cbsnews.com
Strategic Home Equity Use in 2025: Maximizing Benefits, Minimizing Risks
Homeowners can use home equity loans or HELOCs (around 8% interest) for home improvements (tax-deductible) or debt consolidation, but should avoid using them for depreciating assets or non-essential expenses. The average homeowner has $320,000 in equity.
- How do the interest rates on home equity loans compare to other borrowing options, and what are the tax implications?
- Using home equity for home improvements increases value and reduces reliance on high-interest credit cards (average 23% interest). Consolidating high-interest debt (e.g., credit cards) with lower-interest home equity loans (around 8%) saves money.
- What are the most impactful uses of home equity in 2025's economic climate, considering potential risks and benefits?
- Homeowners with approximately $320,000 in equity can utilize home equity loans or HELOCs for home improvements or debt consolidation. Failure to repay could lead to foreclosure. Interest on home equity loans used for qualifying home repairs is tax-deductible.
- What long-term financial consequences could result from using home equity loans for non-essential expenses or depreciating assets in the current economic conditions?
- In 2025's economic climate, using home equity wisely is crucial. Avoid using it for depreciating assets or non-essential expenses like weddings or vacations to prevent potential foreclosure due to high inflation and uncertain interest rate cuts. Prioritize home improvements for value appreciation and debt consolidation for financial stability.
Cognitive Concepts
Framing Bias
The article frames home equity loans and HELOCs positively, emphasizing their low interest rates compared to credit cards and the tax deductibility of interest paid on home improvements. The headline and introduction set a positive tone and lead the reader to consider using home equity. The examples provided in '2 ways to use your home equity in 2025' are presented with strong endorsements, while reasons to avoid using home equity are presented more as warnings of risk.
Language Bias
The article uses language that promotes a positive view of using home equity loans and HELOCs. Terms like "inexpensive and effective," "arguably the best way," and "almost three times cheaper" are used to encourage borrowing. While this is not inherently biased, it lacks a balanced presentation of potential risks and alternatives.
Bias by Omission
The article focuses heavily on using home equity for home improvements and debt consolidation, but omits discussion of potential downsides like rising interest rates or unexpected job loss, and the impact these could have on repayment ability. It also doesn't mention alternative financing options besides credit cards.
False Dichotomy
The article presents a false dichotomy by suggesting only two uses (home improvement and debt consolidation) and two avoidance scenarios (depreciating assets and non-essential spending) for home equity. This ignores the multifaceted nature of personal finance and the various legitimate reasons someone might need to borrow against their home.
Sustainable Development Goals
Using home equity loans to consolidate high-interest debt can help reduce the financial burden on individuals, particularly those with lower incomes who may rely heavily on high-interest credit cards. This can contribute to reducing income inequality by making borrowing more affordable and manageable.