HELOCs Commentary

The Return of the HELOC

Home equity lines of credit are experiencing a renaissance. After falling from favor during the 2008 housing crisis (when millions of borrowers found themselves underwater) HELOCs have re-emerged as a primary tool for homeowners to access the $34.4 trillion in owners’ equity embedded in American real estate. Origination volumes have grown steadily since 2022, driven by homeowners who are equity-rich but rate-locked.

The Lock-In Effect’s Best Friend

With over 50% of mortgages carrying rates below 4%, homeowners face a stark trade-off: sell and lose a historically cheap mortgage, or stay put and tap equity through a HELOC. For millions, the HELOC has become the answer. Rather than refinancing into a 7% mortgage, borrowers are opening variable-rate HELOCs to fund renovations, education, debt consolidation, or investment, preserving their low first-lien rate.

Variable Rates, Variable Risk

Unlike fixed-rate mortgages, HELOCs carry variable interest rates, typically pegged to the prime rate plus a margin. With average HELOC rates around 8.5% in 2025, the cost of borrowing against home equity is significantly higher than the sub-4% first mortgages many borrowers hold. This creates a bifurcated debt structure: cheap first-lien debt and expensive second-lien debt on the same property.

The risk is asymmetric. In a falling-rate environment, HELOC borrowers benefit from declining payments. But in a sustained high-rate environment, the carrying cost can become burdensome, particularly for borrowers who drew down large balances expecting rates to drop.

A Tool for the Wealthy

HELOC access is not equally distributed. Lenders typically require significant equity (often 80%+ combined loan-to-value), strong credit scores, and stable income. This effectively limits HELOCs to higher-wealth households, the same cohort that benefits most from home price appreciation. For the median homeowner with limited equity, HELOCs remain out of reach, reinforcing the wealth gap between asset-rich and asset-poor households.

Looking Forward

The HELOC market is likely to continue growing as long as the rate lock-in persists and home values remain elevated. The key risk is a housing correction: if home prices decline, HELOC borrowers face the possibility of their credit lines being frozen or reduced, a scenario that played out widely in 2008–2009. For now, however, $5 trillion in outstanding home equity credit represents both a massive consumer finance tool and a barometer of confidence in American housing wealth.