Americans who do not want to sell their homes are finding another way to get at the money tied up in them. Balances on home equity lines of credit (HELOCs) rose $23 billion in the third quarter to $481 billion, the biggest quarterly increase since 2005.
The reason is not hard to find. Just under half of outstanding mortgages, 49.1%, carried rates of 4% or lower in the second quarter, according to a Realtor.com analysis of federal data.
With new mortgages costing far more than that, plenty of owners would rather borrow against their homes than give up a cheap loan.
What the New York Fed report shows
The HELOC jump came as overall borrowing kept climbing. Total household debt rose $334 billion in the third quarter to $19.1 trillion, while mortgage balances increased $257 billion, according to the New York Fed.
Lenders also raised the total credit available on HELOCs by $31 billion, a sign that banks are happy to offer more of these lines.
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So far, borrowers are mostly keeping up. The share of HELOC balances moving into serious delinquency fell to 1.17% from 1.27% a year earlier, while the same measure for mortgages rose to 1.60% from 1.28%, as shown in the New York Fed report.
The wider picture is a little less rosy. About 5% of all household debt was in some stage of delinquency in the third quarter, up 0.3 percentage points from the second quarter. Credit card balances also grew by $22 billion over the same three months.
New York Fed economists still sounded calm. Economic research adviser Donghoon Lee said the rise was “led by increases in mortgage and home equity line of credit originations,” a sign that lenders are still willing to extend credit while home values hold up and borrowers keep their jobs.
Why owners are borrowing instead of moving
Mortgage rates are still painful, even after a recent dip. The average 30-year fixed rate fell to 7.18% for the week ending Nov. 5, its third straight weekly decline, but it was 6.22% a year earlier, and rates had been rising since the U.S. war with Iran began in late February, according to Freddie Mac.
The climb caught many buyers off guard. Zillow CEO Jeremy Wacksman said mortgage rates rose nearly 100 basis points from the mid-6% range at the end of June to the mid-7% range by early October. For a homeowner with a 3% loan, moving now would mean a much bigger monthly payment.
That math has frozen the housing market. U.S. home sales have stalled this year, mostly because of elevated mortgage rates, and sales of previously occupied homes were stuck near a 30-year low last year, the National Association of Realtors reported.
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A HELOC lets owners stay put and still raise cash. The average HELOC rate was 8.19% in late September, down from 9% in 2024, with rates among lenders ranging from roughly 6% to as high as 18%.
That is not cheap, but it applies only to the amount borrowed, while the low-rate first mortgage stays in place.
What borrowers should know before tapping a HELOC
A HELOC works more like a credit card than a regular loan. Borrowers can draw from it during a draw period of roughly three to 10 years, usually paying only interest, and then must repay what they used, which can lead to a jump in payments.
Rates can also move. Most HELOCs carry variable rates tied to the prime rate, which was 7% in late September, and some lenders offer a low introductory rate for a few months before switching to a prime-based rate. A teaser rate can make a line look cheaper than it really is.
Lenders have their own rules, too. Borrowers generally need 15% to 20% equity in their homes and a credit score of about 680, with most lenders capping combined loan-to-value ratios around 85%. And many nonbank lenders now require initial draws of 80% or more. That means paying interest on money right away, even if it is not needed yet.
The biggest risk is the house itself. “Both options use your home as collateral. If you don’t repay the loan, your lender could foreclose on your property,” Jean Chatzky of HerMoney said. A home equity loan offers fixed payments instead, but it charges interest on the full amount from day one.
Related: Home Depot sends its strongest warning yet on the housing market
