortgage rates have finally shown signs of easing. After hovering above 7% for much of 2024, the average 30-year fixed mortgage rate has now dipped to 6.5%, according to Freddie Mac. For homeowners who have built significant equity during the last decade of rising property values, this shift raises a big question: is now the right time to tap into your home equity?

The Shift in Mortgage Rates

Interest rates have been volatile over the past few years. In 2022, average mortgage rates spiked above 7% for the first time in two decades, creating affordability challenges and cooling home sales. But in early 2025, with inflation slowing and the Federal Reserve signaling potential cuts, rates have eased down to 6.5%.

While this might not sound like a huge drop, even a 0.5% decrease in mortgage rates can save borrowers $150 to $250 per month on a $400,000 mortgage. For homeowners considering a cash-out refinance or HELOC, this dip could mean lower borrowing costs.

Why Home Equity Matters More in 2025

Home equity has surged in recent years thanks to rising property values. CoreLogic reports that U.S. homeowners with mortgages collectively gained over $1.5 trillion in equity in 2024 alone. The average borrower now has more than $300,000 in tappable equity.

That equity can be unlocked through:

• Home Equity Loans – Lump-sum borrowing with fixed rates.
  
  
• Home Equity Lines of Credit (HELOCs) – Flexible, revolving credit tied to your home’s value.
  
  
• Cash-Out Refinancing – Replacing your existing mortgage with a larger one to access cash.

With rates down to 6.5%, these tools are becoming more appealing again.

How Borrowers Are Using Home Equity

Data from the Mortgage Bankers Association shows that cash-out refinancing applications jumped 18% in Q1 2025 compared to late 2024. Meanwhile, HELOC withdrawals reached record highs last year, with over $110 billion tapped nationwide.

Borrowers are primarily using equity for:

1. Debt Consolidation – Replacing high-interest credit cards (averaging 22% APR) with lower-rate equity loans.
   
   
2. Home Renovations – With renovation costs climbing 7% in 2024, homeowners are using equity to remodel kitchens, add ADUs, or upgrade energy systems.
   
   
3. Education & Investments – Funding tuition or diversifying wealth.

In California, where home values are still among the highest in the nation, homeowners have particularly strong equity positions. A recent report showed the average California homeowner gained nearly $45,000 in equity in 2024 alone, making tapping equity a significant financial opportunity.

The Case for Acting Now

If you’re considering tapping your home equity, timing matters. Here’s why locking in at today’s 6.5% mortgage rates could be a smart move:

• Rates may not drop much further. Even if the Fed cuts, lenders remain cautious. Many experts expect rates to stay between 6% and 6.5% through the year.
  
  
• Borrowing costs are cheaper today. Waiting too long risks missing out if rates climb again.
  
  
• Your equity is at a peak. If housing prices dip further in 2025, your tappable equity could shrink.

For example, tapping $100,000 in equity with a 10-year home equity loan at 6.5% would cost around $1,135 per month. At 7%, the same loan would cost $1,161—a difference of more than $3,000 over the loan’s lifetime.

Risks to Consider Before Borrowing

While tapping equity can be powerful, it’s not without risks. Borrowers should carefully weigh:

• Payment responsibility – Missing payments could put your home at risk.
  
  
• Closing costs – Refinances may add 2%–5% of loan value in fees.
  
  
• Market risk – If property values fall, you could end up with less equity cushion.

That’s why financial planning and professional advice are essential before making a decision.

Should You Use a HELOC or Cash-Out Refinance?

Choosing the right equity tool depends on your goals:

• HELOCs are best for flexibility and ongoing expenses. Many lenders now offer introductory rates below 6.5% for the first year.
  
  
• Home Equity Loans are ideal if you need a lump sum with predictable fixed payments.
  
  
• Cash-Out Refinancing makes sense if you also want to lower your existing mortgage rate.

With rates dipping, refinancing to consolidate debt or fund big projects could make sense for many homeowners.

Final Thoughts

Mortgage rates dipping to 6.5% in 2025 have created a window of opportunity for homeowners with significant equity. With U.S. borrowers sitting on trillions in tappable equity and California homeowners leading the way in gains, now may be the right moment to consider whether a home equity loan, HELOC, or cash-out refinance fits your financial needs.

At Equity Capital Home Loans, we help homeowners make smart, data-driven decisions about leveraging equity. If you’re considering tapping into your home equity this year, contact us today to explore your best options and see how much you could save.

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