Home equity loan pros and cons to know for 2026
If you find yourself in need of extra money at the start of the new year, you may be overwhelmed with your options. From credit cards to personal loans to home equity loans and even cash-out refinances, there are a variety of ways to borrow money now, even in large, five-figure amounts. However, there are very few ways in which you can currently borrow this money with a low-interest-rate product. And there's only one that has a low, fixed interest rate under 8% right now: a home equity loan.
But a low interest rate isn't the only pro of using a home equity loan in 2026. There are multiple reasons why this could be the smart borrowing choice this year. At the same time, there are credible drawbacks to using this unique product right now. By knowing and understanding these specific home equity loan pros and cons, at the start of the year, homeowners can better use this tool as intended and improve their overall financial standing at the same time. Below, we'll detail six pros and cons to know before getting started.
See how much home equity you'd be eligible to borrow here now.
Home equity loan pros and cons to know for 2026
Want to get started with a home equity loan? Here are the timely pros and cons to know to improve your chances of success:
Pro: An interest rate much lower than the alternatives
Home equity loan rates range from 7.97% for 5-year loans to 8.16% for 10-year loans. Both of those rates, however, are lower than what a borrower would otherwise secure with a home equity line of credit (at 8.22% now), a personal loan (over 12%) or a credit card (over 20%). This makes a home equity loan not only the cheapest way to borrow equity at the start of 2026 but also the cheapest way to borrow money overall.
See how low your home equity loan rate offers are here.
Con: You could wind up paying more interest than you have to
A home equity loan's fixed interest rate, which is beneficial right now, can easily become detrimental if the rate climate continues to cool. Borrowers will be stuck paying more interest than they have to, as today's "lower" home equity loan rate could become tomorrow's "higher" one.
HELOC rates, meanwhile, are variable, and while currently higher than the best home equity loan rates, they could fall materially in the months to come. Keep that in mind, then, if you're looking for a product well-positioned to exploit additional interest rate drops ahead. A home equity loan isn't it.
Pro: A robust funding source that will be easy to borrow from
Home equity levels hit a record high in 2025, and the average homeowner currently has hundreds of thousands of dollars worth of equity to borrow from now. And because this source is secured by your home, it will generally be easier to borrow a six-figure amount of money this way than it would if you choose to apply for a personal loan or credit card instead. That said, home equity levels can fluctuate, so it's important to only borrow an amount that you can easily afford to pay back.
Con: Refinancing will come with an extra cost
Borrowers who choose a home equity loan now with the plan to refinance it in the future when rates drop again should remember that this approach won't be free. Refinancing a home equity loan comes with costs that can be as much as 5% of the loan's value, approximately.
Depending on the amount of the loan, that can be a high cost that may even outweigh any monthly benefits secured with a lower rate. Keep this in mind when comparing today's fixed home equity loan rates versus the HELOC's variable ones.
Pro: A fixed interest rate in an unpredictable rate climate
Interest rate cuts in 2025 came much later in the year than many had anticipated last January. New cuts and, therefore, related reductions to home equity loan rates are hard to predict for 2026. In this climate, a fixed interest rate becomes favorable. Not only will you be able to budget with precision, but you'll be able to avoid any foreclosure risks in a way that can become difficult with a HELOC, as rates (and payments) there will change monthly for homeowners.
Con: You're still leveraging your biggest financial asset
Home equity loans, as advantageous as they can be right now, still leverage what's likely the biggest financial asset in your home. Part of the reason why you're offered such competitive rates here has to do with the fact that your home is functioning as collateral. Failure to repay can and likely will lead to foreclosure on the property. This is a major consideration and a threat that will need to be managed judiciously to truly benefit from the product. That's true both in 2026 and throughout your full repayment period.
The bottom line
A home equity loan is a credible and valuable borrowing tool for homeowners, arguably more so than usual this year. But it's not risk-free, and it will need to be managed carefully throughout the loan's full repayment period. By understanding these pros and cons, however, and by applying them to their unique borrowing circumstances, owners can boost their chances of borrowing success both in 2026 and, theoretically, over the years that follow, too.
