While inflation may have cooled in April and in the months prior, the federal funds rate remains high and on pause, perhaps longer than many had anticipated. This has, in part, caused interest rates on everything from mortgages to personal loans and credit cards to remain elevated as well, giving Americans limited options for borrowing money affordably. During this same period, however, home prices have risen and the average home equity level has surged. 

Now, at around $313,000, according to a March report, the median homeowner has plenty of money in their home to borrow from. And, unlike the rates on many other products, the interest owners will have to pay if they choose to borrow with a home equity loan or home equity line of credit (HELOC) is much lower. Interest rates on both have steadily declined in recent months, with HELOCs hitting a two-year low and home equity loan rates falling to a 2025 low this month.

So, if you need to borrow money, one of the cheapest ways to access a large sum in today's economy is with either a home equity loan or HELOC. But the current economic climate has multiple advantages and disadvantages and borrowing from your home equity, which causes your home to serve as collateral, can be risky if done without precision. Borrowers should determine how much equity to borrow in today's economy to prevent any threat of foreclosure. So how much should that be, then? That's what we'll analyze below.

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How much home equity should I borrow in today's economy?

When borrowing home equity, you should only borrow an amount that you can comfortably afford to repay, preferably over a shorter period to offset interest costs. While many home equity lenders will allow you to borrow 85% of your home equity, that doesn't mean you should or that you should even come close to that limit. Instead, determine what you have available in your budget to make monthly payments, calculate how much you need and attempt to find a middle ground between both figures.

That noted, the answer to this question is also a personal one, largely dependent on your view of the economy and predictions on what will happen over the lifespan of your home equity loan or HELOC. If you feel confident that inflation will continue to decline and that, eventually, interest rates will decline as well, then you may want to borrow more money. With a HELOC, after all, interest rates are variable and subject to change monthly. If you think rates will continue to drop, then borrowing more money now may not be as much of a concern on the assumption that repaying it will become more affordable over time.

This is less of a concern with a home equity loan since it has a fixed rate that will remain the same unless refinanced. But with a home equity loan, you'll need to make repayments immediately versus the interest-only payments required with a HELOC. That difference in repayment structure should be accounted for, too, especially as the economic climate changes frequently.

In short, home equity borrowing will only be as successful as your ability to pay back all that you've borrowed. Market conditions, interest rates, inflation and more can all impact that ability. Before getting started, then, calculate your monthly payment costs for both products (they have different rates) tied to what rates are available to you right now – and what those rates could look like over time. This will allow you to better determine short- and long-term affordability and help you more precisely determine an amount of equity to borrow that will fit your budget.

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The bottom line

Despite the average amount of home equity being high and the average home equity borrowing rate low in today's economy – a perfect combination for borrowers – homeowners should still be strategic in their approach and that extends to borrowing the right amount of equity for their financial circumstances. For some, that may mean borrowing right up to that 85% limit while, for others, it may be materially less. Each homeowner's financial situation is different but what remains the same for each is that the home will always serve as collateral. So only withdraw as much as you can easily pay back both in today's uncertain economic climate and in future ones to better ensure success.